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TABLE OF CONTENTS
CONTENTS
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TABLE OF CONTENTS
TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrantý | ||
Filed by a Party other than the Registranto | ||
Check the appropriate box: | ||
Preliminary Proxy Statement | ||
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
Definitive Proxy Statement | ||
o | Definitive Additional Materials | |
o | Soliciting Material under §240.14a-12 |
KLX Inc. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
Payment of Filing Fee (Check the appropriate box): | ||||
o | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |||
(4) | Proposed maximum aggregate value of transaction: | |||
(5) | Total fee paid: | |||
ý | Fee paid previously with preliminary materials. | |||
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
(1) | Amount Previously Paid: | |||
(2) | Form, Schedule or Registration Statement No.: | |||
(3) | Filing Party: | |||
(4) | Date Filed: |
PRELIMINARY PROXY STATEMENT, SUBJECT TO COMPLETION, DATED JUNE 26, 2018
[ · ],July 25, 2018
Dear Fellow Stockholder:
On April 30, 2018, KLX Inc. ("KLX") entered into a definitive merger agreement (as amended, the "merger agreement") to be acquired by The Boeing Company ("Boeing"). Subject to the terms and conditions of the merger agreement, a wholly owned subsidiary of Boeing will be merged with and into KLX and KLX will survive the merger as a wholly owned subsidiary of Boeing (the "merger"), following which Boeing will own all of KLX's issued and outstanding shares of common stock.
Prior to or simultaneously with the consummation of the merger, and subject to the terms and conditions of the agreements described in this proxy statement, KLX expects to transfer its Energy Services Group business to KLX Energy Services Holdings, Inc. ("KLX Energy Services"), a newly formed subsidiary of KLX (the "separation"), followed by a pro rata distribution of common stock representing 100% of the equity interests of KLX Energy Services to KLX stockholders as of the record date of such distribution (the "spin-off"). After the spin-off is completed, KLX Energy Services will be a separate, publicly held company that will own and operate KLX's Energy Services Group business.
The KLX board of directors has unanimously determined that it is in the best interests of KLX stockholders to enter into the merger agreement and has unanimously approved and declared advisable the merger, the merger agreement and the other transactions contemplated thereby, including the separation and the spin-off. The KLX board of directors made its determination after consideration of a number of factors more fully described in this proxy statement.The KLX board of directors unanimously recommends that you vote "FOR" the proposal to adopt the merger agreement.
You are cordially invited to attend a special meeting of our stockholders to be held in connection with the proposed merger on [ · ],August 24, 2018 at [ · ]a.m.10:30 a.m., Eastern Time, at [ · ].the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts 02110. At the special meeting, stockholders will be asked to consider and vote on a proposal to adopt the merger agreement. Approval of the proposal to adopt the merger agreement requires the affirmative vote of a majority of the outstanding shares of KLX common stock entitled to vote thereon.
If the merger is completed, KLX stockholders will have the right to receive, for each share of KLX common stock, par value $0.01 per share, that they own immediately prior to the effective time of the merger, $63.00 in cash per share, without interest (the "merger consideration"). The merger consideration is in addition to, and separate from, the shares of KLX Energy Services that KLX stockholders as of the record date of the spin-off will receive in the spin-off. KLX stockholder approval is not required to complete the spin-off and, accordingly, KLX stockholders are not being asked to vote on the spin-off.
At the special meeting, KLX stockholders will also be asked to vote on a proposal to approve, on a non-binding, advisory basis, certain compensation that will or may be paid to KLX's named executive officers by KLX based on or otherwise relating to the merger, as required by the rules adopted by the U.S. Securities and Exchange Commission (the "SEC"), and a proposal to approve an adjournment of the special meeting, from time to time, if necessary or appropriate, to solicit additional votes for the approval of the proposal to adopt the merger agreement.The KLX board of directors unanimously recommends that you vote "FOR" each of these proposals.
The merger cannot be completed unless the holders of a majority of the outstanding shares of KLX common stock entitled to vote thereon adopt the merger agreement.Your vote is very important, regardless of the number of shares you own. Whether or not you expect to attend the special meeting in person, please submit a proxy to vote your shares as promptly as possible so that your shares may
be represented and voted at the special meeting. If you intend to attend the special meeting and vote
in person, your vote by ballot will revoke any proxy previously submitted. The failure to vote on the proposal to adopt the merger agreement will have the same effect as a vote "AGAINST" such proposal. In addition, if you hold your shares in "street name," the failure to instruct your bank, broker or other nominee how to vote your shares will have the same effect as a vote "AGAINST" the proposal to adopt the merger agreement.
The obligations of KLX and Boeing to complete the merger are subject to the satisfaction or waiver of certain conditions. The accompanying proxy statement contains detailed information about the special meeting, the merger agreement and the merger. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement. The proxy statement also describes the actions and determinations of the KLX board of directors in connection with its evaluation of the merger agreement and the merger.We encourage you to read the proxy statement and its annexes, including the merger agreement, carefully and in its entirety. You may also obtain additional information about KLX from documents that KLX files with the SEC from time to time.
If you have any questions or need assistance with voting your shares of our common stock, please contact Georgeson, our proxy solicitor, by calling 1-866-277-0928 toll free.
Thank you for your confidence in KLX.
