Item 7.01 Regulation FD Disclosure.
Stonepeak Election
As previously disclosed, on August 2, 2019, Evolve Transition Infrastructure LP
("Evolve," "us," "our") issued that certain Warrant Exercisable for Junior
Securities to Stonepeak Catarina Holdings LLC ("Stonepeak") (as amended, the
"Warrant"). The Warrant may be exercised at any time and from time to time until
the later of August 2, 2026 and the date 30 days after the date on which all of
the Class C Preferred Units representing limited partner interests in Evolve
("Class C Preferred Units") have been redeemed for a number of Junior Securities
(as defined in the Warrant) equal to 10% of each applicable class of Junior
Securities Deemed Outstanding (as defined in the Warrant) as of the exercise
date.
As previously disclosed, on November 16, 2020, Evolve and Stonepeak entered into
a letter agreement (the "Stonepeak Letter Agreement"), and in accordance with
the Stonepeak Letter Agreement, on October 28, 2022, Evolve received written
notice of Stonepeak's election (the "Stonepeak Election") to receive
distributions on the Class C Preferred Units for the quarter ended September 30,
2022 in common units representing limited partner interests in Evolve ("common
units"). In accordance with the Stonepeak Letter Agreement, the aggregate
distribution of 27,442,638 common units (the "Q322 Stonepeak Units") is payable
to Stonepeak following satisfaction of certain issuance conditions, including,
among other things, the compliance by Evolve and Stonepeak with any applicable
federal securities laws applicable to the issuance of the Q322 Stonepeak Units.
Following the issuance of the Q322 Stonepeak Units, Stonepeak will own (i)
200,107,218 common units, representing approximately 80.3% of the issued and
outstanding common units, (ii) all of the issued and outstanding Class C
Preferred Units, (iii) the Warrant, (iv) the non-economic general partner
interest in Evolve, and (v) all of Evolve's incentive distribution rights. As
previously disclosed, if at any time Stonepeak holds more than 80% of our
outstanding common units and completes the Stonepeak LCR Transfer (as defined
below), Stonepeak will be able to cause Evolve Transition Infrastructure GP,
LLC, our sole general partner (our "general partner") or a controlled affiliate
of our general partner to exercise its right to acquire all, but not less than
all, of our common units held by persons other than our general partner and its
controlled affiliates ( "limited call right"). As Stonepeak will hold more than
80% of our outstanding common units following the issuance of the Q322 Stonepeak
Units, Stonepeak will be able to cause our general partner to exercise its
limited call right at any time after Stonepeak transfers all of the common units
held by it to our general partner or a controlled affiliate of our general
partner (the "Stonepeak LCR Transfer"). Notwithstanding the foregoing, Stonepeak
has informed Evolve that they have no current intention to cause our general
partner to exercise its limited call right or take any other actions in
furtherance thereof, such as completion of the Stonepeak LCR Transfer.
Risk Factors
As a result of receipt of the Stonepeak Election, Evolve is supplementing the
risk factors set forth under "Item 1A. Risk Factors" in its Annual Report on
Form 10-K for the year ended December 31, 2021, filed on March 30, 2022 (the
"Form 10-K"), with the following. The risk factors below should be read in
conjunction with and as updates to the other risk factors set forth in the Form
10-K.
Certain events may result in our general partner exercising its limited call
right, which may require common unitholders to sell their common units at an
undesirable time or price.
As previously disclosed, on November 16, 2020, Evolve and Stonepeak entered into
a letter agreement (the "Stonepeak Letter Agreement"), and in accordance with
the Stonepeak Letter Agreement, on October 28, 2022, Evolve received written
notice of Stonepeak's election (the "Stonepeak Election") to receive
distributions on the Class C Preferred Units held by Stonepeak for the quarter
ended September 30, 2022 in common units representing limited partner interests
in Evolve ("common units"). In accordance with the Stonepeak Letter Agreement,
the aggregate distribution of 27,442,638 common units (the "Q322 Stonepeak
Units") is payable to Stonepeak following satisfaction of certain issuance
conditions, including, among other things, the compliance by Evolve and
Stonepeak with any applicable federal securities laws applicable to the issuance
of the Q322 Stonepeak Units.
