Item
1.01 Entry Into A Material Definitive Agreement.
On
November 12, 2017, National Energy Services Reunited Corp., a British Virgin Islands company (the “
Company
”
or “
NESR
”), entered into the following agreements (the “
Transactions
”) to acquire the shares
of two independent oil field service companies operating in the Middle East and North Africa, Gulf Energy S.A.O.C. (“
Gulf
Energy
”) and NPS Holdings, Ltd. (“
NPS
”):
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a
Stock Purchase Agreement (“
NPS SPA
”) entered among NESR and Hana Investments
Co. WLL
(“
HIC
”)
,
as purchasers, two individuals and four private equity funds owning all the shares of
NPS (collectively, the “
Selling Stockholders
”), and NPS, pursuant
to which the Selling Stockholders agreed to sell to the Company and HIC, in a separate
closing for each purchaser, 100% of the NPS shares, and pursuant to which HIC agreed
to exchange its portion of the acquired NPS shares for NESR shares valued at $11.244
per share at the time that NESR completes its closing of the Transaction (the “Closing”)after
obtaining shareholder approval ;
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a
Form of Relationship Agreement (the “
ANI Relationship Agreement
”)
with Al Nowais Investments LLC (“
ANI
”), pursuant to which the Company
agrees, until such time as ANI or its affiliates no longer hold at least 50% of the number
of NESR ordinary shares acquired pursuant to the NPS SPA, to (i) nominate to the Company’s
Board of Directors (the “Board”) a person designated by ANI and (ii) permit
one additional representative of ANI to observe the meetings of the Board in a non-voting
capacity;
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a
Form of Relationship Agreement (the “
WAHA Relationship Agreement
”)
with WAHA Finance Company (“
WAHA
”) pursuant to which the Company agrees,
until such time as WAHA or its affiliates no longer hold at least 50% of the number of
NESR ordinary shares acquired pursuant to the NPS SPA, to (i) nominate to the Board a
person designated by WAHA and (ii) permit one additional representative of WAHA to observe
the meetings of the Board in a non-voting capacity;
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a
Stock Purchase Agreement (“
Gulf Energy SPA
” and together with the
NPS SPA, the “
SPAs
”) among the Company and Mubadarah Investments LLC
(“
Seller
”), Hilal Al Busaidy (“
Hilal
”), Yasser
Said Al Barami (“
Yasser”
and together with Hilal, the “
Founders
”),
whereby the Company will acquire 61% of the outstanding shares of Gulf Energy through
a stock exchange for NESR ordinary shares valued at $10.00 per share;
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a
Contribution Agreement (“
SV3 Contribution Agreement”
“) between
the Company and
SV3 Holdings, Pte
Ltd (“
SV3
”), pursuant to which the Company will acquire
27.3%
of Gulf Energy shares from SV3 (the “
SV3 Contribution
”) in exchange
for NESR ordinary shares valued at $10.00 per share;
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a
Shares Exchange Agreement (“
Shares Exchange Agreement
”) between the
Company and NESR Holdings Ltd., a British Virgin Island company (“
Sponsor
”),
whereby Sponsor will assign 11.7% of the outstanding shares of Gulf Energy to the Company
in exchange for the Company assuming certain outstanding liabilities of the Sponsor;
and
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a
Voting Agreement with SV3 (“
SV3 Voting Agreement
”), relating to the
Company’s agreement to nominate for election to the Board a nominee of SV3 and
to allow at least one additional observer to attend Board meetings so long as SV3 and
its affiliates maintain a certain percentage of NESR shares that SV3 and its affiliates
will acquire pursuant to the SV3 Contribution Agreement.
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The
Board has approved the Transactions, partially relying on an opinion of JP Morgan, its financial advisor, as to the fairness of
the total price paid for the combined entities. NESR will submit to the Securities and Exchange Commission in the coming weeks
a Proxy Statement (the “Proxy”) for soliciting a vote of the shareholders of NESR to approve the Transactions and
thus qualify to release the funds from the NESR trust, less any amounts that are returned pursuant to demands for redemption by
any NESR shareholders, to complete the acquisitions (such acquisitions, together, the “
Business Combination
”).