Yours truly,
Amin Khoury
Chairman of the Board of Directors and
Chief Executive Officer
Neither the SEC nor any state securities regulatory agency has approved or disapproved of the merger, passed upon the merits of the merger, the merger agreement or any of the other transactions contemplated by the merger agreement or determined if the accompanying proxy statement is accurate or complete. Any representation to the contrary is a criminal offense.
The accompanying proxy statement is dated [ · ],July 25, 2018 and, together with the enclosed form of proxy, is first being mailed to KLX stockholders on or about [ · ],July 25, 2018.
KLX Inc.
1300 Corporate Center Way
Wellington, Florida 33414
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DATE & TIME | ||
PLACE | Boston Harbor Hotel Boston, Massachusetts 02110 | |
ITEMS OF BUSINESS | • To consider and vote on a proposal (the "merger proposal") to adopt the Agreement and Plan of Merger, dated as of April 30, 2018, as amended on June 1, 2018, and as it may be further amended from time to time (the "merger agreement"), among KLX Inc. ("KLX"), The Boeing Company ("Boeing") and Kelly Merger Sub, Inc. ("Merger Sub") (a copy of the merger agreement is attached to the accompanying proxy statement as Annex A); | |
• To consider and vote on a proposal (the "named executive officer merger-related compensation proposal") to approve, on a non-binding, advisory basis, certain compensation that will or may be paid by KLX to its named executive officers that is based on or otherwise relates to the merger; and | ||
• To consider and vote on a proposal (the "adjournment proposal") to approve an adjournment of the special meeting, from time to time, if necessary or appropriate, to solicit additional votes for the approval of the merger proposal. | ||
KLX will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournments or postponements thereof. | ||
RECORD DATE | Only stockholders of record at the close of business on | |
VOTING BY PROXY | Your vote is very important, regardless of the number of shares you own. The KLX board of directors (the "KLX Board") is soliciting your proxy to assure that a quorum is present and that your shares are represented and voted at the special meeting. For information on submitting your proxy over the Internet, by telephone or by mailing back the traditional proxy card (no extra postage is needed for the provided envelope if mailed in the U.S.), please see the attached proxy statement and enclosed proxy card. If you later decide to vote in person at the special meeting, information on revoking your proxy prior to the special meeting is also provided. | |
RECOMMENDATIONS | The KLX Board unanimously recommends that you vote: | |
• "FOR" the merger proposal; |
| ||
• "FOR" the named executive officer merger-related compensation proposal, which shall be on a non-binding, advisory basis; and | ||
• "FOR" the adjournment proposal. | ||
APPRAISAL | KLX stockholders who do not vote in favor of the merger proposal will have the right to seek appraisal of the fair value of their shares of KLX common stock, as determined in accordance with Section 262 of the General Corporation Law of the State of Delaware (the "DGCL"), if they deliver a valid demand for appraisal before the vote is taken on the adoption of the merger agreement and comply with all of the requirements of Delaware law, including Section 262 of the DGCL, which are summarized herein. Section 262 of the DGCL is reproduced in its entirety in Annex C to the accompanying proxy statement. The accompanying proxy statement constitutes the notice of appraisal rights with respect to the merger proposal required by Section 262 of the DGCL. |
YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE SUBMIT A PROXY OVER THE INTERNET OR BY TELEPHONE PURSUANT TO THE INSTRUCTIONS CONTAINED IN THESE MATERIALS OR COMPLETE, DATE, SIGN AND RETURN A PROXY CARD AS PROMPTLY AS POSSIBLE. IF YOU RECEIVE MORE THAN ONE PROXY BECAUSE YOU OWN SHARES REGISTERED IN DIFFERENT NAMES OR ADDRESSES, EACH PROXY SHOULD BE SUBMITTED. IF YOU DO NOT SUBMIT YOUR PROXY, INSTRUCT YOUR BROKER HOW TO VOTE YOUR SHARES OR VOTE IN PERSON AT THE SPECIAL MEETING ON THE MERGER PROPOSAL, IT WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" SUCH PROPOSAL.
Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement.
If your shares are held by a bank, broker or other nominee and you wish to vote in person at the special meeting, you must bring to the special meeting a proxy from the bank, broker or other nominee that holds your shares authorizing you to vote in person at the special meeting. Please also bring to the special meeting your account statement evidencing your beneficial ownership of KLX common stock as of the record date. All stockholders and proxy holders who attend the special meeting must also bring photo identification.
In considering the recommendation of the KLX Board, KLX stockholders should be aware that members of the KLX Board and KLX executive officers have agreements and arrangements that provide them with interests in the merger that may be deemed to be in addition to or different from those of KLX stockholders. See "The Merger Proposal—Interests of KLX's Executive Officers and Directors in the Merger."
The proxy statement, of which this notice forms a part, provides a detailed description of the merger agreement and the merger.We urge you to read the proxy statement, including any documents incorporated by reference, and its annexes carefully and in their entirety. If you have any questions concerning the merger or the proxy statement, would like additional copies of the proxy statement or
need help voting your shares of KLX common stock, please contact KLX's proxy solicitor, Georgeson, at 1-866-277-0928 toll free.
