Item 1.01. Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On May 20, 2019, Isramco, Inc. (“Isramco”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Isramco, Naphtha Israel Petroleum Corporation Ltd., an Israeli public company (“Naphtha”), Naphtha Holding Ltd., an Israeli private company and a direct wholly owned subsidiary of Naphtha (“NHL”), I.O.C. - Israel Oil Company, Ltd., an Israeli private company and a direct wholly owned subsidiary of Naphtha (“Parent”), and Naphtha US Oil, Inc., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Merger Sub” and, together with Naphtha, NHL and Parent, the “Purchaser Parties,” and together with Isramco, each a “Party” and collectively the “Parties”) providing for the merger of Merger Sub with and into Isramco (the “Merger”), with Isramco surviving the Merger as a subsidiary of Parent and NHL. Mr. Haim Tsuff is the chief executive officer and the chairman of the board of directors (the “Board”) of Isramco. Mr. Tsuff is the sole director and owner of United Kingsway Ltd. which holds 74.0% of the outstanding membership interests in each of YHK Investment L.P. (“YHP LP”), an Israeli limited partnership, and YHK General Manager Ltd. (“YHK Manager”), an Israeli private company that serves as the general partner of YHP LP. Mr. Tsuff is the chairman of YHK Manager (which entity effectively controls Naphtha, NHL and Parent) and currently beneficially owns approximately 73.0% of the outstanding shares of Isramco’s common stock, par value $0.01 per share (the “Common Stock”).
At the effective time of the Merger, each issued and outstanding share of Common Stock, other than shares owned by Isramco as treasury stock, shares owned by NHL or Parent, and shares owned by holders of Common Stock who shall neither have voted in favor of the Merger nor consented thereto in writing and who shall have properly and validly perfected, and not effectively withdrawn or lost, their statutory appraisal rights under Delaware law (such shares of Common Stock “dissenting shares”), will be converted into the right to receive $121.40 in cash per share, without interest and subject to any withholding taxes (the “Merger Consideration”).
The Board (other than Mr. Tsuff, who recused himself from the vote of the Board), acting upon the recommendation of a special committee of independent and disinterested directors (the “Special Committee”), (i) determined that the Merger Agreement and the transactions contemplated thereby (the “Contemplated Transactions”), including the Merger, are advisable and fair to, and in the best interests of, Isramco and Isramco’s stockholders, other than the Purchaser Parties or any of their affiliates (together, the “Purchaser Group”) and any officer of Isramco as determined in accordance with Rule 16a-1(f) promulgated under Securities Exchange Act of 1934, as amended (together, the “Section 16 Officers”), (ii) approved the Merger Agreement and the Contemplated Transactions, including the Merger, and (iii) resolved to recommend that Isramco’s stockholders approve the adoption of the Merger Agreement.
Stockholders of Isramco will be asked to vote on the adoption of the Merger Agreement at a special stockholders meeting to be held on a date to be announced. Under Isramco’s certificate of incorporation, the affirmative vote of the holders of not less than 75% of the outstanding shares of Common Stock, entitled to vote in the election of directors, is required to approve and adopt the Merger Agreement and such stockholder approval will also satisfy requirements of the General Corporation Law of the State of Delaware. In addition, the consummation of the Merger is subject to a non-waivable condition that the holders of a majority of outstanding shares of Common Stock not beneficially owned by any member of the Purchaser Group or any Section 16 Officer shall have voted in favor of the adoption of the Merger Agreement.
Each Party’s obligation to consummate the Merger is also subject to certain other conditions, including (i) the absence of any legal restraint with respect to the Merger; (ii) the continued accuracy of the representations and warranties of the Purchaser Parties, in the case of Isramco, and of Isramco, in the case of the Purchaser Parties, as contained in the Merger Agreement (subject to certain qualifiers, as applicable); and (iii) and compliance in all material respects with the covenants and agreements contained in the Merger Agreement by the Purchaser Parties, in the case of Isramco, and by Isramco, in the case of the Purchaser Parties. In addition, the Purchaser Parties’ obligation to consummate the Merger is also subject to the condition that no more than 8% of the outstanding shares of Common Stock as of immediately prior to the closing of the Merger shall be dissenting shares. Isramco has made customary representations and warranties and covenants in the Merger Agreement.