Following the date on which such issuance of the Q322 Stonepeak Units occurs,
Stonepeak will own (i) 200,107,218 common units, representing approximately
80.3% of the issued and outstanding common units, (ii) all of the issued and
outstanding Class C Preferred Units, (iii) the Warrant that entitles Stonepeak
to receive junior securities of Evolve (including common units) representing 10%
of all junior securities deemed outstanding when exercised, (iv) the
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non-economic general partner interest in Evolve, and (v) all of Evolve's
incentive distribution rights. Stonepeak also owns 100% of the issued and
outstanding equity interests in SP Holdings, which is the sole member of our
general partner.
Pursuant to Section 15.1 of the Third Amended and Restated Agreement of Limited
Partnership of Evolve, dated as of August 2, 2019, as amended by the Stonepeak
Letter Agreement and further amended by Amendment No. 1 thereto, dated as of
February 26, 2021 (the "partnership agreement"), if at any time Stonepeak holds
more than 80% of our outstanding common units and transfers all of the common
units held by it to our general partner or a controlled affiliate of our general
partner (the "Stonepeak LCR Transfer"), Stonepeak will be able to cause our
general partner or a controlled affiliate of our general partner to exercise its
right to acquire all, but not less than all, of our common units held by persons
other than our general partner and its controlled affiliates (the "limited call
right"). As Stonepeak will hold more than 80% of our outstanding common units
following the issuance of the Q322 Stonepeak Units, Stonepeak will be able to
cause our general partner to exercise the limited call right at any time after
Stonepeak completes the Stonepeak LCR Transfer by causing our general partner to
exercise its limited call right at a price equal to the greater of (1) the
average of the daily closing price of our common units over the 20 trading days
preceding the date three days before notice of exercise of our general partner's
limited call right is first mailed and (2) the highest per-unit price paid by
our general partner or any of its controlled affiliates for common units during
the 90-day period preceding the date such notice is first mailed. As a result,
common unitholders may be required to sell their common units at an undesirable
time or price and may not receive any return or a negative return on their
investment. Common unitholders may also incur tax liability upon a sale of their
units. Our general partner is not obligated to obtain a fairness opinion
regarding the value of common units to be repurchased upon exercise of its
limited call right. If our general partner exercises its limited call right, the
effect would be to take the Partnership private and, if the common units are
subsequently deregistered, the Partnership will no longer be subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended.
In a liquidation, the preferential rights of the holder of our Class C Preferred
Units could result in common unitholders losing their entire investment.
Pursuant to the partnership agreement, if an event giving rise to the
liquidation of Evolve occurs prior to all of the Class C Preferred Units being
redeemed, then the Class C Preferred Units preferential rights require that the
capital account for any holder of any Class C Preferred Units is first allocated
items of income, gain, loss and deduction until each such holder's capital
account in respect of each Class C Preferred Unit is equal to 100% of the
liquidation preference with respect to such Class C Preferred Unit. Such
liquidation preference is equal to $11.29 plus all accrued and unpaid
distributions. As of June 30, 2022, as disclosed in Evolve's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2022, which was filed with the
Securities and Exchange Commission on August 10, 2022 (the "Q2 10-Q"), the
current liability associated with the Class C Preferred Units was approximately
$397.4 million. As a result, if a liquidation of Evolve were to occur, the
holders of Class C Preferred Units would have to receive approximately $397.4
million prior to common unitholders receiving anything. The condensed
consolidated balance sheets of Evolve and its subsidiaries included in the Q2
10-Q disclose total assets of approximately $241.5 million, approximately $155.9
million less than the current liability associated with the Class C Preferred
Units. As a result, based upon the financial information included in the Q2
10-Q, if a liquidation of Evolve were to occur, the common units would have zero
equity value and common unitholders would lose their entire investment.
The information in this Item 7.01 shall not be deemed "filed" for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended ("Exchange Act")
or otherwise subject to the liabilities of that section, nor shall be it be
deemed incorporated by reference in any filing under the Securities Act of 1933,
as amended, or the Exchange Act, except as expressly set forth by specific
reference in such a filing.
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