By Order of the Board of Directors, | ||
Roger Franks General Counsel Vice President—Law and Human Resources, Secretary |
Wellington, Florida[ · ],July 25, 2018
| Page | |||
---|---|---|---|---|
SUMMARY | 1 | |||
The Parties | 1 | |||
The Special Meeting | 2 | |||
The Merger | 5 | |||
Merger Consideration | 5 | |||
Treatment of KLX Equity Awards | 6 | |||
Effect on KLX if the Merger is not Completed | 7 | |||
Recommendation of the KLX Board | 7 | |||
Opinion of Goldman Sachs & Co. LLC | 7 | |||
Interests of KLX's Executive Officers and Directors in the Merger | 8 | |||
Financing of the Merger | ||||
Regulatory Clearances and Approvals Required for the Merger | 9 | |||
Material U.S. Federal Income Tax Consequences of the Merger | ||||
Appraisal Rights | 10 | |||
Expected Timing of the Merger | 10 | |||
Restrictions on Solicitation of Acquisition Proposals | 10 | |||
KLX Board Recommendation and Adverse Recommendation Change | 11 | |||
Conditions to the Closing of the Merger | 13 | |||
Termination of the Merger Agreement | 15 | |||
Termination Fees | 16 | |||
Directors' and Officers' Indemnification and Insurance | 18 | |||
Delisting and Deregistration of KLX Common Stock | 18 | |||
Market Prices of KLX Common Stock | 19 | |||
Spin-Off Transaction Agreements | 19 | |||
Distribution Agreement | 19 | |||
Employee Matters Agreement | 21 | |||
Transition Services Agreement | 22 | |||
IP Matters Agreement | 22 | |||
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER | 24 | |||
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | 35 | |||
THE PARTIES TO THE MERGER | 37 | |||
THE SPECIAL MEETING | 39 | |||
THE MERGER PROPOSAL (PROPOSAL 1) | 44 | |||
Structure of the Merger | 44 | |||
Merger Consideration—What KLX Stockholders Will Receive in the Merger | 44 | |||
Treatment of KLX Equity Awards | 44 | |||
Effects on KLX if the Merger is Not Completed | 45 | |||
Background of the Merger | 46 | |||
Recommendation of the KLX Board and Reasons for the Merger | 62 | |||
Opinion of Goldman Sachs & Co. LLC | 67 | |||
Financial Projections | 75 | |||
Interests of KLX's Executive Officers and Directors in the Merger | 77 | |||
Regulatory Clearances and Approvals Required for the Merger | 84 | |||
Material U.S. Federal Income Tax Consequences of the Merger | 85 | |||
Delisting and Deregistration of KLX Common Stock | 85 | |||
Appraisal Rights | 85 | |||
THE MERGER AGREEMENT | ||||
The Merger |
i
| Page | |||
---|---|---|---|---|
Closing and Effectiveness of the Merger | ||||
Merger Consideration | ||||
Exchange Procedures | ||||
Treatment of KLX Equity Awards | ||||
Representations and Warranties | ||||
Conduct of Business Pending the Merger | ||||
Certain Covenants Related to the ESG Business | ||||
Restrictions on Solicitation of Acquisition Proposals | ||||
Efforts to Complete the Merger | ||||
Employee Benefits | ||||
Directors' and Officers' Indemnification and Insurance | ||||
Other Covenants and Agreements | ||||
Conditions to the Closing of the Merger | ||||
Termination of the Merger Agreement | ||||
Termination Fees and Expenses | ||||
Amendment and Waiver of the Merger Agreement | ||||
Assignment of the Merger Agreement | ||||
Specific Performance | ||||
SPIN-OFF TRANSACTION AGREEMENTS | ||||
Distribution Agreement | ||||
Employee Matters Agreement | ||||
Transition Services Agreement | ||||
IP Matters Agreement | ||||
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER MERGER-RELATED COMPENSATION PROPOSAL (PROPOSAL 2) | ||||
ADJOURNMENT PROPOSAL (PROPOSAL 3) | ||||
MARKET PRICES OF KLX COMMON STOCK | ||||
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | ||||
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER | ||||
FUTURE KLX STOCKHOLDER PROPOSALS | ||||
MULTIPLE STOCKHOLDERS SHARING ONE ADDRESS | ||||
WHERE YOU CAN FIND MORE INFORMATION | ||||
Annex A—Agreement and Plan of Merger | A-1 | |||
Annex B—Opinion of Goldman Sachs & Co. LLC | B-1 | |||
Annex C—Section 262 of the General Corporation Law of the State of Delaware | C-1 | |||
Annex D— | D-1 | |||
Annex E— | E-1 | |||
Annex F— | F-1 | |||
Annex G— | G-1 |
ii
This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the merger and the other matters being considered at the special meeting of KLX stockholders. We urge you to carefully read the remainder of this proxy statement, including the attached annexes, and the other documents to which we have referred you. For additional information on KLX included in documents incorporated by reference into this proxy statement, see the section entitled "Where You Can Find More Information" beginning on page 131.132. We have included page references in this summary to direct you to a more complete description of the topics presented below.
