Nature of the Case
To access this section all you need to do is click here and register.
Facts
P invests in oil and gas equipment. Mike Mullen Energy Equipment Resource, Inc. (MMEER) contracted with Dalian Shipbuilding Industry Offshore Co., Ltd. (DSIC) to build the rig for $150 million, with an expected delivery date of June 2015. DSIC required that P and MMEER make an initial payment of $15 million, with the remaining balance due on delivery of the rig more than two years later. On February 22, 2013, D, MMEER's principal, went to P's offices to discuss the specific terms of the joint investment with Claar, P's principal. D and Claar negotiated the terms of an 'agreement among investors.' The Agreement contemplated an initial $9 million payment to DSIC, the parties also needed to raise an additional $6 million for the initial deposit, $5 million for early operating expenses, and $135 million to cover the rest of the contract with DSIC. The parties ultimately raised $164 million for the DSIC contract. D and Claar discussed the fact that a large portion of the additional funds would need to come from other equity investors. The parties understood that the completion of the project could require raising substantial cash, which would dilute both P and MMEER's respective stake in the joint venture. Claar expressed concern that P and MMEER might not be able to raise the additional money and that even if they did, the value of P's initial investment would be subject to significant dilution by the addition of other equity investors. D suggested that P be given the option, on an annual basis, to 'put' its investment to MMEER, and that P be repaid at a 12% interest rate. Claar questioned whether MMEER would have enough cash to satisfy the put obligation. D responded that he would personally guarantee MMEER's put obligation. D stated that he had the money to cover his guaranty and would have significant cash inflows the following year and that he had real estate assets in Los Cabos, Mexico, and Aspen, Colorado, in addition to his home in Dallas, Texas, which he could use to meet his guaranty. P agreed to contribute $6 million and MMEER agreed to contribute $1.5 million to jointly form CBI-MMEER Accommodations Ltd. P then had the option of raising an additional $1.5 million from third parties. The ownership of Accommodations Ltd. was divided on the basis of these contributions, with P owning 66.67%, MMEER owning 16.66%, and a group of third parties organized by P owning 16.66%. Section 3 of the Agreement contained a provision granting P the option to put its investment to MMEER for $6 million cash, plus 12% annual interest. P could exercise the Put Provision at its sole discretion by providing email notice to MMEER at any time up to March 1 of 2014, 2015, or 2016. The Put Provision states, 'P agrees to provide his personal guarantee to stand behind the [p]ut to MMEER in order to ensure payment in full if necessary' (the 'Personal Guaranty'). In February 2016, P sent D an email notice stating that P was exercising its put option and requesting payment. Neither party had raised any equity beyond the $9 million contemplated in the Agreement and the only other financing was through debt, so neither party's initial investment had been diluted. By letter dated April 27, 2016, P stated to D that the Agreement was 'unenforceable,' that he was not 'personally under any obligation to guarant[ee] such a put,' and that he was refusing to pay. P sued D to enforce the Put Provision alleging that $12,033,340 is due as of the filing of the complaint. According to D and MMEER, before the parties entered into any agreements, Claar represented to MMEER that he and P were 'sophisticated financiers' who, in addition to providing a portion of an initial payment to build the accommodation rig, could obtain $150 million in debt financing necessary to complete the rig. Based on these representations, MMEER and P entered into the Agreement, whereby P agreed to obtain all debt financing beyond the initial payment and MMEER agreed to handle the construction planning and technical compliance for the rig. MMEER claims that the debt financing P was to obtain included a loan of approximately $100 million from the Bank of China. P failed to procure the money prompting MMEER to seek other sources of financing. MMEER learned of an opportunity to place a bid to lease an accommodation rig to Maersk Oil & Gas Denmark. Accommodations Ltd. placed a bid and won the contract which imposed a delivery date for the rig, which meant that Accommodations Ltd. had to raise substantial financing on a short timeline to complete construction. MMEER alleges that because the parties had to raise funds quickly to compensate for the financing shortfall of P's making, P ended up negotiating a financing arrangement that contained unfavorable terms. The value of the Maersk Contract to Accommodations Ltd. decreased by $191 million. MMEER sued P for these damages.
Support@ bsmsphd.com
Casebriefs Co