Item
1.01
|
Entry
into a Material Definitive Agreement.
|
Option
Agreement
On
December 30, 2016, Rhino Resource Partners LP (the “Partnership”) entered into an option agreement (the “Option
Agreement”) with Royal Energy Resources, Inc. (“Royal”), Rhino Resources Partners Holdings, LLC (“Rhino
Holdings”), an entity wholly owned by certain investment partnerships managed by Yorktown Partners LLC (“Yorktown”),
and Rhino GP LLC (“Rhino GP”), the general partner of the Partnership. Upon execution of the Option Agreement, the
Partnership received an option (the “Call Option”) from Rhino Holdings to acquire substantially all of the outstanding
common stock of Armstrong Energy, Inc. (“Armstrong Energy”) that is currently owned by investment partnerships managed
by Yorktown, representing approximately 97% of the outstanding common stock of Armstrong Energy. Armstrong Energy, Inc. is a coal
producing company with approximately 554 million tons of proven and probable reserves and six mines located in the Illinois Basin
in western Kentucky as of September 30, 2016. The Option Agreement stipulates that the Partnership can exercise the Call Option
no earlier than January 1, 2018 and no later than December 31, 2019. In exchange for Rhino Holdings granting the Partnership the
Call Option, the Partnership issued 5.0 million common units, representing limited partner interests in the Partnership (the “Call
Option Premium Units”) to Rhino Holdings upon the execution of the Option Agreement. The Option Agreement stipulates the
Partnership can exercise the Call Option and purchase the common stock of Armstrong Energy in exchange for a number of common
units to be issued to Rhino Holdings, which when added with the Call Option Premium Units, will result in Rhino Holdings owning
51% of the fully diluted common units of the Partnership. The purchase of Armstrong Energy through the exercise of the Call Option
would also require Royal to transfer a 51% ownership interest in Rhino GP to Rhino Holdings. The Partnership’s ability to
exercise the Call Option is conditioned upon (i) sixty (60) days having passed since the entry by Armstrong Energy into an agreement
with its bondholders to restructure its bonds and (ii) the amendment of the Partnership’s revolving credit facility to permit
the acquisition of Armstrong Energy.
The
Option Agreement also contains an option (the “Put Option”) granted by the Partnership to Rhino Holdings whereby Rhino
Holdings has the right, but not the obligation, to cause the Partnership to purchase substantially all of the outstanding common
stock of Armstrong Energy from Rhino Holdings under the same terms and conditions discussed above for the Call Option. The exercise
of the Put Option is dependent upon (i) the entry by Armstrong Energy into an agreement with its bondholders to restructure its
bonds and (ii) the termination and repayment of any outstanding balance under the Partnership’s revolving credit facility.
The
Option Agreement contains customary covenants, representations and warranties and indemnification obligations for losses arising
from the inaccuracy of representations or warranties or breaches of covenants contained in the Option Agreement, the Seventh Amendment
(defined below) and the GP Amendment (defined below). Upon the request by Rhino Holdings, the Partnership will also enter into
a registration rights agreement that provides Rhino Holdings with the right to demand two shelf registration statements and registration
statements on Form S-1, as well as piggyback registration rights for as long as Rhino Holdings owns at least 10% of the outstanding
common units.
Pursuant
to the Option Agreement, Rhino GP amended its Second Amended and Restated Limited Liability Company Agreement (“GP Amendment”).
Pursuant to the GP Amendment, Mr. Bryan H. Lawrence was appointed to the board of directors of Rhino GP as a designee of Rhino
Holdings and Rhino Holdings has the right to appoint an additional independent director. Rhino Holdings has the right to appoint
two members to the Rhino GP board of directors for as long as it continues to own 20% of the common units on an undiluted basis.
