UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 25, 2021
SANDRIDGE PERMIAN TRUST
(Exact name of Registrant as specified in its charter)
| Delaware | 001-35274 | 45-6276683 | ||
| (State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
|
The Bank of New York Mellon Trust Company, N.A. 601 Travis Street, 16th Floor Houston, Texas |
77002 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (512) 236-6555
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
| ITEM 1.01. | Entry Into a Material Definitive Agreement. |
As previously disclosed in the Current Report on Form 8-K of SandRidge Permian Trust (the “Trust”) filed on April 23, 2020, Avalon Energy, LLC was unable to pay on a timely basis in May 2020 the approximately $4.65 million it owes the Trust (the “May 2020 Quarterly Payment”) relating to the three-month period ended March 31, 2020 (which primarily relates to production attributable to the Trust’s overriding royalty interests (the “Royalty Interests”) from December 1, 2019 to February 29, 2020). Consequently, The Bank of New York Mellon Trust Company, N.A., as trustee of the Trust (the “Trustee”), was unable to make the quarterly distribution to Trust unitholders for the three-month period ended March 31, 2020. In accordance with the terms of the conveyances pursuant to which the Royalty Interests were originally conveyed to the Trust, the unpaid amount owed the Trust has been accruing interest at the rate of interest per annum publicly announced from time to time by The Bank of New York Mellon Trust Company, N.A. as its “prime rate” in effect at its principal office in New York City until paid to the Trust.
On March 1, 2021, the Trust and Avalon entered into a repayment agreement setting forth the terms by which Avalon has agreed to pay the May 2020 Quarterly Payment to the Trust, together with accrued interest (the “Agreement”). Beginning with the quarterly distribution paid to Trust unitholders on or about February 26, 2021 (the “February Distribution”), Avalon will apply towards the payment of the May 2020 Quarterly Payment the full amount of each quarterly cash distribution, if any, to which Avalon, as a unitholder of the Trust, is entitled (each such cash distribution, a “Company Distribution Amount”), until the May 2020 Quarterly Payment, together with accrued interest, has been paid in full to the Trust, subject to any obligations Avalon may have to repay the revolving line of credit Avalon had previously obtained from Washington Federal Bank, National Association, pursuant to the terms of a loan agreement (the “WaFed Loan”) that are not waived by WaFed as provided in the Agreement. Avalon will deposit its portion of the February Distribution into a repayment account established by the Trustee on behalf of the Trust (the “Repayment Account”). The Trust will receive $984,375, representing the portion of the February Distribution that Avalon would otherwise receive, as an initial payment toward the May 2020 Quarterly Payment. Beginning with the distribution with respect to the quarter ending March 31, 2021, Avalon will deposit each such Company Distribution Amount into the Repayment Account promptly, but in no event later than the next business day, after the Company’s receipt of any such Company Distribution Amount.
The Agreement also provides that if any third party agrees to acquire Avalon, whether pursuant to a merger, consolidation, purchase of all or substantially all of the assets of Avalon, or other similar transaction or series of transactions (a “Sale Transaction”), then, subject to any obligations Avalon may have to repay the WaFed Loan in connection with any such transaction that are not waived by WaFed as provided in the Agreement, Avalon will pay to the Trust from cash received in a Sale Transaction an amount equal to (i) the difference between (A) the aggregate amounts deposited in the Repayment Account pursuant to the Agreement at the time the Sale Transaction is consummated and (B) the then outstanding balance of the May 2020 Quarterly Payment together with all accrued and unpaid interest thereon to the date of payment of such outstanding balance (the “Balance Amount”) or (ii) where the amount of cash received in the Sale Transaction is less than the Balance Amount, all of the cash received in the Sale Transaction. Avalon agrees that it will pay such amount to the Trust promptly, but in no event later than the next business day, after the closing of any such Sale Transaction. If Avalon is unable to pay the Balance Amount in full upon the closing of a Sale Transaction, Avalon has agreed, subject to any obligations Avalon may have to repay the WaFed Loan in connection with any such transaction that are not waived by WaFed as provided in the Agreement, to pledge to the Trust, to secure the payment of the outstanding portion of the Balance Amount, any non-cash consideration that Avalon receives from such Sale Transaction or similar transaction.
