Item 1.01
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Entry into a Material Definitive Agreement.
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Preferred Stock Purchase Agreement
On June 28, 2017 Carrizo Oil & Gas, Inc. (the Company, Carrizo, we or us) entered into a Preferred
Stock Purchase Agreement (the Purchase Agreement) with certain funds managed or
sub-advised
by GSO Capital Partners LP and its affiliates (collectively, the GSO Funds) to issue and sell
in a private placement (the Private Placement) (i) 250,000 shares of 8.875% Redeemable Preferred Stock, par value $0.01 per share (the Preferred Stock) and (ii) warrants (the Warrants) for 2,750,000 shares of
common stock of the Company, par value $0.01 per share (the common stock), with an exercise price per share of $16.08, exercisable only on a cashless net share settlement basis, for a cash purchase price equal to $970 per share of
Preferred Stock purchased. The Company expects to receive net proceeds of approximately $242.5 million from the Private Placement (prior to payment of commitment fees and expenses of the issuance). The Company intends to use the net proceeds from
the Private Placement to fund a portion of the acquisition from ExL Petroleum Management, LLC of approximately 16,488 net acres located in the Delaware Basin (the Pending Acquisition). The closing of the Private Placement (the
Closing and the date of the Closing, the Closing Date) is expected to occur in August 2017, subject to certain closing conditions, including the closing of the Pending Acquisition and the completion of equity and debt
financings with specified gross proceeds.
The Purchase Agreement contains customary representations, warranties and covenants of the Company and the GSO
Funds, and the parties have agreed to indemnify each other and their affiliates against certain losses resulting from breaches of their respective representations, warranties and covenants.
Statement of Resolutions
In connection with the Closing,
the Company will establish the rights and preferences of the shares of the Preferred Stock pursuant to a Statement of Resolutions (the Statement of Resolutions). The Preferred Stock will rank senior to the Companys common stock
with respect to the payment of dividends and distribution of assets upon liquidation, dissolution and winding up.
Dividends and
Maturity
The Preferred Stock will initially have a liquidation preference of $1,000 (the liquidation preference). The holders of the
Preferred Stock (the Holders) will be entitled to receive in cash quarterly cumulative dividends at an annual rate of 8.875% of the liquidation preference per share (equal to $88.75 per share annualized). We may, however, at our
election, pay all or a portion of the Preferred Stock dividends by delivering a number of shares of its common stock equal to the dividend amount divided by 97% of the trailing
five-trading-day
volume weighted
average price (VWAP) per common stock share as follows: (i) with respect to any dividend declared in respect of a quarter ending on December 15, 2017 and on or prior to September 15, 2018, up to 100% of the dividend;
(ii) with respect to any dividend declared in respect of a quarter ending on December 15, 2018 and on or prior to September 15, 2019, up to 75% of the dividend; or (iii) with respect to any dividend declared in respect of a
quarter ending on December 15, 2019 and on or prior to September 15, 2020, up to 50% of the dividend. If the Company fails to satisfy the Preferred Stock dividend on the applicable dividend payment date, then the unpaid dividend will be
added to the liquidation preference until paid. If the Company fails to pay the quarterly dividend on the applicable dividend payment date and such failure continues for three months past the applicable payment date, then the Holders will be
entitled to additional rights, as described below.
The Preferred Stock has no stated maturity and will remain outstanding indefinitely unless repurchased
or redeemed by the Company.
Optional Redemption
At any time on or before the first anniversary of the Closing Date, the Company may redeem up to 50,000 shares of Preferred Stock at a redemption price equal
to the liquidation preference, which includes accrued and unpaid dividends, in an amount not to exceed the aggregate amount of any cash proceeds of sales of oil and gas properties and related assets, the sale or issuance of the Companys common
stock and the sale of any of the Companys wholly owned subsidiaries after the Closing Date.
At any time, the Company may redeem all or part of the
Preferred Stock at a price per share equal to the Secondary Company Redemption Price. The Secondary Company Redemption Price will be an amount per share equal to (x) if on or prior to the third anniversary of the Closing Date, the
present value on the redemption date of all quarterly dividends (except for currently accrued and unpaid dividends) that would be payable on such Preferred Stock from the redemption date through the third anniversary of the Closing Date (assuming
all such quarterly dividends are cash dividends and computed using a discount rate
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equal to the applicable treasury rate plus 50 basis points, discounted to the redemption date)
plus
the aggregate Secondary Company Redemption Price that would have been payable to the
Holders had the redemption date occurred after the third anniversary of the Closing Date but on or prior to the fourth anniversary of the Closing Date, or (y) for all other periods, (i) $1,000
multiplied by
the applicable premium
set forth below (expressed as percentages)
plus
(ii) any accrued but unpaid dividends on such share.
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PERIOD
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PERCENTAGE
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After the third anniversary of the issue date but on or prior to the fourth anniversary
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104.4375
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%
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After the fourth anniversary of the issue date but on or prior to the fifth anniversary
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102.21875
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%
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Thereafter
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100
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%
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Mandatory Redemption
On or after the seventh anniversary of the Closing Date, or at any time if the Company fails to pay a quarterly dividend and such failure is not cured within
three months of such failure, a designated representative of the Preferred Stock (the Holder Representative), on behalf of the Holders, may elect to have the Company redeem all or a portion of the Preferred Stock at the Secondary Company
Redemption Price then in effect. The Company may elect to satisfy any such redemption elected by the Holders by delivering cash, shares of common stock or a combination thereof. The number of shares of common stock to be delivered in the redemption,
if applicable, will be determined using a price per share equal to 90% of the trailing
10-trading-day
VWAP per common stock share. In the event the Company elects to settle the redemption called by the Holder
Representative in common stock, the Holder Representative, in its sole discretion on behalf of the Holders, may elect to revoke its redemption notice or reduce the number of shares to be redeemed.