All references to "KLX," "the Company," "we," "us" or "our" in this proxy statement refer to KLX Inc., a Delaware corporation; all references to "Boeing" refer to The Boeing Company, a Delaware corporation; all references to "Merger Sub" refer to Kelly Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Boeing, the sole purpose of which is to effect the merger; all references to "KLX common stock" refer to the common stock, par value $0.01 per share, of KLX; all references to the "KLX Board" refer to the board of directors of KLX; all references to the "merger" refer to the merger of Merger Sub with and into KLX with KLX surviving as a wholly owned subsidiary of Boeing; all references to the ASG Business refer to the business operated by KLX's Aerospace Solutions Group; all references to the ESG Business refer to the business of providing technical services and related rental equipment to oil and gas exploration and production companies in remote oil and gas production regions, solely as conducted by KLX's Energy Services Group; all references to "KLX Energy Services" refer to KLX Energy Services Holdings, Inc., a wholly owned subsidiary of KLX, which will hold KLX's ESG Business prior to the spin-off and whose common stock will be distributed to KLX stockholders; all references to the "spin-off" refer to the pro rata distribution of common stock representing 100% of the equity interests of KLX Energy Services to KLX stockholders as of the record date of such distribution, which will become a separate, publicly held company upon the completion of the spin-off; and all references to the "merger agreement" refer to the Agreement and Plan of Merger, dated as of April 30, 2018, as amended June 1, 2018 and as may be further amended from time to time, by and among KLX, Boeing and Merger Sub, a copy of which is included as Annex A to this proxy statement. KLX, following the completion of the merger, is sometimes referred to in this proxy statement as the "surviving corporation."
KLX(see page 37)
KLX, through its two operating segments, provides mission critical products and complex logistical solutions to support its customers' high value assets. KLX serves its customers in demanding environments that face high cost of downtime and require dependable, high quality just-in-time customer support. KLX's Aerospace Solutions Group is a leading distributor and value added service provider of aerospace fasteners and consumables, offering the broadest range of aerospace hardware and consumables and inventory and supply chain management services worldwide. Through its global facilities network and advanced information technology systems, KLX offers its services to commercial airline, business jet and defense original equipment manufacturers and their subcontractors, airlines, maintenance, repair and overhaul operators, fixed base operators and domestic military depots. KLX's Energy Services Group provides completion, intervention and production services to the major onshore oil and gas producing regions of the United States, including the Northeast Region (the Marcellus and Utica Shales as well as the Mid-Continent STACK and SCOOP and Haynesville), the Rocky Mountains Region (the Bakken formation, Williston, DJ, Uinta and Piceance Basins and Niobrara Shale) and the Southwest Region (including the Permian Basin and Eagle Ford Shale), serving the leading companies engaged in the exploration and development of North American onshore unconventional oil and natural gas reserves.
KLX's common stock is traded on the Nasdaq Global Select Market under the symbol "KLXI." KLX's headquarters are located at 1300 Corporate Center Way, Wellington, Florida 33414, and the telephone number is (561) 383-5100. KLX's corporate web address is www.klx.com. The information provided on the KLX website is not part of this proxy statement and is not incorporated in this proxy statement by reference hereby or by any other reference to KLX's website provided in this proxy statement.
Boeing(see page 37)
Boeing is the world's largest aerospace company and leading manufacturer of commercial airplanes and defense, space and security systems. Boeing is also the world leader in combined commercial airlines and government services with customers in more than 150 countries. Boeing's products and tailored services include commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training. Boeing employs approximately 140,000 people across the United States and in more than 65 countries.
Boeing's common stock is traded on the New York Stock Exchange under the ticker symbol "BA." Boeing's headquarters are located at 100 North Riverside Plaza, Chicago, Illinois 60606-1596, and its telephone number is (312) 544-2000. Boeing's corporate web address is www.boeing.com. The information provided on the Boeing website is not part of this proxy statement and is not incorporated in this proxy statement by reference hereby or by any other reference to Boeing's website provided in this proxy statement.
Merger Sub(see page 38)
Merger Sub is a Delaware corporation and a wholly owned subsidiary of Boeing, the sole purpose of which is to effect the merger. Upon consummation of the merger, Merger Sub will merge with and into KLX, with Merger Sub ceasing to exist and KLX surviving as a wholly owned subsidiary of Boeing. The headquarters of Merger Sub will be located at 100 North Riverside Plaza, Chicago, Illinois 60606-1596, and its telephone number will be (312) 544-2000.
Date, Time and Place(see page 39)
The special meeting of KLX stockholders (the "special meeting") is scheduled to be held on [ · ],August 24, 2018 at [ · ]10:30 a.m., Eastern Time, at [ · ].the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts 02110.
Purpose of the Special Meeting(see page 39)
At the special meeting, KLX stockholders will be asked to consider and vote on the following proposals:
KLX will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournments or postponements thereof.
The KLX Board has unanimously determined that it is in the best interests of the KLX stockholders to enter into the merger agreement and has unanimously approved and declared advisable the merger, the merger agreement and the other transactions contemplated thereby (including the separation and the spin-off).The KLX Board unanimously recommends that KLX stockholders vote "FOR" the merger proposal, "FOR" the named executive officer merger-related compensation proposal and "FOR" the adjournment proposal.
KLX stockholders' approval of the merger proposal is a condition for the merger to occur. If KLX stockholders fail to approve the merger proposal by the requisite vote, the merger will not occur. KLX stockholder approval is not required to complete the spin-off and, accordingly, KLX stockholders are not being asked to vote on the spin-off.
Record Date; Stockholders Entitled to Vote(see page 40)
Only holders of KLX common stock at the close of business on [ · ],July 24, 2018, the record date for the special meeting (the "record date"), will be entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting. At the close of business on May 25,July 24, 2018, 50,739,59750,746,599 shares of KLX common stock were issued and outstanding.