The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Agreement, which is filed as an exhibit to this Current Report on Form 8-K.
| ITEM 8.01. | Other Events. |
As described in the Trust’s annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”), the amended and restated trust agreement governing the Trust (the “Trust Agreement”) requires the Trust to dissolve and commence winding up of its business and affairs if cash available for distribution for any four consecutive quarters, on a cumulative basis, is less than $5.0 million. Cash available for distribution for the four consecutive quarters ended December 31, 2020, on a cumulative basis, totaled approximately $2.4 million, due in part to Avalon’s inability to make the May 2020 Quarterly Payment to the Trust. Because Avalon’s inability to make the May 2020 Quarterly Payment contributed to the insufficient cumulative cash available for distribution over the four-quarter period, the Trustee and Avalon submitted to an arbitration panel, in accordance with the Trust Agreement, the question of whether the Trust nonetheless remains required to dissolve following the end of that period. On February 25, 2021, the arbitration panel determined that the existence of the unpaid May 2020 Quarterly Payment does not alter the requirement of the Trust to terminate under the provisions of the Trust Agreement. As a result, the Trust will dissolve and commence winding up beginning as of the close of business on February 26, 2021 (the “Dissolution Trigger Date”).
Accordingly, the Trustee will be required to sell all of the Trust’s assets, either by private sale or public auction, and distribute the net proceeds of the sale to the Trust unitholders after payment, or reasonable provision for payment, of all Trust liabilities, which is expected to include the establishment of cash reserves in such amounts as the Trustee in its discretion deems appropriate for the purpose of making reasonable provision for all claims and obligations of the Trust, including any contingent, conditional or unmatured claims and obligations, in accordance with the Delaware Statutory Trust Act. The sale process will involve costs that will reduce the amounts of any distributions to Trust unitholders during the winding up period. As required by the Trust Agreement, within 30 days after the Dissolution Trigger Date the Trustee will engage a third-party advisor to assist with the marketing and sale of the Royalty Interests. As provided in the Trust Agreement, Avalon has a right of first refusal with respect to any sale of Royalty Interests to a third party. The Trustee expects to complete the sale of the Royalty Interests and distribute the net proceeds of the sale to the Trust unitholders by the end of the third quarter of 2021, and the Trust units are expected to be canceled shortly thereafter. Pending the sale or sales of the Royalty Interests, the Trust anticipates that it will continue to receive income, if any, attributable to the Royalty Interests and will continue to make quarterly distributions to Trust unitholders to the extent there is available cash after payment of Trust expenses and additions to cash reserves. The Trust will remain in existence until the filing of a certificate of cancellation with the Secretary of State of the State of Delaware following the completion of the winding up process.
Forward-Looking Statements
This Current Report on Form 8-K (this “Report”) contains statements that are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Report, other than statements of historical facts, are “forward-looking statements” for purposes of this provision. These forward-looking statements include expectations regarding the timing of the completion of the sale process and the winding up of the Trust, including the cancellation of the Trust units; expectations regarding the costs involved in the sale process; statements regarding the possibility of future distributions to Trust unitholders during the winding up period; and statements regarding the Trustee’s withholding of funds to increase cash reserves for future known, anticipated or contingent expenses or liabilities of the Trust. The amount of cash received or expected to be received by the Trust (and its ability to pay distributions) has been and will be significantly and negatively impacted by fluctuating benchmark prices for crude oil, natural gas and natural gas condensate. In addition to the collapse of the worldwide demand for oil and the resulting collapse of oil prices in the first half of 2020, as a result of the dispute over oil production levels between members of the Organization of Petroleum Exporting Countries and Russia and the economic effects of the COVID-19 pandemic, other important factors that could cause actual results from Trust operations to differ materially from those anticipated and adversely impact distributions to Trust unitholders include lease operating expenses related to the operation of the underlying properties burdened by the Royalty Interests, expenses of the Trust, and reserves made by the Trust for anticipated future expenses. Statements made in this Report are qualified by the cautionary statements made in this Report. The Trustee does not intend, and does not assume any obligation, to update any of the statements included in this Report. An investment in common units issued by the Trust is subject to the risks described in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2019, its Quarterly Report on Form 10-Q for the period ended September 30, 2020, and all of its other filings with the SEC. The Trust’s annual, quarterly and other filed reports are or will be available over the Internet at the SEC’s website at http://www.sec.gov.