The GP Amendment also provided Rhino Holdings with the authority to consent to any delegation of authority to any committee of
Rhino GP’s board. Upon the exercise of the Call Option or the Put Option, the Second Amended and Restated Limited Liability
Company Agreement of Rhino GP, as amended, will be further amended to provide that Royal and Rhino Holdings will each have the
ability to appoint three directors and that the remaining director will be the chief executive officer of Rhino GP unless agreed
otherwise.
The
foregoing description is qualified in its entirety by reference to the Option Agreement, a copy of which is attached hereto as
Exhibit 10.1 and is incorporated into this Current Report on Form 8-K by reference.
Series
A Preferred Unit Purchase Agreement
On
December 30, 2016, the Partnership entered into a Series A Preferred Unit Purchase Agreement (the “Preferred Unit Agreement”)
with Weston Energy LLC (“Weston”), an entity wholly owned by certain investment partnerships managed by Yorktown,
and Royal. Under the Preferred Unit Agreement, Weston and Royal agreed to purchase 1,300,000 and 200,000, respectively, of Series
A Preferred Units representing limited partner interests in the Partnership (“Series A Preferred Units”) at a price
of $10.00 per Series A Preferred Unit. The Series A Preferred Units have the preferences, rights and obligations set forth in
the Fourth Amended and Restated Agreement of Limited Partnership of the Partnership, which is further described in Item 5.03 in
this Current Report on Form 8-K. In exchange for the Series A Preferred Units, Weston and Royal paid cash of $11.0 million and
$2.0 million, respectively, to the Partnership and Weston assigned to the Partnership a $2.0 million note receivable from Royal
originally dated September 30, 2016 (the “Weston Promissory Note”).
The
Preferred Unit Agreement contains customary representations, warrants and covenants, which include among other things, that, for
as long as the Series A Preferred Units are outstanding, the Partnership will cause CAM Mining, LLC (“CAM Mining”)
to conduct its business in the ordinary course consistent with past practice and use reasonable best efforts to maintain and preserve
intact its current organization, business and franchise and to preserve the rights, franchises, goodwill and relationships of
its employees, customers, lenders, suppliers, regulators and others having business relationships with CAM Mining.
The
Preferred Unit Agreement stipulates that upon the request of the holder of the majority of the Partnership’s common units
following their conversion from Series A Preferred Units, as outlined in the Amended and Restated Partnership Agreement (as defined
below), the Partnership will enter into a registration rights agreement with such holder. Such majority holder has the right to
demand two shelf registration statements and registration statements on Form S-1, as well as piggyback registration rights.
The
foregoing description is qualified in its entirety by reference to the Preferred Unit Agreement, a copy of which is attached hereto
as Exhibit 10.2 and is incorporated into this Current Report on Form 8-K by reference.
Material
Relationships
Prior
to the transactions described above Royal owned an approximate 85% limited partner interest in the Partnership and subsequent
to the transactions described above Royal owns an approximate 55% limited partner interest in the Partnership. Royal also owns
100% of the ownership interests in Rhino GP. On March 21, 2016, the Partnership and Royal entered into a securities purchase agreement
(the “Securities Purchase Agreement”) pursuant to which the Partnership issued 6,000,000 common units in the Partnership
to Royal in a private placement at $1.50 per common unit for an aggregate purchase price of $9.0 million. Royal paid the Partnership
$2.0 million in cash and delivered a promissory note payable to the Partnership in the amount of $7.0 million (the “Rhino
Promissory Note”). The promissory note is payable in three installments: (i) $3.0 million on July 31, 2016; (ii) $2.0 million
on or before September 30, 2016 and (iii) $2.0 million on or before December 31, 2016.
On
September 30, 2016, Royal issued Weston the Weston Promissory Note in exchange for $2.0 million in cash and Royal contributed
the proceeds to the Partnership in satisfaction of its obligation to make the September 30, 2016 payment on the promissory note
issued to the Partnership pursuant to the Securities Purchase Agreement.