The
NPS Transaction
NPS
SPA
The
Selling Stockholders agreed pursuant to the NPS SPA to sell to NESR and HIC 100% of the 370,000,000 outstanding NPS shares in
two (2) separate closings. The total consideration to be paid to Selling Stockholders, assuming no NPS Leakage (defined below)
adjustments, will be $442.8 million in cash plus 11,318,827 ordinary shares of NESR valued at $10.00 per share. Selling Stockholders
have elected to receive a distribution out of certain receivables proceeds from NPS, expected to be paid before the NESR Closing,
of $48 million (the “Receivable Proceeds”).
First
Closing
. HIC has agreed in the NPS SPA to pay $150 million of the total cash requirements to certain Selling Shareholders
to purchase 83,660,878 shares of NPS. The Selling Stockholders mutually agreed on the proportion of cash to be received by each
of the Stockholders and on the allocation of NESR shares to be received among the Selling Stockholders who would remain shareholders
in NESR through the NESR Closing.
Second
Closing.
Upon approval by the shareholders of NESR, NESR agrees to buy the remaining outstanding NPS shares by (i) paying
the remaining $292.8 million cash required and (ii) ordinary shares of NESR stock valued at $10.00 per share for the balance of
the purchase price, adjusted for any NPS Leakage. “
NPS Leakage
” is defined in the NPS SPA to cover transfers
or removals of assets from NPS for the benefit of the Selling Stockholders, other than Receivable Proceeds. The date of closing
shall be the “
NESR Closing Date
”.
Contemporaneously
on the NESR Closing Date, HIC shall transfer the 83,660,878 NPS shares it acquired from Selling Stockholders to NESR in exchange
for NESR shares valued at $11.244 per share, which will result in issuance of 13,340,448 NESR shares to HIC.
Earnout
Consideration.
Potential earn-out mechanisms enable the Selling Stockholders to receive additional consideration after the
NESR Closing Date as follows:
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Cash
Earn-Out: NESR agreed to pay an additional $7,572,444 in cash payable upon renewal of a major customer contract by NPS or
its
subsidiaries, provided the renewal is on materially the same terms.
Such customer contract will not be deemed to be renewed on materially the same terms
if some
services are excluded or prices are materially reduced from the prior year upon
renewal.
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Equity
Stock Earn-Out: Up to 1,671,704 shares of NESR stock would be issued to the Selling Stockholders
that exchange their shares for NESR stock, if the 2018 EBITDA of NESR satisfies scheduled
financial thresholds.
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Second
Equity Stock Earn-Out: Up to an additional 1,671,704 shares of NESR stock would be issued
to the Selling Stockholders if the 2018 EBITDA of NESR satisfies scheduled thresholds
higher than first Equity Stock Earn-Out financial thresholds.
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NESR
is subject to certain penalties for delays in receiving shareholder approval to complete the Business Combination. The Selling
Shareholders have negotiated a “Ticking Fee” that will begin to accrue daily on cash not paid by December 31, 2017.
If the Business Combination does not occur by December 31, 2017, the daily Ticking Fee for NESR’s cash consideration is
about $147,300. HIC controls when it chooses to close prior to the NESR Closing Date, but if HIC chooses not to close until after
December 31, 2017, HIC’s daily Ticking Fee will be approximately $75,500. There is no Ticking Fee on the equity portion
of the consideration received by the reinvesting Selling Stockholders.