| ITEM 9.01. | Financial Statements and Exhibits. |
(d) Exhibits.
| 10.1 | Repayment Agreement dated as of March 1, 2021 between SandRidge Permian Trust and Avalon Energy, LLC. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SANDRIDGE PERMIAN TRUST | |||
| By: | The Bank of New York Mellon Trust Company, N.A., as Trustee | ||
| By: | /s/ SARAH NEWELL | ||
| Name: | Sarah Newell | ||
| Title: | Vice President | ||
Date: March 2, 2021
Exhibit 10.1
Execution Version
REPAYMENT AGREEMENT
This Repayment Agreement (this “Agreement”), dated as of March 1, 2021, is made by Avalon Energy, LLC, a Texas limited liability company (the “Company”), and SandRidge Permian Trust, a statutory trust formed under the laws of the State of Delaware (the “Trust”). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Trust Agreement (as defined below) or the Conveyances (as defined below), as the context indicates.
WHEREAS, SandRidge Energy, Inc. (“SandRidge”) and the Trust entered into that certain Amended and Restated Trust Agreement, dated as of August 16, 2011 (the “Trust Agreement”);
WHEREAS, SandRidge, SandRidge Exploration and Production, LLC (“SandRidge E&P”), and Mistmada Oil Company, Inc., conveyed to the Trust the Royalty Interests (as defined in the Trust Agreement) pursuant to the Conveyances (as defined in the Trust Agreement);
WHEREAS, on November 1, 2018, pursuant to that certain Purchase and Sale Agreement dated as of September 17, 2018 among SandRidge, SandRidge E&P, and the Company, the Company acquired all of SandRidge’s interests in the Underlying Properties and all of the outstanding common units of the Trust owned by SandRidge (the “Purchase Transaction”);
WHEREAS, in connection with the Purchase Transaction, the Company assumed all of SandRidge’s duties and obligations under the Trust Agreement and the Conveyances;
WHEREAS, in connection with the Purchase Transaction, the Company obtained a revolving line of credit from Washington Federal Bank, National Association and other lenders thereof (collectively, “WaFed”) pursuant to the terms of a Loan Agreement and related security documents (the “WaFed Loan”), which is secured by a first lien mortgage on the Company’s interest in the Underlying Properties (as defined in the Trust Agreement) and a pledge of the units of beneficial interest in the Trust that are owned by the Company;
WHEREAS, under Section 5.01(a) of the Conveyances, after each Computation Period (as defined in the Conveyances) and on or before the 45th day after the end of each such Computation Period, the Company is required to tender to the Trust the Assignee Proceeds (as defined in the Conveyances) for the applicable Computation Period, plus, to the extent applicable, (i) all of the proceeds to be paid to the Trust from the sale of Assignee Minerals (as defined in the Conveyances) produced during any prior Computation Periods, to the extent not previously paid to the Trust for such prior Computation Periods, (ii) any damages payable to the Trust pursuant to the Conveyances during the most recently completed Computation Period, and (iii) any amounts (including any interest earned thereon) that were previously deposited with a third person escrow agent in accordance with the Conveyances and subsequently determined by the Company to be validly owing to the Trust;
WHEREAS, in May 2020, the Company failed to tender to the Trust the Assignee Proceeds for the Computation Period ended March 31, 2020 (with respect to production attributable to the Trust’s royalty interests from December 1, 2019 to February 29, 2020) in the amount of $4,653,759.00 (the “Missed May 2020 Payment”);
WHEREAS, the Missed May 2020 Payment has borne interest at the Prime Interest Rate (as defined in the Conveyances) commencing on the sixth day following the due date for such Missed May 2020 Payment, as provided in Section 5.02 of the Conveyances;
WHEREAS, the Company and the Trust desire to set forth their understanding regarding the terms by which the Company shall agree to provide to the Trust payment in full of the Missed May 2020 Payment, together with all interest accrued thereon as provided in Section 5.02 of the Conveyances (the “Owed Amount”).
