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ITEM 1.01
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ENTRY INTO A MATERIAL AGREEMENT.
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In
connection with the Acquisition, the financings and the conversion of the Refinery, the Company has entered into the following
material agreements:
1.
On May 7, 2020, we acquired the Refinery through the purchase of all of the outstanding equity interests of Bakersfield Renewable
Fuels from Alon Paramount Holdings, Inc. (“Alon Paramount”) pursuant to a Share Purchase Agreement dated April
29, 2019. The purchase was effected through GCE’s indirect subsidiary BKRF Senior Borrower.
2.
GCEH granted a call option to Alon Paramount to purchase up to a 33 1/3% interest in GCE Acquisitions pursuant to a Call Option
Agreement dated May 7, 2020 among GCEH, GCE Acquisitions and Alon Paramount.
3.
We obtained a $300 million credit facility from a group of lenders (the “Senior Lenders”), for whom Orion Energy
Partners TP Agent, LLC acts as administrative agent, pursuant to a Credit Agreement dated May 4, 2020 among BKRF Senior Pledgor
(as pledgor), BKRF Senior Borrower and the Senior Lenders. The credit facility was provided to BKRF Senior Borrower (as borrower)
in order to fund the Acquisition and to retool and repurpose the Refinery.
4.
We obtained a $65 million credit facility from a group of lenders for whom Orion Energy Partners TP Agent, LLC acts as administrative
agent (the “Mezzanine Lenders”). The $65 million credit facility was provided for the retooling of the Refinery
pursuant to a Credit Agreement dated May 4, 2020 among BKRF Mezz Pledgor (as pledgor), BKRF Mezz Borrower (as borrower) and the
Mezzanine Lenders.
5.
GCE Acquisitions, BKRF Mezz Borrower, the Senior Lenders and the Mezzanine Lenders entered into an Amended and Restated Limited
Liability Company Agreement for BKRF Mezz Borrower dated May 4, 2020 (the “BKRF Mezz Borrower LLC Agreement”).
As more fully described below, that agreement provides the Senior Lenders and the Mezzanine Lenders with rights to participate
in certain future cash distributions made by BKRF Mezz Borrower.
6.
BKRF Senior Borrower engaged ARB, Inc. (“ARB”), a subsidiary of Primoris Services Corporation, to provide services for
the engineering, procurement, construction, commissioning, start-up and testing of the Refinery pursuant to an Engineering, Procurement
and Construction Agreement dated April 30, 2020 between GCE Acquisitions and ARB.
7.
BKRF Senior Borrower is a party to a product offtake agreement with a major multinational oil and gas company under which, subject
to the various conditions specified in that agreement, the offtake partner has committed to purchase renewable diesel fuel produced
at the Refinery.
Share
Purchase Agreement and Call Option Agreement
Pursuant
to that certain Share Purchase Agreement dated April 29, 2019, as amended September 27, 2019, October 4, 2019, October 11, 2019,
October 28, 2019, March 23, 2020 and May 4, 2020, between Alon Paramount and GCE Acquisitions, Alon Paramount agreed to sell all
of the shares of capital stock of Alon Bakersfield Property, Inc. to GCE Acquisitions for $40,000,000. Alon Bakersfield Property,
Inc. owns an existing refinery. Prior to the closing of the purchase and sale, Alon Bakersfield Property, Inc. converted its organizational
form as a Delaware corporation to a Delaware limited liability company and changed its name to “Bakersfield Renewable Fuels,
LLC.” On May 4, 2020, GCE Acquisitions assigned its rights under the Share Purchase Agreement to BKRF Senior Borrower. On
May 7, 2020 BKRF Senior Borrower purchased (the “Acquisition”) all of the outstanding equity interests of Bakersfield
Renewable Fuels, LLC for $40,000,000. As a result, BKRF Senior Borrower now owns Bakersfield Renewable Fuels which owns the refinery.
In connection with the Acquisition, BKRF Senior Borrower agreed to undertake certain cleanup activities at the refinery.
Concurrently
with the closing of the Acquisition, GCEH and GCE Acquisitions entered into a Call Option Agreement with Alon Paramount pursuant
to which GCEH granted to Alon Paramount an option to purchase from GCEH up to 33 1/3% of the membership interests of GCE Acquisitions.
The option will expire on the 90th day following the date that GCE Acquisitions certifies in writing to Alon Paramount that the
refinery has been recommissioned and has commercially operated for 90 continuous days at certain target production rates. Under
the Call Option Agreement, GCEH has agreed that without Alon Paramount’s prior written consent, prior to the expiration of the
option, it will not permit any lien on the membership interests subject to the option, and GCE Acquisitions has agreed that without
Alon Paramount’s written consent, prior to the expiration of the option, it will not, and it will not permit any of the above
listed subsidiaries, to issue or transfer any equity securities other than those contemplated by the Credit Agreements entered
into with the Senior Lenders and the Mezzanine Lenders, or modify or amend the certain material terms of such Credit Agreements.