Holders of KLX common stock are entitled to one vote for each share of KLX common stock they own at the close of business on the record date.
Quorum(see page 40)
The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of KLX common stock issued and outstanding at the close of business on the record date and entitled to vote at the special meeting will constitute a quorum. As a result, [ · ]25,373,300 shares must be represented by proxy or by stockholders present and entitled to vote at the special meeting in order to have a quorum. There must be a quorum for business to be conducted at the special meeting. Failure of a quorum to be represented at the special meeting will necessitate an adjournment of the special meeting and may subject KLX to additional expense.
Required Vote(see page 40)
Approval of the merger proposal requires the affirmative vote of a majority of the shares of KLX common stock outstanding at the close of business on the record date and entitled to vote thereon.
Under KLX's bylaws, approval of the named executive officer merger-related compensation proposal and the adjournment proposal requires the affirmative vote of the holders of a majority of the shares of KLX common stock present in person or represented by proxy at the special meeting, provided that a quorum is present. If no quorum is present at the special meeting, the chairman of the meeting or the stockholders, by the affirmative vote of the holders of a majority of the shares of KLX common stock present or represented by proxy at the special meeting, may adjourn the special meeting.
Voting at the Special Meeting(see page 42)
If your shares are registered directly in your name with our transfer agent, you are considered a "stockholder of record" (also referred to in this proxy statement as a "registered stockholder"), and you may vote your shares in person at the special meeting or over the Internet, by telephone or by submitting a proxy by mail. If you plan to attend the special meeting and wish to vote in person, you will be given a ballot at the special meeting. Although KLX offers four different voting methods, KLX encourages you to submit a proxy over the Internet or by telephone, as KLX believes they are the most
convenient, cost-effective and reliable voting methods. If you choose to submit a proxy over the Internet or by telephone, there is no need for you to mail back your proxy card.
If your shares are held by your bank, broker or other nominee, you are considered the beneficial owner of shares held in "street name," and you will receive a form from your bank, broker or other nominee seeking instruction from you as to how your shares should be voted. If you are a beneficial owner, you should instruct your bank, broker or other nominee on how you wish to vote your shares of KLX common stock using the instructions provided by your bank, broker or other nominee. Under applicable rules, banks, brokers or other nominees have the discretion to vote on routine matters. However, the proposals in this proxy statement are non-routine matters, and banks, brokers and other nominees therefore cannot vote on these proposals without your instructions. Consequently, it is important that you cast your vote or instruct your bank, broker or nominee on how you wish to vote your shares.
If you sign your proxy, but do not indicate how you wish to vote, your shares will be voted"FOR" the merger proposal,"FOR" the named executive officer merger-related compensation proposal and"FOR" the adjournment proposal.
If you are a beneficial owner and you wish to vote in person at the special meeting, you must bring to the special meeting a proxy from the bank, broker or other nominee that holds your shares authorizing you to vote in person at the special meeting. Beneficial owners should also bring a copy of an account statement reflecting their ownership of KLX common stock as of the record date. All stockholders and proxyholders who attend the special meeting must also bring photo identification.
KLX recommends that you submit a proxy or submit your voting instructions as soon as possible, even if you are planning to attend the special meeting, to ensure that your shares will be represented and voted at the special meeting.
Revocation of Proxies(see page 43)
If you are a stockholder of record, you may change your vote or revoke your proxy at any time before it is voted at the special meeting by submitting a new proxy electronically over the Internet or by telephone after the date of the earlier submitted proxy, signing another proxy card with a later date and returning it to us prior to the special meeting or attending the special meeting and voting in person. If you hold your shares of common stock in "street name," you should contact your bank, broker or other nominee for instructions regarding how to change your vote. You may also vote in person at the special meeting if you obtain a valid legal proxy from your bank, broker or other nominee.
Solicitation of Proxies(see page 43)
The KLX Board is soliciting your proxy, and KLX will bear the cost of soliciting proxies. Georgeson has been retained to assist with the solicitation of proxies. Georgeson will be paid approximately $9,000 and will be reimbursed for its reasonable and documented out-of-pocket expenses for these and related services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through banks, brokers and other nominees to the beneficial owners of shares of KLX common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by certain of KLX's directors, officers and employees, without additional compensation.
Adjournment(see page 43)
In addition to the merger proposal and the named executive officer merger-related compensation proposal, KLX stockholders are also being asked to approve the adjournment proposal, which will enable the adjournment of the special meeting for the purpose of soliciting additional votes in favor of the merger proposal, if there are not sufficient votes at the time of the special meeting to approve the
merger proposal. If a quorum is not present, either the chairman of the meeting or the stockholders, by the affirmative vote of the holders of a majority of the shares of KLX common stock present or represented by proxy at the special meeting, may adjourn the special meeting to another place, date or time. In addition, the special meeting could be postponed before it commences. If the special meeting is adjourned or postponed for the purpose of soliciting additional votes, stockholders who have already submitted their proxies will be able to revoke them at any time prior to the final vote on the proposals.