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants and conditions herein set forth, the Company and the Trust hereby agree as follows:
Section 1. Acknowledgment of Missed May 2020 Payment. The Company hereby acknowledges and agrees that the Company failed to pay to the Trust the Missed May 2020 Payment pursuant to the terms of Section 5.01 of the Conveyances, and that the Company, as of the date of this Agreement, continues to owe the Trust the Owed Amount.
Section 2. Agreement to Repay. The Company agrees that it will pay to the Trust the Owed Amount, including by using the cash distributions, if any, received by the Company from the Trust on each Quarterly Payment Date (as defined in the Trust Agreement), subject to any obligations the Company may have to repay the WaFed Loan that are not waived by WaFed as provided in Section 4 of this Agreement, whether such cash distribution relates to a Quarterly Cash Distribution Amount (as defined in the Trust Agreement) or a Sales Proceeds Amount (as defined in the Trust Agreement) (each such cash distribution, a “Company Distribution Amount”), beginning with the Quarterly Payment Date that occurred on February 26, 2021, for which the Company Distribution Amount was $984,375.00 (the “February Distribution Amount”). The Company shall deposit the February Distribution Amount promptly, but in no event later than the next Business Day, after execution of this Agreement into a bank account established by the Trustee on behalf of the Trust as set forth on Schedule A hereto (the “Repayment Account”). The Company covenants and agrees that it will deposit any Company Distribution Amount received from the Trust beginning with the Quarterly Payment Date with respect to the quarter ending March 31, 2021 into the Repayment Account promptly, but in no event later than the next Business Day, after the Company’s receipt of any such Company Distribution Amount. For the avoidance of doubt, unless and until the Owed Amount is paid in full, the Company shall remain, and any Person succeeding to the Company’s liabilities as a result of a merger, consolidation or similar transaction shall be, liable with respect thereto. For purposes of this Agreement, a “Business Day” means any day that is not a Saturday, Sunday, a holiday determined by NYSE Regulation, Inc. as “affecting ‘ex’ dates” or any other day on which national banking institutions in New York, New York are closed as authorized or required by law. For purposes of this Agreement, a “Person” means a natural person or a corporation, partnership, limited liability company, trust, estate or other entity, organization or association.
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Section 3. Commitment by the Company in Connection with a Sale Transaction.
(a) If any third party shall agree to acquire the Company, whether pursuant to a merger, consolidation, purchase of all or substantially all of the assets of the Company, or other similar transaction or series of transactions, and whether pursuant to an existing agreement or pursuant to an agreement entered into after the date hereof (a “Sale Transaction”), then the Company covenants and agrees that, subject to any obligations the Company may have to repay the WaFed Loan in connection with any such transaction or transactions that are not waived by WaFed as provided in Section 4 of this Agreement, on the first Business Day after consummation of the Sale Transaction it shall deposit into the Repayment Account the cash, if any, received in the Sale Transaction in an amount equal to (i) the difference between (A) the aggregate amounts deposited in the Repayment Account pursuant to Section 2 of this Agreement at the time the Sale Transaction is consummated and (B) the Owed Amount at such time (the “Balance Amount”) or (ii) where the amount of cash received in the Sale Transaction is less than the Balance Amount, all of the cash received in the Sale Transaction.
