CARBON NATURAL GAS COMPANY (OTCMKTS:CRBO) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01. Entry into a Material Definitive Agreement
On April 3, 2017, Carbon Natural Gas Company, a Delaware
corporation (Carbon or the
Company), finalized the Limited
Liability Company Agreement (LLC
Agreement) and the initial funding of Carbon
Appalachian Company, LLC (Carbon
Appalachia). Carbon Appalachia was formed by Carbon
and two institutional investors to acquire producing assets in
Southern Appalachia and has an initial equity commitment of
$100,000,000.
to the LLC Agreement, Carbon acquired a 2.0% interest in Carbon
Appalachia represented by Class A Units associated with its
equity commitment of $2,000,000. The Company will be the sole
manager of Carbon Appalachia. Carbon also has the ability to earn
up to an additional 20.0% of Carbon Appalachia (represented by
Class B Units) after certain return thresholds to the holders of
Class A Units are met. The Class B Units were acquired for no
cash consideration.
Further, Carbon also acquired a 1.0% carried interest represented
by Class C Units which were obtained in connection with the
contribution to Carbon Appalachia of a portion of its working
interest in undeveloped properties in the State of Tennessee. If
Carbon Appalachia agrees to drill horizontal Chattanooga Shale
wells on these properties, it will pay 100% of the cost of
drilling and completion of the first 20 wells to earn a 75%
working interest in such properties. Carbon, through its
subsidiary, Nytis Exploration Company LLC, will retain a 25%
working interest in the properties.
In connection with its role as the sole manager of Carbon
Appalachia, a portion of the Companys general and administrative
expenses will be allocated to and paid by Carbon Appalachia. The
negotiation and diligence of the natural gas acquisition
described below was led by the Company and at the closing of such
acquisition, the Company was reimbursed (a)$300,000 for its
efforts and expenditures related to its diligence review of the
acquisition and (b)its actual out-of-pocket legal and other third
party fees incurred in connection with the acquisition.
On March 31, 2017, Carbon Appalachia received the initial $12.0
million of equity funding from its members, including $240,000
from Carbon.
In connection with and concurrently with the closing of the
acquisition described below, Carbon Tennessee Company, LLC, the
indirect subsidiary of Carbon Appalachia, entered into a 4-year
$100.0 million senior secured asset-based revolving credit
facility (the Credit Facility and such
agreement being the Credit Agreement)
with LegacyTexas Bank.
Borrowings under the Credit Facility, along with the initial
equity contributions made to Carbon Appalachia, were used by
Carbon Tennessee Company, LLC to complete the acquisition of
natural gas producing properties and related facilities located
predominantly in the State of Tennessee (the
Acquisition). The Acquisition was
structured such that Carbon Tennessee Company, LLC acquired all
of the issued and outstanding equity of two of the sellers
subsidiaries that own the natural gas producing properties and
related facilities. The purchase price was $20 million, subject
to normal and customary pre and post-closing adjustments, and
Carbon Tennessee Company, LLC used $8.5 million drawn from the
Credit Facility toward the purchase price.
Carbon Appalachia will also fund, as part of the Acquisition, an
inventory of field development and enhancement projects and
general working capital. Carbon Appalachia expects to commence
the initial field production enhancement projects during the
second half of 2017.
On April 4, 2017, the Company issued a press release concerning
certain events relating to this Item1.01. A copy of the press
release is attached to this Current Report on Form 8-K as Exhibit
99.1.
In connection with the Company entering into the LLC Agreement
described above and Carbon Tennessee Company, LLC engaging in the
Acquisition, the Company issued to an affiliate of one of the
institutional investors which purchased Class A Units of Carbon
Appalachia (which is also an affiliate of the Companys largest
stockholders), a warrant to purchase shares of the Companys
Common Stock at an exercise price of $7.20 per share (the
Warrant). The exercise price for the
Warrant is payable exclusively with Class A Units of Carbon
Appalachia and the number of shares of the Company Common Stock
for which the Warrant is exercisable is determined, as of the
time of exercise, by dividing (a)the aggregate unreturned capital
plus an internal rate of return on such capital of the
Warrantholders Class A Units of Carbon Appalachia by (b) the
exercise price. The Warrant has a term of seven years and
includes certain standard registration rights with respect to the
shares of Carbons Common Stock issuable upon exercise of the
Warrant. If exercised, the Warrant provides Carbon an opportunity
to increase its ownership stake in Carbon Appalachia without
requiring the payment of cash. As of the date hereof, the Warrant
is exercisable for an aggregate of 408,334 shares of the Companys
Common Stock.
Item 3.02 Unregistered Sales of Equity
Securities
To the extent required by Item 3.02 of Form 8-K, the information
contained in Item 1.01 of this report is incorporated herein by
reference. The Warrant was issued to an exemption from the
registration requirements of the Securities Act of 1933, as
amended, provided by Section 4(a)(2) thereof and/or Rule 506 of
Regulation D promulgated thereunder.
Section 9 – Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d)Exhibits:
Exhibit No. | Description | |
4.1* | Form of Warrant to Purchase Common Stock | |
99.1* | Press Release dated April 4, 2017 |
* Filed herewith
About CARBON NATURAL GAS COMPANY (OTCMKTS:CRBO)
Carbon Natural Gas Company (Carbon) is a holding company. The Company owns and operates oil and natural gas and oil interests in the Appalachian and Illinois Basins of the United States. The Company produces and sells oil, natural gas, natural gas condensate and natural gas liquids. Carbon conducts its oil and natural gas operations through Nytis LLC. Carbon’s oil and gas properties are located in Illinois, Indiana, Kentucky, Ohio, Tennessee and West Virginia. Nytis LLC owns working interests in approximately 850 gross wells (over 570 net) and royalty interests located in Kentucky, Ohio, Tennessee and West Virginia, and has leasehold positions in approximately 17,000 net developed acres and over 184,800 net undeveloped acres. Nytis LLC owns working interests in approximately 60 gross (over 30 net) coalbed methane wells in the Illinois Basin, and has a leasehold position in approximately 1,700 net developed acres and over 66,700 net undeveloped acres. CARBON NATURAL GAS COMPANY (OTCMKTS:CRBO) Recent Trading Information
CARBON NATURAL GAS COMPANY (OTCMKTS:CRBO) closed its last trading session 00.00 at 11.50 with 1,002 shares trading hands.