Item 1.01 Entry Into A Material Definitive Agreement.
On December 20, 2016, KLR Energy Acquisition Corp. ( “KLRE”) entered into a Business Combination Agreement (the “Business
Combination Agreement”) with Tema Oil and Gas Company (“Tema”), pursuant to which KLRE will acquire (the “Business Combination”), assuming no redemptions, approximately 39% of the equity of a wholly-owned subsidiary of
Tema to be named Rosehill Operating Company, LLC (“Rosehill LLC”), to which Tema will contribute certain assets and liabilities prior to closing of the Business Combination, for aggregate consideration of $35 million in cash, 4,000,000
Warrants exercisable for shares of KLRE Class A Common Stock (each entitling the holder to purchase one share of Class A Common Stock for $11.50) (each, a “Warrant”), additional cash held by KLRE in its trust account and in connection
with the Private Placement (as defined below), and the assumption of $55 million in debt, subject to certain customary purchase price adjustments. In the Business Combination, Tema will obtain a majority of the voting shares of KLRE and will retain
a majority of its equity in Rosehill LLC. The Business Combination Agreement and the transactions contemplated thereby were approved by the Board of Directors of KLRE (the “Board”) on December 15, 2016.
The transactions set forth in the Business Combination Agreement will result in an “Initial Business Combination” involving KLRE,
pursuant to KLRE’s Amended and Restated Certificate of Incorporation.
The Business Combination Agreement and Side Letter
Financing
KLRE intends to finance the
consideration for the Business Combination through a combination of cash held in its trust account and the proceeds of the private placement of 8.0% Series A Cumulative Perpetual Preferred Stock (the “Series A Preferred Stock”)
and Warrants to certain qualified institutional buyers and accredited investors (the “Private Placement”). For additional information about the Private Placement, see “Subscription Agreements” below.
Stockholder Redemptions
Upon the
consummation of the Business Combination, and as a condition thereof, KLRE will provide its public stockholders the opportunity, at their election, to redeem all or a portion of their shares of Class A Common Stock at a per-share price, payable
in cash, equal to the aggregate amount then on deposit in the trust account of KLRE as of two business days prior to the consummation of the Business Combination. Tema’s parent, Rosemore, Inc. (“Rosemore”), and KLRE’s sponsor,
KLR Energy Sponsor, LLC (“KLR Sponsor”), have agreed to backstop redemptions by the public stockholders of KLRE in excess of 30% of the outstanding shares of Class A Common Stock by purchasing shares of Class A Common Stock or
Series A Preferred Stock in an amount up to $20 million pursuant to a side letter entered into between Rosemore, KLR Sponsor and KLRE (the “Side Letter”). The foregoing description of the Side Letter does not purport to be complete and is
qualified in its entirety by the terms and conditions of the Side Letter, a copy of which is filed hereto as Exhibit 10.5 and is incorporated herein by reference.
Representations, Warranties and Covenants; Indemnification
The Business Combination Agreement contains customary representations and warranties, covenants and indemnification provisions, as more
particularly set forth in the Business Combination Agreement.
Conditions to Consummation of the Business Combination
Consummation of the transactions contemplated by the Business Combination Agreement is subject to certain closing conditions, including, among
others, (i) the requisite KLRE stockholder approval; (ii) the absence of governmental restraints or prohibitions preventing the consummation of the Business Combination; (iii) the completion by KLRE of a process pursuant to which the
public stockholders are given an opportunity to redeem their shares of Class A Common Stock; (iv) approvals under relevant U.S. and foreign competition and antitrust laws; (v) the accuracy of certain representations and warranties of
the parties; (v) performance by each of the parties of their obligations under the Business Combination Agreement; (vi) the consummation of the transactions contemplated by the contribution agreement pursuant to which Tema will contribute
certain assets and liabilities to Rosehill LLC; (vii) consummation of the Private Placement and any replacement debt financing; (viii) the approval for listing on the The NASDAQ Stock Market (“NASDAQ”) of newly issued KLRE common
stock to be issued in connection with the Business Combination and (ix) that KLRE have Available Cash (as defined in the Business Combination Agreement) in an amount not less than $92 million.