(b) If the Company is unable to pay the Balance Amount in full upon the closing of a Sale Transaction, the Company covenants and agrees, subject to any obligations the Company may have to repay the WaFed Loan in connection with any such transaction or transactions that are not waived by WaFed as provided in Section 4 of this Agreement, to pledge to the Trust, to secure the payment of the remaining portion of the Balance Amount, any non-cash consideration received by the Company in connection with such Sale Transaction until the Balance Amount is paid in full.
Section 4. Third-Party Claims on Company Distribution Amounts. The Company represents and warrants that, other than the rights of WaFed under the WaFed Loan, no lender, creditor, or other claimant has any claim or other right, or has exercised or notified the Company of any claim or other right such lender, creditor or other claimant may have, with respect to any Company Distribution Amount. WaFed, by letter dated March 1, 2021, has waived its claim to receipt of the February Distribution Amount. The Company covenants and agrees that it shall use its commercially reasonable efforts to obtain a waiver from WaFed as to the delivery into the Repayment Account of each future Company Distribution Amount payable on any Quarterly Payment Date beginning with the Quarterly Payment Date with respect to the quarter ending March 31, 2021. The Company shall notify the Trustee promptly, but in no event later than the next Business Day, after the Company receives notice that a lender, creditor, or other claimant has made or plans to make a claim on any Company Distribution Amount.
Section 5. Separability. If any provision of this Agreement or the application thereof to any Person or circumstances shall be finally determined by a court of proper jurisdiction to be illegal, invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to Persons or circumstances other than those as to which it is held illegal, invalid or unenforceable shall not be affected thereby, and every remaining provision of this Agreement shall be valid and enforced to the fullest extent permitted by law.
Section 6. Notices. Any and all notices or demands permitted or required to be given under this Agreement shall be in writing (or be capable of being reproduced in paper form) and shall be validly given or made if (a) personally delivered, (b) delivered and confirmed by electronic mail, facsimile or like instantaneous transmission service, or by Federal Express or other overnight courier delivery service, which shall be effective as of confirmation of receipt by the courier at the address for notice hereinafter stated, or (c) deposited in the United States mail, first class, postage prepaid, certified or registered, return receipt requested, addressed as follows:
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To the Company:
Avalon Energy, LLC
5000 Quorum Drive, Suite 205
Dallas, Texas 75254
Telephone: (214) 446-8166
Attention: Stephen C. Pugh, President
E-mail: spugh@avalonenergy.com
To the Trust:
SandRidge Permian Trust
c/o The Bank of New York Mellon Trust Company, N.A., as Trustee
601 Travis Street, 16th Floor
Houston, Texas 77002
Telephone: (512) 236-6555
Attention: Sarah Newell, Vice President
E-mail: Sarah.Newell@BNYMellon.com
Section 7. No Waiver. This Agreement shall not represent a waiver or consent, express or implied, to or of any breach or default by the Company in the performance by the Company of its obligations under the Trust Agreement or the Conveyances.
Section 8. Governing Law. This AGREEMENT shall be governed by, and construed in accordance with, the laws of the State of TEXAS, without giving effect to any choice or conflict of law principles that would cause the application of the laws of any other jurisdiction.
Section 9. Counterparts. This Agreement may be executed in a number of counterparts, each of which shall constitute an original, but such counterparts shall together constitute but one and the same instrument.
[Signature page follows.]
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IN WITNESS WHEREOF, this Agreement has been signed by the parties hereto as of the day and year first above written.
| AVALON ENERGY, LLC |
| By: | /s/ Stephen C. Pugh | |
| Name: Stephen C. Pugh | ||
| Title: President and CEO |
| SANDRIDGE PERMIAN TRUST |
| By: | The Bank of New York Mellon Trust Company, N.A., as Trustee |
| By: | /s/ Sarah Newell | |
| Name: Sarah Newell | ||
| Title: Vice President |
[Signature Page to Repayment Agreement]
SCHEDULE A
Repayment Account Information