The Purchaser Parties have informed Isramco that they intend to fund the payment of the aggregate Merger Consideration from cash on hand. The Merger is not subject to a financing condition.
Isramco is subject to customary non-solicitation provisions, whereby, among other things, Isramco and its subsidiaries have agreed not to solicit or initiate, or knowingly facilitate or knowingly encourage the submission of an alternative acquisition proposal. However, Isramco will be able to respond to and engage in discussions of certain unsolicited acquisition proposals, subject to certain conditions, if the Board or an independent committee of the Board (including the Special Committee) determines in good faith that such proposals are or could lead to superior proposals, such proposals did not result from Isramco’s material breach of its obligations under such non-solicitation provisions of the Merger Agreement (other than any such breach caused by a Purchaser Party) and, if the Board or an independent committee of the Board (including the Special Committee) determines, after consultation with its counsel, that the failure to take action concerning such proposals would be inconsistent with its fiduciary duties under applicable law. The Board or an independent committee of the Board (including the Special Committee) may change its recommendation to approve the Merger if (i) in response to an intervening event either not known or not reasonably foreseeable to the Special Committee prior to May 20, 2019, the Board or an independent committee of the Board (including the Special Committee) determines, after consultation with its outside legal counsel, that the failure to take action concerning such intervening event would be inconsistent with its fiduciary duties under applicable law or (ii) in response to an alternative acquisition proposal, the Board or an independent committee of the Board (including the Special Committee) determines in good faith, after consultation with its financial advisor and outside legal counsel, that such acquisition proposal constitutes a superior proposal, including a proposal for the acquisition of all outstanding shares of Common Stock not beneficially owned by any member of the Purchaser Group or any Section 16 Officer, and in each case that the failure to take such action would be inconsistent with its fiduciary duties under applicable law.
The Merger Agreement contains certain termination rights for both Isramco and Parent, and further provides that upon the termination of the Merger Agreement under certain circumstances, Isramco will be required to pay Parent an expense reimbursement amount equal to $1,500,000 in immediately available funds or Parent will be required to pay Isramco an expense reimbursement amount equal to $1,500,000 in immediately available funds (as applicable). Subject to certain limitations, either Isramco or Parent may terminate the Merger Agreement if the Merger is not consummated by February 27, 2020.
Voting and Support Agreement
In connection with the Merger Agreement, Parent, Isramco, NHL and Mr. Tsuff entered into a Voting and Support Agreement, dated as of May 20, 2019 (the “Support Agreement”). Per the terms and conditions set forth in the Support Agreement, Parent, NHL and Mr. Tsuff have each agreed to vote, or cause to be voted, all shares of Common Stock beneficially owned by each such party (representing an aggregate of approximately 73.0% of Isramco’s total outstanding voting power as of March 31, 2019) for the adoption of the Merger Agreement.
The foregoing descriptions of the Merger Agreement and the Support Agreement do not purport to describe all of the terms of such agreements and are qualified in their entirety by the full text of such agreements, copies of which are filed as exhibits to this Current Report on Form 8-K.
The foregoing description of the Merger Agreement attached hereto as Exhibit 2.1, the Support Agreement attached hereto as Exhibit 10.1 and the other exhibits to this Current Report on Form 8-K furnished herewith are intended to provide information regarding the terms of the Merger Agreement and the Support Agreement and are not intended to modify or supplement any factual disclosures about Isramco in its public reports filed with the U.S. Securities and Exchange Commission (the “SEC”). In particular, the Merger Agreement and the Support Agreement and the related summaries are not intended to be disclosures regarding any facts and circumstances relating to Isramco or any of its subsidiaries or affiliates. The Merger Agreement and the Support Agreement contain representations and warranties made by Isramco and the Purchaser Parties, which were made only for purposes of the Merger Agreement and the Support Agreement, respectively, and only as of the specified dates provided therein. The representations, warranties and covenants in the Merger Agreement and the Support Agreement were made solely for the benefit of the Parties, may be subject to limitations agreed upon by the Parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the Parties rather than 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. In addition, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in Isramco’s public disclosures. The Merger Agreement and the Support Agreement should not be read alone, but should instead be read in conjunction with the other information regarding Isramco that is or will be contained in, or incorporated by reference into, the documents that Isramco files or has filed with the SEC.