Termination
The Business Combination Agreement may be terminated at any time prior to the consummation of the Business Combination (whether before or after
the required KLRE stockholder vote has been obtained) by mutual written consent of KLRE and Tema and in certain other limited circumstances, including if the Business Combination has not been consummated by May 31, 2017.
The foregoing description of the Business Combination Agreement and the transactions contemplated thereby does not purport to be complete and
is qualified in its entirety by the terms and conditions of the Business Combination Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference. The Business Combination Agreement contains representations,
warranties and covenants that the respective parties made to each other as of the date of such agreement or other specific dates. The assertions embodied in those representations, warranties and covenants were made for purposes of the contract among
the respective parties and are subject to important qualifications and limitations agreed to by the parties in connection with negotiating such agreement. The Business Combination Agreement has been attached to provide investors and shareholders
with information regarding its terms. It is not intended to provide any other factual information about KLRE or any other party to the Business Combination Agreement. In particular, the representations, warranties, covenants and agreements contained
in the Business Combination Agreement, which were made only for purposes of that agreement and as of specific dates, were solely for the benefit of the parties to the Business Combination Agreement, may be subject to limitations agreed upon by the
contracting parties (including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Business Combination Agreement instead of establishing these matters as facts) and may be
subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors and security holders. Investors and security holders are not third-party beneficiaries under the Business Combination Agreement
and should not rely on the representations, warranties, covenants and agreements or any descriptions thereof as characterizations of the actual state of facts or condition of any party to the Business Combination Agreement. Moreover, information
concerning the subject matter of the representations and warranties may change after the date of the Business Combination Agreement, which subsequent information may or may not be fully reflected in KLRE’s public disclosures.
Waiver Agreement
In connection
with the Business Combination, on December 20, 2016, KLRE entered into the Waiver Agreement (the “Waiver Agreement”) with KLR Sponsor pursuant to which KLR Sponsor agreed to cap (a) the number of shares of Class A Common Stock to
be received by KLR Sponsor pursuant to KLRE’s Amended and Restated Certificate of Incorporation upon conversion of the shares of Class F Common Stock held by KLR Sponsor in connection with the Business Combination at 4,250,000 shares of
Class A Common Stock and (b) the number of Warrants that KLR Sponsor will hold prior to the consummation of the Business Combination at 7,863,150 Warrants.
The foregoing description of the Waiver Agreement does not purport to be complete and is qualified in its entirety by the terms and conditions
of the Waiver Agreement, a copy of which is filed hereto as Exhibit 10.6 and is incorporated herein by reference.
Shareholders’ and Registration Rights Agreement
Concurrently with the execution of the Business Combination Agreement, KLRE entered into the Shareholders’ and Registration Rights
Agreement (the “SHRRA”) with KLR Energy Sponsor LLC (“KLR Sponsor”), Tema (each a “Sponsor” and together, the “Sponsors”) and Anchorage Illiquid Opportunities V, L.P. and AIO AIV 3 Holdings, L.P.
(collectively, “Anchorage”), the primary investor in the Private Placement, which will govern the rights and obligations of the Sponsors and Anchorage with respect to KLRE following the closing of the Business Combination. Pursuant to the
terms of the SHRRA, and subject to certain exceptions, the Sponsors will be bound by restrictions on the transfer of (i) 33% of their Common Stock (as defined in the SHRRA) through the first anniversary of the Closing Date and (ii) 67% of
their Common Stock through the second anniversary of the closing of the Business Combination,
provided
that sales of Common Stock above certain specified prices will be permitted between the first and second anniversaries of the closing of
the Business Combination.