Change of Control
Upon a change of
control (as defined in the Statement of Resolutions), the Company may elect to redeem the Preferred Stock at a price per share of Preferred Stock equal to the Secondary Company Redemption Price then in effect. If a change of control occurs, and the
Company does not elect to so redeem the Preferred Stock or provide for the Holders to receive the Secondary Company Redemption Price, and the Holders of a majority of the then-outstanding Preferred Stock do not agree with the Company to an
alternative treatment, then the Holders of a majority of the then-outstanding Preferred Stock may elect on behalf of all the Holders to either (i) cause the Company to redeem all, but not less than all, of the outstanding Preferred Stock for
cash in an amount per share equal to $1,010
plus
any accrued but unpaid dividends or (ii) continue to hold the Preferred Stock, which may be in the form of a substantially equivalent security in the surviving or successor entity. In the
event of a change of control in which the Company does not survive and there is no substantially equivalent security available or the change of control is primary for cash equivalents, unless the Company elects to redeem the Preferred Stock in
accordance with the first sentence of this paragraph or the Company and the Holders of a majority of the then-outstanding Preferred Stock agree to an alternative treatment of the Preferred Stock, the Company will be required to redeem all, but not
less than all, of the outstanding Preferred Stock for (or otherwise provide for the Holders of the Preferred Stock to receive) a price per share of Preferred Stock equal to the Secondary Company Redemption Price. However, any such redemption in cash
will be tolled until a date that will not result in the Preferred Stock being characterized as disqualified stock or a similar concept under the Companys debt instruments.
Certain Covenants; Voting Rights
So long
as the GSO Funds and their affiliates beneficially own more than 50% of the outstanding Preferred Stock, the consent of the Holder Representative will be necessary for effecting: (i) the issuance of stock senior to or on parity with the
Preferred Stock, (ii) the incurrence of indebtedness that would cause us to exceed a specified leverage ratio, (iii) any amendment, modification, alteration or supplement the Companys articles of incorporation or the Statement of
Resolutions in a manner that would adversely affect the rights, preferences or privileges of the Preferred Stock, (iv) any entry into or amendment of certain debt agreements that would be more restrictive on the payment of dividends on, or
redemption of, the Preferred Stock than those existing on the Closing Date and (v) any payment of distributions on, purchase or redemption of the Companys common stock or other stock junior to the Preferred Stock that would cause the
Company to exceed a specified leverage ratio.
Holders of Preferred Stock will also have voting rights with respect to potential amendments to the
Companys certificate of incorporation or the Statement of Resolutions that adversely affect the rights, preferences or privileges of the Preferred Stock and in certain other circumstances or as required by law.
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Additional Holder Rights
The Statement of Resolutions provides that if any of the following occur:
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failure by the Company to redeem the Preferred Stock if the Holder Representative elects to redeem the Preferred Stock at any time after the seventh anniversary of the Closing Date;
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failure by the Company to pay a quarterly dividend when due and such failure continues for three months past the applicable due date; or
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failure to redeem the Preferred Stock if required to do so in connection with a change of control
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then the
Holders will be entitled to the following additional rights:
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The dividend rate will be increased to 12.0% per annum until the seventh anniversary of the Closing Date. Thereafter, the dividend rate will equal the greater of (a) the
one-month
LIBOR rate plus 10.0% and (b) 12.0%. Additionally, the Holder Representative may require any subsequent quarterly dividend be paid in common stock at a price per share of 95% of the trailing
five-trading-day
VWAP per common stock share;
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The Holder Representative, acting on behalf of the Holders of a majority of the outstanding shares of Preferred Stock, will have the exclusive right to appoint and elect up to two directors to the Board; and
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Approval of the Holder Representative will be required prior to incurring indebtedness subject to a leverage ratio, declaring or paying prohibited distributions or issuing equity of subsidiaries to third parties.
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Warrant Agreement
In connection with
the Closing, the Company and Wells Fargo Bank, N.A. will enter into a Warrant Agreement to, among other things, authorize and establish the terms of the Warrants to purchase 2,750,000 shares of common stock at an exercise price per share of $16.08,
subject to adjustment. The Warrants will be exercisable for a ten year period. The Warrants may only be exercised on a cashless net exercise basis and are subject to customary anti-dilution adjustments.
Registration Rights Agreement
The Company also agreed to
enter into a Registration Rights Agreement with the GSO Funds at the Closing, pursuant to which the Company will agree to provide certain registration and other rights for the benefit of the GSO Funds.
Standstill and Voting Agreement
In addition, at the
Closing, the Company and the GSO Funds will enter into a Standstill and Voting Agreement, pursuant to which the GSO Funds will agree to refrain from taking certain corporate actions regarding the Company and agree to vote their equity interests in
the Company in certain circumstances as either (A) recommended by the Board to the holders of Voting Securities of the Company or (B) consistent with, and in proportion to, the votes of the other shareholders of the Company.
The foregoing description of the Purchase Agreement, the Statement of Resolutions, the Preferred Stock, the Warrant Agreement, the Registration Rights
Agreement and the Standstill and Voting Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Purchase Agreement, which is filed as Exhibit 10.1 to this Current Report on Form
8-K
and incorporated by reference herein, and the Form of Statement of Resolutions, the Form of Registration Rights Agreement, the Form of Warrant Agreement and the Form of Standstill and Voting Agreement attached
to the Purchase Agreement, which are exhibits to the Purchase Agreement and incorporated by reference herein.
Any securities described in this report
that have been offered or are to be offered have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
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