Subject to the terms and conditions of the merger agreement and in accordance with the DGCL, at the effective time of the merger (the "effective time"), Merger Sub will merge with and into KLX, the separate corporate existence of Merger Sub will cease and KLX will survive the merger as a wholly owned subsidiary of Boeing. As a result of the merger, KLX common stock will no longer be publicly traded, KLX common stock will be delisted from Nasdaq and deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC on account of KLX common stock. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation.
Prior to or simultaneously with the consummation of the merger, and subject to the terms and conditions of the agreements described in this proxy statement, KLX expects to transfer its Energy Services Group business to KLX Energy Services Holdings, Inc., followed by the spin-off. After the spin-off is completed, KLX Energy Services will be a separate, publicly held company that will own and operate KLX's Energy Services Group business. The separation and the spin-off will be carried out in accordance with the terms of a distribution agreement (the "distribution agreement"), the employee matters agreement (the "employee matters agreement"), a transition services agreement (the "transition services agreement") and an intellectual property matters agreement (the "IP matters agreement") (together, the "spin-off transaction agreements"). See "Spin-Off Transaction Agreements" beginning on page 19 for a description of the spin-off transaction agreements. The merger consideration is in addition to, and separate from, the shares of KLX Energy Services that KLX stockholders as of the record date of the spin-off will receive in the spin-off. KLX stockholder approval is not required to complete the spin-off and, accordingly, KLX stockholders are not being asked to vote on the spin-off. If the merger agreement is terminated prior to the distribution date, KLX will have the right not to complete the distribution if, at any time following such termination and prior to the distribution, the board of directors of KLX determines, in its sole discretion, that the spin-off is no longer in the best interest of KLX or its stockholders or that it is not advisable for KLX Energy Services to separate from KLX.
Merger Consideration (see page 44)
Upon the terms and subject to the conditions of the merger agreement, at the effective time, KLX stockholders will have the right to receive, for each share of KLX common stock that they own immediately prior to the effective time (other than any shares that may be held in the treasury of KLX, or that are held, directly or indirectly, by Boeing or Merger Sub immediately prior to the effective time, and other than shares owned by stockholders who have properly made and not withdrawn a demand for appraisal rights under the DGCL), $63.00 in cash per share, without interest (the "merger consideration"). After the merger is completed, under the terms of the merger agreement, you will have the right to receive the per share merger consideration, but you will no longer have any rights as a KLX stockholder as a result of the merger. Additionally, in connection with the spin-off, holders of
KLX common stock as of the record date of the spin-off will receive a distribution equal to 100% of the shares of KLX Energy Services common stock (with cash in lieu of fractional shares). The merger consideration is in addition to, and separate from, the shares of KLX Energy Services that KLX stockholders as of the record date of the spin-off will receive in the spin-off.
Treatment of KLX Equity Awards (see page 44)
The merger agreement provides that outstanding equity-based awards issued under KLX's equity incentive plan will be treated as set forth below:
KLX Restricted Stock Awards.
Without prejudice to any rights in respect of the spin-off, as of the effective time, (i) each award of KLX common stock subject to time-based, performance or other vesting or lapse restrictions (each a "KLX Restricted Stock Award") that is outstanding immediately prior to the effective time will, to the extent not vested, become fully vested, provided that to the extent that such award is subject to performance conditions, any performance conditions shall be deemed to have been satisfied at the maximum level, and (ii) each KLX Restricted Stock Award will be canceled without any action on the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the surviving corporation's general payroll practices, a lump sum cash payment with respect thereto equal to the product of the merger consideration and the number of shares of KLX common stock represented by such KLX Restricted Stock Award, less any applicable withholding or other taxes or other amounts required by applicable law to be withheld, without interest.
KLX PSU Awards and KLX RSU Awards.
Without prejudice to any rights in respect of the spin-off, as of the effective time, (i) each KLX performance stock unit award, including any performance stock unit awards deferred under any of KLX's deferred compensation plans or otherwise (each, a "KLX PSU Award"), and each KLX restricted stock unit award, including any stock unit awards deferred under any of KLX's deferred compensation plans or otherwise (each, a "KLX RSU Award"), in each case, subject to time-based, performance or other vesting restrictions, that is outstanding immediately prior to the effective time, will, to the extent not vested, become fully vested, provided that to the extent that such award is subject to performance conditions, any performance conditions will be deemed to have been satisfied at the maximum level and (ii) each KLX PSU Award and KLX RSU Award, in each case, whether payable in cash or shares of KLX common stock, will be canceled without any action on the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the surviving corporation's general payroll practices, a lump sum cash payment with respect thereto equal to the product of the merger consideration and the number of shares of KLX common stock represented by such KLX PSU Award or KLX RSU Award, less any applicable withholding or other taxes or other amounts required by applicable law to be withheld, without interest. Any payment in respect of any KLX PSU Award and KLX RSU Award, in each case, which immediately prior to such cancellation was treated as "deferred compensation" subject to section 409A of the Internal Revenue Code, will be converted to the merger consideration and paid on the applicable settlement date for such KLX RSU Award or KLX PSU Award if required in order to comply with section 409A of the Internal Revenue Code.
Effect of Spin-Off on Equity Awards.
At the time of the spin-off, then outstanding unvested KLX equity-based awards granted prior to the date of the spin-off will be equitably adjusted to reflect the dilutive impact of the spin-off, but will otherwise not participate in the spin-off. Following the spin-off, all unvested KLX equity-based awards held by KLX employees and KLX Energy Services employees will continue to vest in accordance with
their terms based on their respective holders' continued service with KLX or KLX Energy Services, as applicable.