Management
Alignment/Lock Up
The
NPS SPA imposes a contractual restriction upon NESR management’s ability to sell or transfer legal title to any of the
shares of NESR stock (“
Sponsor Stock
”) acquired by Sponsor upon formation of NESR and owned beneficially for
the original management group. The Sponsor previously agreed in connection with NESR’s initial public offering to prohibit
sales for one year until the stock price exceeds $12.00 per share. The NPS SPA imposes further restrictions for a period of one
year from the NESR Closing Date only to permit the sale of 50% of the Sponsor Stock after the average trading value of NESR stock
exceeds $12.00 per share, then permits the sale of up to 75% of the Sponsor Stock when the price of NESR stock exceeds $15.00,
and the balance of the shares may be traded after the share price exceeds $17.50.
Other
Lock-Up Agreements
Pursuant
to the ANI Relationship Agreement and the WAHA Relationship Agreement, each of ANI and WAHA and their affiliates agreed not to
sell the shares acquired pursuant to the NPS SPA for six months after the NESR Closing Date.
Voting
Rights
During
the 2018 earn-out period, the Selling Stockholders shall have the right under the NPS SPA to require NESR to appoint, at their
option, either a director or an observer to the Board, with the right to attend all meetings.
In
addition, two of the Selling Stockholders have agreed to enter into the ANI Relationship Agreement and the WAHA
Relationship Agreement. Pursuant to each of those contracts to be signed at the NESR Closing Date, NESR will nominate to its
Board at its 2018 annual general meeting of shareholders (“
2018 AGM
”), a person nominated by each of those
two parties, and immediately after the NESR Closing Date, NESR shall invite a representative of both ANI and
WAHA (“
Board Observer
”), as designated by the respective company in its own discretion, to attend all
meetings of the Board, in a non-voting observer capacity and shall give such Board Observers copies of all notices, minutes,
consents, and other materials that NESR provides to its Board as permitted by law. The ANI and WAHA Relationship Agreements
also set forth that if their respective nominee is not elected at the 2018 AGM, then they may each recommend the appointment
of a nominee for appointment to the Board at the next shareholders meeting. This right to nominate a Board member and appoint
a Board Observer shall be retained as long as the respective shareholder holds 50% of the shares that it acquired pursuant
to the NPS SPA.
Preemptive
Right to Provide Capital
Pursuant
to the NPS SPA, the reinvesting Selling Stockholders (that accepted NESR shares) have the right of first refusal to provide up
to 50% of any equity financing offered by NESR prior to the NESR Closing Date. When the offer is presented, it must be accepted
within 48 hours or will be waived.
Nonsolicitation,
Noncompete
For
one year after the NESR Closing, the Selling Stockholders are prohibited from soliciting NPS employees and from competing with
material customers or suppliers of NPS.
The
Gulf Energy Transaction
Gulf
Energy SPA
On
November 12, 2017, the Gulf Energy SPA was entered by which NESR contracted to acquire 61% of the outstanding shares of Gulf Energy
for a valuation of $184.8 million through a stock exchange for NESR ordinary shares valued at $10.00 per share. The Gulf Energy
SPA was entered upon approval by the NESR Board subject to approval by the shareholders of NESR authorizing the Business Combination.
The Gulf Energy SPA provides that the purchase price shall be reduced to the extent that the “Net Debt” in the company
(i.e. bank debt less liquid assets) exceeds $47,200,000 at the NESR Closing Date and to the extent of any Gulf Energy Leakage.
“
Gulf Energy Leakage
” is defined in the Gulf Energy SPA as any dividend distributions or payments to or for
the benefit of the selling stockholders or certain other transactions that would reduce the value of the company, such as discharge
of receivables or transactions not on an arm’s-length basis. The Gulf Energy SPA contains substantial seller warranties
regarding the stock and the financial condition of Gulf Energy.
Contribution
Agreement of SV3’s 27.3% Shares
SV3
and NESR entered into the SV3 Contribution Agreement by which SV3 agreed to contribute its 27.3% of Gulf Energy shares to NESR
in exchange for NESR shares at an agreed valuation of $10.00 per NESR share for the net price paid by SV3 to acquire the Gulf
Energy shares. In October 2017, SV3 closed on the purchase of 136,500 shares of Gulf Energy stock from Seller and Founders, which
is 27.3% of the outstanding stock of Gulf Energy, for $68.25 million. The proceeds were used to pay approximately $40 million
of outstanding debt to National Bank of Oman (“
NBO
”) incurred by the Seller, which had been guaranteed by Gulf
Energy.