Senior
Credit Agreement
BKRF
Senior Borrower and its direct parent, BKRF Senior Pledgor, entered into that certain Credit Agreement dated May 4, 2020 with
the Senior Lenders pursuant to which the Senior Lenders agreed to provide a $300 million senior secured term loan facility that
may be used by BKRF Senior Pledgor to acquire the equity interests of Bakersfield Renewable Fuels and to pay the costs of the
retooling of the Refinery. Orion Energy Partners TP Agent, LLC is the administrative agent under the Credit Agreement.
On
May 7, 2020, BKRF Senior Borrower borrowed $68,800,000 million under the credit facility to pay the purchase price for the Acquisition,
to pay various acquisition related expenses, and to fund initial construction obligations.
The
senior loan bears interest at the rate of 12.5% per annum, payable quarterly, provided that the borrower may defer 2.5% per annum
of the interest for the first six quarters and 1.67% per annum of the interest for the 7th quarter, such deferred interest being
added to principal. In addition, as additional consideration for the senior loans, the Senior Lenders have been issued Class B
Units in BKRF Mezz Borrower (see “BKRF Mezz Borrower LLC Agreement,” below).
The
principal of the senior loans is due at maturity, provided that the borrower must offer to prepay the senior loans with any proceeds
of such asset dispositions, borrowings other than permitted borrowings, proceeds from losses, and excess net cash flow. The borrower
may also prepay the senior loan in whole or in part with the payment of a prepayment premium.
The
senior loans are secured by all of the assets of BKRF Senior Borrower (including its membership interests in Bakersfield Renewable
Fuels) BKRF Senior Pledgor’s membership interest in BKRF Senior Borrower, and all of the assets of Bakersfield Renewable Fuels
(BKRF Senior Pledgor, BKRF Senior Borrower and Bakersfield Renewable Fuels, collectively, “loan parties”).
The
senior loans mature on November 4, 2026. The Senior Lenders have a right to accelerate the maturity date of the senior loans upon
the occurrence of an event of default. Events of default include, in addition to customary events of default, the change of control
of a loan party, the breach of any material Refinery-related agreement, the bankruptcy of any party to a material Refinery-related
agreement, the failure to substantially complete the retooling of the Refinery by March 31, 2022, and the failure to meet certain
project milestones by dates specified dates in the Credit Agreement.
Under
the Credit Agreement, the loan parties have made a number of affirmative and negative covenants. These include, among others,
limitations and restrictions on incurring other indebtedness, encumbering their assets, making distributions and other payments
to affiliates, entering into transactions with their affiliates, and modifying material project agreements, in each case without
the Senior Lenders’ prior consent. Notwithstanding the foregoing, the loan parties may obtain a working capital credit facility
or facilities of up to $25 million without the consent of the Senior Lenders.
Mezzanine
Credit Facility
BKRF
Mezz Borrower and its direct parent, BKRF Mezz Pledgor, entered into that certain Credit Agreement dated May 4, 2020 with the
Mezzanine Lenders pursuant to which the Mezzanine Lenders have agreed to provide a $65 million secured term loan facility to be
used to pay the costs of repurposing and starting up the Refinery. Orion Energy Partners TP Agent, LLC is the administrative agent
under the Credit Agreement. BKRF Mezz Borrower has not drawn down on the credit facility as of the date of this Current Report.
The
mezzanine loans bear interest at the rate of 15.0% per annum on amounts borrowed, payable quarterly, provided that the borrower
may defer interest to the extent it does not have sufficient cash to pay the interest, such deferred interest being added to principal.
In addition, as additional consideration for the mezzanine loans, the Mezzanine Lenders will be issued Class C Units in BKRF Mezz
Pledgor (see “BKRF Mezz Borrower LLC Agreement,” below).
Principal
of the mezzanine loans is due at maturity provided that the borrower must offer to prepay the loan with any excess net cash flow.
The borrower may also prepay the loan in whole or in part with the payment of a prepayment premium.
The
mezzanine loans are secured by all of the assets of BKRF Mezz Borrower and BKRF Mezz Pledgor, including BKRF Mezz Pledgor’s membership
interest in BKRF Mezz Borrower.
The
mezzanine loans mature in November 2027. The Mezzanine Lenders have a right to accelerate the maturity date of the mezzanine loans
upon the occurrence of an event of default. Events of default include, in addition to customary events of default, the change
of control of a loan party and any default under the Credit Agreement with the Senior Lenders.
The
loan parties are subject to certain affirmative and negative covenants with the lenders. These include, among others, limitations
and restrictions on the loan parties and their subsidiaries incurring other indebtedness, encumbering their assets, making distributions
and other payments to affiliates, entering into transactions with their affiliates, and modifying material project agreements,
in each case without the Mezzanine Lenders’ prior consent.
BKRF
Mezz Borrower LLC Agreement
GCEH
Acquisitions and BKRF Mezz Borrower entered into the BKRF Mezz Borrower LLC Agreement on May 4, 2020. There are three classes
of membership interests (Units) under the LLC Agreement: (i) Class A Units, all of which are held by GCE Acquisitions; (ii) Class
B Units, all of which are reserved for the issuance to the Senior Lenders, and (iii) Class C Units, all of which are reserved
for the issuance to the Mezzanine Lenders.