2018 KLX Equity Awards.
In accordance with the merger agreement, KLX may grant its annual 2018 KLX Restricted Stock Awards, KLX PSU Awards or KLX RSU Awards (the "2018 Awards") to its employees under the KLX Long Term Incentive Plan (the "LTIP") in the ordinary course of business consistent with past practice following the date of the merger agreement. However, in the event that the effective time of the merger occurs on or prior to the first anniversary of the grant date of the 2018 Awards, only one-third of the 2018 Awards will be accelerated in connection with the consummation of the merger and become eligible to receive the merger consideration, and the remaining two-thirds will be forfeited for no consideration.
Effect on KLX if the Merger is not Completed (see page 45)
If the merger agreement is not adopted by KLX stockholders or if the merger is not completed for any other reason, KLX stockholders will not receive any payment for their shares of common stock. Instead, KLX will remain an independent public company, KLX common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act, and we will continue to file periodic reports with the SEC on account of KLX common stock. In addition, under specified circumstances, KLX may be required to pay Boeing a termination fee, or may be entitled to receive a termination fee from Boeing, upon the termination of the merger agreement, as described further below.
Recommendation of the KLX Board (see page 62)
After consideration of various factors, the KLX Board unanimously (i) determined that it is in the best interests of KLX stockholders that KLX enter into the merger agreement, (ii) approved and declared advisable the merger, the merger agreement and the other transactions contemplated thereby (including the separation and the spin-off) and (iii) resolved that the merger agreement be submitted for consideration to KLX stockholders at a special meeting of KLX stockholders and recommended that KLX stockholders vote to adopt the merger agreement and the transactions contemplated thereby. A description of factors considered by the KLX Board in reaching its decision to adopt the merger agreement can be found in "The Merger Proposal (Proposal 1)—Recommendation of the KLX Board and Reasons for the Merger" beginning on page 62.
The KLX Board unanimously recommends that KLX stockholders vote:
Opinion of Goldman Sachs & Co. LLC (see page 67 and Annex B)
At a meeting of the KLX Board held on April 30, 2018, Goldman Sachs & Co. LLC ("Goldman Sachs") delivered its oral opinion to the KLX Board, subsequently confirmed in writing, to the effect that, as of April 30, 2018 and based upon and subject to the factors and assumptions set forth therein, the $63.00 in cash per share to be paid to the holders (other than Boeing and its affiliates) of shares of KLX common stock pursuant to the merger agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated April 30, 2018, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B. Goldman Sachs provided advisory services and
its opinion for the information and assistance of the KLX Board in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of KLX common stock should vote with respect to the merger or any other matter. Pursuant to an engagement letter between KLX and Goldman Sachs under which Goldman Sachs was engaged to serve as financial advisor to the KLX Board, KLX has agreed to pay Goldman Sachs a transaction fee that is estimated, based on the information available as of the date of announcement, to be approximately $33.5 million, $5.0 million of which became payable to Goldman Sachs upon the announcement of the execution of the merger agreement, $3.5 million of which is payable in connection with the spin-off and the remainder of which is contingent upon consummation of the transactions.
Interests of KLX's Executive Officers and Directors in the Merger (see page 77)
When considering the recommendation of the KLX Board that you vote "FOR" the merger proposal, you should be aware that, aside from their interests as KLX stockholders, KLX's directors and executive officers have interests in the merger that are different from, or in addition to, the interests of other KLX stockholders generally. The KLX Board was aware of such interests during its deliberations on the merits of the merger and in deciding to recommend that KLX stockholders vote "FOR" the merger proposal at its meeting on April 30, 2018.
With respect to directors serving on the KLX Board, these interests include the impact of the transaction on the KLX directors' outstanding equity awards and the provision of indemnification and insurance arrangements pursuant to the merger agreement and KLX's certificate of incorporation and bylaws.
With respect to our executive officers, these interests relate to the possible receipt of the following types of payments and benefits that may be triggered by or otherwise relate to the merger (assuming, where applicable, that the executive officer's employment was terminated by us without "cause" or by the executive for "good reason" (each, as defined in the applicable employment agreement or severance plan) contemporaneously with the closing of the merger):
If the merger proposal is approved by KLX stockholders, the shares of KLX common stock held by our directors and executive officers will be treated in the same manner as outstanding shares of common stock held by all other KLX stockholders entitled to receive the per share merger consideration.
Boeing intends to utilize cash on hand and debt to consummate the merger and the other transactions contemplated by the merger agreement, including the payment of the merger consideration, the repayment of certain existing indebtedness of KLX, the payment of all fees and
expenses payable by Boeing in accordance with the merger agreement and the payment of any other amounts required to be paid by Boeing or Merger Sub in connection with the consummation of the transactions contemplated by the merger agreement. The consummation of the merger is not subject to any financing conditions.
Regulatory Clearances and Approvals Required for the Merger (see page 84)
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), KLX, Boeing and Merger Sub cannot complete the merger until KLX, Boeing and Merger Sub have given notification and furnished information to the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "DOJ"), and until the applicable waiting period under the HSR Act has expired or has been terminated. On May 14, 2018, KLX and Boeing each filed a premerger notification and report form under the HSR Act, and Boeing refiled its HSR form on June 15, 2018. The required 30-day waiting period under the HSR Act expired at 11:59 p.m. Eastern time on July 16, 2018. KLX, Boeing and Merger Sub are also required to obtain approvals, clearances or consents in several other countries before completing the merger. Such parties will work cooperatively toward obtaining these regulatory clearances.