Minority
Interests Acquisitions/ Shares Exchange Agreement
Sponsor
contracted with Seller and NBO to acquire for cash 58,500 shares of Gulf Energy, which is 11.7% of the outstanding stock of Gulf
Energy, for a total purchase price of $29.2 million. Sponsor organized financing of the acquisition of the 11.7% through agreements
(“
Loan Contracts
”) with a series of twelve private investment, private equity lenders (“
Investors
”).
Not all Loan Contracts have been funded, so the purchase of these shares has not been completed by Sponsor. Sponsor contracted
to acquire 5% of the Gulf Energy shares from NBO for $12.5 million, plus transfer fees, and completed that purchase on or about
October 8, 2017. Seller agreed to sell 6.7% of the Gulf Energy shares to Sponsor for a purchase price of $16.7 million plus transaction
fees and costs. Nine of the Investors will provide the total purchase price to acquire 55,100 shares of Gulf Energy. Two of the
Investors are affiliates, Antonio Jose Campo Mejia and Round Up Resource Service, Inc., a company controlled by Thomas Wood, have
funded Sponsor with $1.2 million to acquire 2,400 shares and $500,000 to acquire 1,000 shares respectively.
Each
Investor with existing agreements has agreed that Sponsor can assign the Loan Contracts to NESR if the shareholders of NESR approve
the Transactions. Each Investor agreed to accept in repayment of the Loan Contracts either an assignment of NESR ordinary shares
at a valuation of $10.00 per share (subject to their independent consent after review of the proxy statement submitted to all
NESR shareholders), payment in cash, or an assignment of the Gulf Energy shares acquired with their respective advances. All Loan
Contracts have similar terms, but interest for payment ranges from zero to 14.4 percent per annum from the respective loan dates.
NESR
executed with Sponsor the Shares Exchange Agreement by which, subject to receiving approval by NESR shareholders for the Transactions,
Sponsor agreed to assign all 58,500 shares of Gulf Energy acquired to NESR, and NESR will at that time assume the obligation to
satisfy the Loan Contracts. Unless any Investor elects not to accept NESR shares to satisfy the debt, NESR will issue NESR shares
to the Investors to satisfy the debt.
Voting
Rights
The
Gulf Energy SPA provides a contractual right for the two Founders to be appointed to the NESR Board.
Also
in connection with the Gulf Energy acquisition, the SV3 Voting Agreement shall be executed upon approval by the shareholders of
NESR in the Proxy. The SV3 Voting Agreement provides that the Board of NESR will nominate for election to NESR’s Board a
person nominated by SV3 (“
SV3 Director
”), and SV3 shall be entitled to have two representatives (“
SV3
Board Observers
”) attend (either in person or telephonically) all meetings of the Board in a nonvoting capacity, as
long as SV3 and its private equity owners continue to hold at least 60% of the total number of NESR shares acquired pursuant to
the SV3 Contribution Agreement. SV3 has the right to remove such SV3 Director (with or without cause). The rights of an SV3 Board
Observer will include the rights to participate in discussions of the Board, to receive notice of the meetings of the Board, and
to receive copies of all notices, minutes, written consents, and other materials received by the members Board, as permitted by
law. However, if an SV3 Director is duly elected and serving, SV3 shall only have the right to designate one SV3 Board Observer.
Furthermore, if SV3 owns less than 60% of the outstanding NESR shares but more than 1% of the total outstanding shares of NESR,
then SV3 shall only have the right to designate one SV3 Board Observer. Sponsor agreed to vote its shares in NESR to support election
of the SV3 nominee to the Board.