On
May 7, 2020, concurrently with the initial funding by the Senior Lenders under the Credit Agreement, BKRF Mezz Borrower issued
Class B Units to the Senior Lenders. At such time as the Mezzanine Lender advances funds under the Mezzanine Lender Credit Agreement,
BKRF Mezz Borrower will issue Class C Units to the Mezzanine Lenders.
Under
the BKRF Mezz Borrower LLC Agreement, the Senior Lenders, as holders of the Class B Units, are entitled to receive, until the
Termination Date, quarterly distributions of 25% of the free cash flow until the Senior Lenders have received (collectively, from
these cash distributions plus principal and interest on the senior loans) an amount equal to a 2X multiple of invested capital
(“MOIC”), or two times the amount of the senior loans, for a total of up to $600 million, and, if the Termination Date
has not occurred, thereafter quarterly distributions of 5% of the free cash flow until the Termination Date. The “Termination
Date” is the later to occur of (i) five years from the commercial operations date of the Refinery and (ii) the date the
Senior Lenders have received two times the loan amount under the credit facility.
Under
the BKRF Mezz Borrower LLC Agreement, the Mezzanine Lenders, as holders of the Class C Units, are entitled to receive out of the
distributions by BKRF Mezz Borrower not paid to the Class B Members, the following:
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First,
80.0% of such distributions until the Mezzanine Lenders have received cumulative payments (distributions and principal and
interests on the mezzanine loans) equal to 2.0x MOIC;
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Second,
65.0% of such distributions until the Mezzanine Lenders have received cumulative payments equal to 3.0x MOIC;
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Third,
50.0% of such distributions until the Mezzanine Lenders have received cumulative payments equal to 4.0x MOIC;
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Fourth,
30.0% of such distributions until the Mezzanine Lenders have received cumulative payments equal to 99.00x MOIC.
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The
board of managers of BKRF Mezz Borrower is elected only by the Class A Member. The holders of the Class B Units and the Class
C Units have no voting rights in the election of such managers.
Although
the holders of the Class B Units and the Class C Units do not participate in the management of BKRD Mezz Borrower, certain actions
required the prior consent of the holders of a majority in interest in both the Class B Units and Class C Units. These approval
rights include any affiliate transaction on non-arm’s length terms, the issuance of certain equity securities by BKRF Mezz
Borrower or its subsidiaries, any significant tax decision, any reorganization or other transaction or amendment to the LLC Agreement
that would adversely affect the rights of the Senior Lenders or Mezzanine Lenders with respect to their respective Units; or any
public offering of equity interests of BKRF Mezz Borrower or any of its subsidiaries. Other than these approval rights, the holders
of the Class B Units and the Class C Units have no voting rights under the LLC Agreement.
Engineering,
Procurement and Construction Agreement
GCE
Acquisitions entered into that certain Engineering, Procurement and Construction Agreement dated April 30, 2020 with ARB pursuant
to which ARB has agreed to provide services for the engineering, procurement, construction, start-up and testing of the Refinery.
The agreement, which has been assigned by GCE Acquisitions to BKRF Senior Borrower, provides for ARB to be paid on a cost plus
fee basis subject to a guaranteed maximum price of $201.4 million, subject to increase for approved change orders. The agreement
also requires ARB to substantially complete the Refinery within 600 days following notice to proceed from BKRF Senior Borrower,
and to fully complete the retooling and start-up of the Refinery within six months thereafter, subject in each case to force majeure,
certain change orders and certain other limitations.
Other
Agreements
In
connection with the anticipation of both the work that will be required to retool the Refinery, and the future operations of the
Refinery after the completion of its retooling, the Company has also entered into a number of other agreements, including the
following:
1.
A license to a third party’s proprietary processes, catalysts and designs to produce renewable diesel from organically derived
feedstocks, and engineering services related to the licensed proprietary rights. The Company also has issued purchase orders for
the necessary catalysts.
2.
Construction contracts of underground pipeline installation and for the extension of the railroad track located on the Refinery’s
site.
3.
A License Agreement with GCEH’s wholly owned subsidiary, Sustainable Oils, Inc., to utilize its intellectual property and
registered plant patents to grow patented varieties of camelina for the purpose of producing camelina oil as a feedstock for use
at the Refinery. Under the license, Sustainable Oils also agreed to manage the deployment of the purpose grown camelina at farms
throughout the U.S., to add incremental feedstock to the market and reduce both the cost of non-food based plant oil and reduce
the carbon intensity of the finished fuel to increase the product value.
4.
A Product Offtake Agreement (the “Offtake Agreement”) with a multinational oil major (the “Offtake Partner”).
Under the Offtake Agreement, subject to the various conditions specified in that agreement, the Offtake Partner has committed
to purchase and distribute at least 6,800 barrels of renewable diesel per day starting in early 2022. The initial term of the
Offtake Agreement is for a five-year period that starts on the date that commercial production commences at the Refinery.
