9.Subsequent Events

 

Proposed Business Combination

 

Agreement to Assign

 

On July 21, 2016, the Company entered into an Agreement to Assign (the “Agreement to Assign”) with New Centennial, LLC (“New Centennial”), an affiliate of Riverstone Holdings, LLC (“Riverstone”), pursuant to which New Centennial agreed to assign, and the Company agreed to assume, all of the rights and obligations of New Centennial under that certain Contribution Agreement, dated as of July 6, 2016 (as amended by Amendment No. 1 to Contribution Agreement, dated as of July 29, 2016, the “Contribution Agreement”), by and among Centennial Resource Development, LLC (“CRD”), NGP Centennial Follow-On LLC, (“NGP Follow-On”), and Celero Energy Company, LP, (“Celero” and, together with CRD and NGP Follow-On, the “Centennial Contributors”), Centennial Resource Production, LLC (“CRP”), and New Centennial.  Upon the assignment of the Contribution Agreement (the “Assignment”), at the closing of the transactions contemplated thereby (the “Transactions”), the Company will acquire approximately 89% of the outstanding membership interests in CRP.

 

The Assignment is subject to a number of conditions, including approval of the Transactions by the Company’s stockholders and the effectiveness of the Subscription Agreements (as defined below).  The Agreement to Assign contains customary representations, warranties and covenants and may be terminated by the parties thereto as set forth therein, including if approval of the Transactions by the Company’s stockholders has not been received by October 10, 2016.  The Transactions will constitute a “Business Combination” under the Company’s amended and restated certificate of incorporation.

 

Contribution Agreement

 

Pursuant to the Contribution Agreement, New Centennial agreed to acquire approximately 89% of the outstanding membership interests in CRP.  Upon the Assignment, the Company will become a party to the Contribution Agreement and will have the right to acquire the membership interests in CRP instead of New Centennial.  In the summary below, it is assumed that the Assignment has occurred.

 

At the Closing (i) the Company will contribute to CRP (a) cash in the amount of (x) $1,186,744,348, plus (y) $200,000,000 if the Centennial Contributors make a cash election (as provided in the Contribution Agreement), and (b) additional cash as necessary to repay certain outstanding debt of CRP or any of its subsidiaries at the closing of the Transactions, (ii) CRP will distribute to the Centennial Contributors the cash consideration in partial redemption of their membership interests in CRP (or in full redemption if the cash election has been made), and (iii) CRP will be recapitalized and (a) provided a cash election is not made, all of the remaining outstanding membership interests in CRP will be converted into 20,000,000 units representing common membership interests in CRP, and (b) the Company will be issued such number of CRP common units as is equal to the number of shares of Class A common stock outstanding following consummation of the Transactions.

 

If the Centennial Contributors do not make the cash election, the Company expects to issue (i) shares of a new class of common stock to the Centennial Contributors designated as the Class C common stock to effect an “Up-C” structure following the Transactions, and (ii) one share of a newly issued class of preferred stock to CRD to effect its right to nominate one member to the board of directors of the Company, the election of which will require only the vote of such preferred share.  Each holder of Class C common stock will hold an equivalent number of common units of CRP.  The Class C common stock will have no economic interest, but will vote as a single class with the Class A common stock.

 

New Centennial has deposited $157,500,000 into escrow as an earnest money deposit.  Under certain circumstances in which CRP would not have sufficient cash to distribute to the Centennial Contributors at the closing the full amount of the cash consideration, the Centennial Contributors may either cause CRP to (i) terminate the Contribution Agreement and receive the deposit or (ii) distribute the maximum amount of cash available to the Centennial Contributors and issue to each Centennial Contributor a promissory note, with such notes having an aggregate principal amount equal to the difference between the cash consideration and the actual aggregate amount of cash available for distribution to the Centennial Contributors.  If the Transactions are consummated, New Centennial is entitled to the return of the deposit.

 

The Contribution Agreement contains certain termination rights and customary representations, warranties and covenants.  The Contribution Agreement also contains certain closing conditions, including approval of the Transactions by the Company’s stockholders. If such stockholder approval is not received by October 10, 2016, New Centennial will be obligated to consummate the Transactions, on the terms and conditions set forth in the Contribution Agreement.

 

Subscription Agreements

 

In connection with the Transactions, on July 21, 2016, the Company entered into subscription agreements (the “Investor Subscription Agreements”) with certain accredited investors pursuant to which such investors agreed to purchase, in the aggregate, 20,000,000 shares of Class A Common Stock for an aggregate commitment amount of $200,000,000.

 

On the same date, the Company entered into a separate subscription agreement (the “Riverstone Subscription Agreement” and, together with the Investor Subscription Agreements, the “Subscription Agreements”), with an affiliate of Riverstone (the “Riverstone Affiliate”), pursuant to which the Riverstone Affiliate agreed to purchase up to 81,005,000 shares of Class A Common Stock for an aggregate commitment amount of approximately $810,000,000.  The Riverstone Affiliate may assign its rights under the Riverstone Subscription Agreement to one or more parties.

 

Pursuant to the Riverstone Subscription Agreement, the Riverstone Affiliate has also agreed to be ready, willing and able to purchase additional shares of Class A Common Stock at $10.00 per share in an amount such that the proceeds therefrom, together with certain other available funds, will be sufficient for the Company to pay the cash consideration in the Transactions, repay certain outstanding indebtedness of CRP, offset any redemptions of public shares in connection with the Transactions, and pay transaction-related expenses incurred by the Company.

 

The closings under the Subscription Agreements are conditioned on the closing of the Transactions, as well as on other customary closing conditions.  The Subscription Agreements contain customary representations and warranties and may be terminated as set forth therein.

 

Promissory Note

 

On August 2, 2016, the Company issued a promissory note to the Sponsor.  The promissory note permits borrowings by the Company from time to time from the Sponsor in an aggregate principal amount of up to $300,000.  No amounts were outstanding under the promissory note as of August 11, 2016. The promissory note is unsecured, non-interest bearing and matures on the earlier of: (i) December 31, 2016 or (ii) the date on which the Company consummates the proposed Transactions.