Non-Compete
The
Founders of Gulf Energy have executed a Non-Compete and Non-Disclosure Agreement and have agreed to provide advisory services
to NESR for five (5) years. Furthermore, pursuant to separate Waiver of Termination Fees Agreements (“
Waiver Agreements
”),
each Founder agreed to waive their right to substantial severance payments triggered either by the event of the termination of
their employment or change of control. Pursuant to these commitments and replacing prior compensation structure, the Founders
will each receive annual payments of $1 million over the course of 5 years.
Representations,
Warranties, and Covenants
The
Gulf Energy SPA contains customary indemnifications, representations and warranties by the parties thereto. The Selling Stockholders
under the NPS SPA only warrant title to the 370 million shares, authority and power to sell, and similar warranties of rights
to deliver stock ownership unencumbered. The NPS SPA does not have any mechanism for adjusting the purchase price post-closing
in the event of undisclosed or contingent liabilities except for Leakage.
Conditions
to the Parties’ Obligations to Consummate the Transactions
NESR’s
obligation to perform under all of the Transactions documents is subject to an affirmative vote by a majority of its shareholders
to approve the Transactions.
Registration
Rights
The
SPAs contemplate the execution by the parties of various agreements at the NESR Closing Date, including among others, registration
rights agreements for the resale of the shares to be issued to two of the Selling Stockholders, to the Backstop Provider (defined
below), and to SV3. The Sponsor and the two Selling Stockholders that are parties to the WAHA Relationship Agreement and ANI Relationship
Agreement will be entitled to registration rights pursuant to the Amended and Restated Registration Rights Agreement. The Sponsor
is entitled to make three demands that NESR register its securities. WAHA and ANI are entitled to two demands. In addition, the
Sponsor, WAHA, and ANI have certain “piggy-back” registration rights with respect to registration statements filed
subsequent to the Business Combination. NESR will bear the expenses incurred in connection with the filing of any such registration
statements.
In
addition, pursuant to the SV3 Contribution Agreement, SV3 has one demand registration right and piggyback registration rights
on terms consistent with the Amended and Restated Registration Rights Agreement, including any amendment thereof.
Other
Ancillary Agreements
The
SPAs are filed as Exhibits 10.1 and 10.5 respectively, to this Current Report on Form 8-K (this “
Current Report
”).
The foregoing descriptions of all Transactions agreements are qualified in their entirety by reference to all exhibits to the
Current Report. The SPAs are filed herewith to provide investors with information regarding their respective terms, and are not
intended to provide any other factual information about the parties. In particular, the assertions embodied in the representations
and warranties contained in the SPAs were made as of the date of the SPAs only and are qualified by information in confidential
disclosure schedules provided by the parties to each other in connection with the signing of the SPAs. These disclosure schedules
contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the SPAs.
Moreover, certain representations and warranties in the SPAs may have been used for the purpose of allocating risk between the
parties rather than establishing matters of fact.
Other
Arrangements
In
connection with the Transactions, the Company is contemplating entering into a forward purchase agreement for up to
$150 million (the “
Forward Purchase Agreement
”) with an unaffiliated third party investment
firm (“
Backstop Provider
”), pursuant to which the Company would have the right to draw down as much as
$100 million as a backstop to replace capital removed by any redeeming shareholders. The Company would be selling ordinary
shares to the Backstop Provider at $10.00 per share for $70 million as a minimum. The balance of the $100 million not used
as backstop above $70 million (consequently up to a maximum of $30 million), and an additional $50 million, may be
provided towards working capital as needed, including to complete the Business Combination. The proposed terms would be to
sell shares of NESR to Backstop Provider, at $10.00 per share for capital used as backstop and at a price of $11.244 for
capital used otherwise for M&A and working capital purposes. The Backstop Provider will have no obligation until
definitive agreements are entered. NESR expects the definitive terms of the Forward Purchase Agreement to be negotiated and
agreed before filing the Proxy Statement.