Upon the consummation of the Business Combination, the Sponsors and Anchorage will be entitled to certain
registration rights, including the right to initiate two underwritten offerings in any twelve-month period and unlimited piggyback registration rights, subject to customary black-out periods, cutback provisions and other limitations as set forth in
the SHRRA. Pursuant to the SHRRA, as promptly as practicable and in no event later than seven days following the completion of the Business Combination, KLRE has agreed to file with the Securities and Exchange Commission (the “SEC”) a
shelf registration statement relating to the offer and sale of the Registrable Securities (as defined in the SHRRA) owned by the Sponsors and Anchorage (and any permitted transferees) and to keep such shelf registration statement effective on a
continuous basis until the date as of which all such Registrable Securities have been sold or another registration statement is filed under the Securities Act of 1933, as amended (the “Securities Act”).
Subject to specified ownership thresholds, KLR Sponsor will be entitled to designate two directors for appointment to the Board, Tema will be
entitled to designate four directors and Anchorage will be entitled to designate one director. Each Sponsor and Anchorage will be entitled to appoint a representative or observer on each committee of the Board. KLR Sponsor will initially designate
Gary C. Hanna (who will serve as the Chairman of the Board) and Edward Kovalik, Tema will initially designate J.A. (Alan) Townsend, Frank Rosenberg, Paul Ebner and an individual to be named and Anchorage will designate an individual to be named. The
Sponsors and Anchorage intend to designate the full slate of the Board pursuant to the SHRRA prior to the closing of the Business Combination and such proposed directors will be identified in the definitive proxy materials distributed to KLRE’s
stockholders. Pursuant to the terms of the SHRRA, each Sponsor must vote for the designees of the other Sponsors and is entitled to replace any of its designees that are removed from the Board.
Also pursuant to the SHRRA, during the period beginning on the date of closing of the Business Combination and ending on the two year
anniversary thereof, the Board may not approve, or cause Rosehill Operating to approve, certain Major Transactions (as such defined in the SHRRA) without the affirmative vote of at least 70% of the directors then serving on the Board. In addition,
Anchorage will have preemptive rights under the SHRRA to participate in future equity issuances by KLRE, subject to certain exceptions, so as to maintain its then-current percentage ownership of our capital stock.
The SHRRA will terminate upon the valid termination of the Business Combination Agreement in accordance with its terms. In addition, certain
rights and obligations of the Sponsors and Anchorage under the SHRRA will automatically cease if such Sponsors and Anchorage (i) no longer hold any equity securities of KLRE or (ii) no longer have the right to designate an individual for
nomination to the Board.
The foregoing description of the SHRRA does not purport to be complete and is qualified in its entirety by the
terms and conditions of the Stockholders Agreement, a copy of which is filed hereto as Exhibit 4.1 and is incorporated herein by reference.
Subscription Agreements
In
connection with its entry into the Business Combination Agreement, KLRE entered into Subscription Agreements, each dated as of December 20, 2016, with KLR Sponsor and each of The K2 Principal Fund, L.P., Anchorage Illiquid Opportunities V,
L.P., AIO V AIV 3 Holdings, L.P. and Geode Diversified Fund, a segregated account of Geode Capital Master Fund Ltd., pursuant to which, among other things, KLRE will issue and sell in a private placement an aggregate of 75,000 shares of Series A
Preferred Stock,
which will be convertible into shares of Class A Common Stock at a conversion price of $11.50 per share (subject to certain adjustments) and (b) 5,000,000 Warrants for aggregate gross
proceeds of $75 million. Additionally, KLR Sponsor agreed to contribute an aggregate of up to 734,704 shares of Class A Common Stock to the purchasers in the Private Placement. The proceeds from the Private Placement will be used to fund the
cash portion of the consideration required to effect the Business Combination and for general corporate purposes, including to finance development and acquisition activities following the consummation of the Business Combination. The Private
Placement is conditioned upon, and is expected to close concurrently with, the Business Combination.
Pursuant to the Subscription
Agreements, purchasers of Series A Preferred Stock and Warrants in the Private Placement will be entitled to certain registration rights, subject to customary black-out periods, cutback provisions and other limitations as set forth therein.
The foregoing description of the Subscription Agreements does not purport to be complete and is qualified in its entirety by the terms
and conditions of the Subscription Agreements, copies of which are filed hereto as Exhibits 10.1, 10.2, 10.3 and 10.4 and are incorporated herein by reference.