On
December 30, 2016, Royal issued Weston a promissory note in exchange for $2.0 million in cash and Royal contributed the proceeds
to the Partnership in exchange for 200,000 Series A Preferred Units described above.
Letter
Agreement Regarding Rhino Promissory Note and Weston Promissory Note
On
December 30, 2016, the Partnership and Royal entered into a letter agreement whereby they extended the maturity dates of the Weston
Promissory Note and the final installment payment of the Rhino Promissory Note to December 31, 2018. The letter agreement further
provides that the aggregate $4.0 million balance of the Weston Promissory Note and Rhino Promissory Note may be converted at Royal’s
option into a number of shares of Royal’s common stock equal to the outstanding balance multiplied by seventy-five percent
(75%) of the volume-weighted average closing price of Royal’s common stock for the 90 days preceding the date of conversion
(“Royal VWAP”), subject to a minimum Royal VWAP of $3.50 and a maximum Royal VWAP of $7.50.
Seventh
Amendment of Amended and Restated Credit Agreement
On
December 30, 2016, Rhino Energy LLC, a wholly owned subsidiary of the Partnership, as borrower, and the Partnership and certain
of its subsidiaries, as guarantors, entered into a seventh amendment of its amended and restated credit agreement (the “Seventh
Amendment”) with PNC Bank, National Association, as Administrative Agent, PNC Capital Markets and Union Bank, N.A., as Joint
Lead Arrangers and Joint Bookrunners, Union Bank, N.A., as Syndication Agent, Raymond James Bank, FSB, Wells Fargo Bank, National
Association and the Huntington National Bank, as Co-Documentation Agents and the lenders party thereto. The Seventh Amendment
allows for the Series A Preferred Units as outlined in the Fourth Amended and Restated Agreement of Limited Partnership of the
Partnership, which is further described in Item 5.03 in this Current Report on Form 8-K, as well as the Option Agreement. The
Seventh Amendment immediately reduces the revolving credit commitments by $11.0 million and provides for additional revolving
credit commitment reductions of $2.0 million each on June 30, 2017 and September 30, 2017. The Seventh Amendment further reduces
the revolving credit commitments over time on a dollar-for-dollar basis for the net cash proceeds received from any asset sales
after the Seventh Amendment date once the aggregate net cash proceeds received exceeds $2.0 million. The Seventh Amendment alters
the maximum leverage ratio to 4.0 to 1.0 effective December 31, 2016 through May 31, 2017 and 3.5 to 1.0 from June 30, 2017 through
December 31, 2017. The maximum leverage ratio shall be reduced by 0.50 to 1.0 for every $10.0 million of net cash proceeds, in
the aggregate, received after the Seventh Amendment date from (i) the issuance of any equity by the Partnership and/or (ii) the
disposition of any assets in excess of $2.0 million in the aggregate, provided, however, that in no event will the maximum leverage
ratio be reduced below 3.0 to 1.0. The Seventh Amendment alters the minimum consolidated EBITDA figure, as calculated on a rolling
twelve months basis, to $12.5 million from December 31, 2017 through May 31, 2017 and $15.0 million from June 30, 2017 through
December 31, 2017. The Seventh Amendment alters the maximum capital expenditures allowed, as calculated on a rolling twelve months
basis, to $20.0 million through the expiration of the credit facility. A condition precedent to the effectiveness of the Seventh
Amendment is the receipt of the $13.0 million of cash proceeds received by the Partnership from the issuance of the Series A Preferred
Units pursuant to the Preferred Unit Agreement, which will be used to repay outstanding borrowings under the revolving credit
facility. Per the Seventh Amendment, the receipt of $13.0 million cash proceeds fulfills the required Royal equity contributions
as outlined in the previous amendments to the Partnership’s credit agreement.
The
foregoing description is qualified in its entirety by reference to the Amendment, a copy of which is attached hereto as Exhibit
10.3 and is incorporated into this Current Report on Form 8-K by reference.