Under the merger agreement, each of KLX, Boeing and Merger Sub is required to use its reasonable best efforts to cooperate with each other and take, or cause to be taken, or do, or cause to be done, all things necessary, proper or advisable to satisfy, or cause to be satisfied, all conditions to the obligations of the parties under the merger agreement over which it has control or influence, to obtain all other necessary actions, waivers, consents, licenses, permits and registrations (or transfers of the foregoing) and approvals from governmental authorities or any other person and to cause the merger to be consummated as promptly as practicable in accordance with the terms of the merger agreement. In addition, each of KLX, Boeing and Merger Sub is required to use its reasonable best efforts to defend through litigation on the merits any claim asserted in court by any person in order to avoid entry of, or to have vacated or terminated, any order of any governmental authority (whether temporary, preliminary or permanent) that would prevent or materially delay the consummation of the closing under the merger agreement.
Notwithstanding the foregoing, Boeing is not required to propose, negotiate, commit to or effect, by consent decree, hold separate orders or otherwise, (i) the sale, divestiture, license or disposition, in whole or in part of, or suffer any restriction on the operation of, Boeing's or its subsidiaries' assets, properties or businesses or (ii) the sale, divestiture, license or disposition, in whole or part, of any of KLX's assets, properties or businesses to be acquired by Boeing pursuant to the merger agreement. If (i) the merger has not been consummated on or before April 30, 2019 (as may be extended to July 30, 2019 under the terms of the merger agreement) and either Boeing or KLX terminates the merger agreement at such time and the only condition not satisfied is that certain antitrust regulatory approvals have not been obtained or a governmental authority has issued an order prohibiting the merger under antitrust laws or (ii) either Boeing or KLX terminates the merger agreement because a U.S. governmental authority has prohibited the merger or the spin-off under antitrust laws, Boeing will pay to KLX a termination fee of $175 million.
For more information, see the section entitled "The Merger Agreement—Efforts to Complete the Merger" beginning on page 106107 and "The Merger Agreement—Termination Fees and Expenses" beginning on page 114.115.
Material U.S. Federal Income Tax Consequences of the Merger (see page 127)128)
For U.S. federal income tax purposes, the merger will be treated as a taxable sale. You should read the section entitled "Material U.S. Federal Income Tax Consequences of the Merger" beginning on page 127128 and consult your tax advisors regarding the U.S. tax consequences of the merger to you in your particular circumstances.
Appraisal Rights (see page 85)
If the merger is effected, KLX stockholders are entitled to appraisal rights under the DGCL in connection with the merger, provided that such stockholders meet all of the conditions and follow all of the requirements set forth in Section 262 of the DGCL. This means that KLX stockholders who do not wish to accept the merger consideration and meet all of the conditions set forth in Section 262 of the DGCL are entitled to have the fair value of their shares of KLX common stock as of the effective time of the merger determined by the Delaware Court of Chancery and to receive payment based on that valuation in lieu of the merger consideration. The ultimate amount determined by the Delaware Court of Chancery in an appraisal proceeding to be the fair value per share of KLX common stock as of the effective time of the merger may be less than, equal to or more than the merger consideration that a KLX stockholder will receive under the merger agreement if the merger is effected.
To exercise appraisal rights, a KLX stockholder of record must deliver a written demand for appraisal to KLX before the vote is taken on the adoption of the merger agreement, such stockholder must not vote, in person or by proxy, in favor of the proposal to adopt the merger agreement and such stockholder must continue to hold the shares of KLX common stock of record from the date of making the demand for appraisal through the effective time of the merger. A KLX stockholder's failure to follow exactly the procedures specified under the DGCL may result in the loss of such stockholder's appraisal rights. See "The Merger Proposal (Proposal 1)—Appraisal Rights" beginning on page 85 and the text of Section 262 of the DGCL reproduced in its entirety as Annex C to this proxy statement. If you hold your shares of KLX common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, because the demand for appraisal rights must be made by the record holder, you should consult with your bank, broker or other nominee to determine the appropriate procedures for such bank, broker or other nominee to make a demand for appraisal on your behalf. Stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors promptly.
We expect to complete the merger in the third quarter of 2018. However, the merger is subject to various regulatory clearances and approvals and other conditions, and it is possible that factors outside of the control of KLX or Boeing could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the date of the special meeting and the completion of the merger. We expect to complete the merger promptly following the receipt of all required clearances and approvals and the satisfaction or, to the extent permitted, waiver of the other conditions to the consummation of the merger.
Restrictions on Solicitation of Acquisition Proposals (see page 102)103)
The merger agreement provides that, until the earlier of the effective time of the merger and the termination of the merger agreement, we are subject to restrictions on our ability to initiate or solicit third party proposals relating to alternative transactions or to provide information to and engage in discussions or negotiations with a third party in relation to an alternative transaction (subject to certain exceptions prior to the approval of the merger proposal by KLX stockholders at the special meeting
described further in this proxy statement and except as related solely to the spin-off or a sale of the ESG Business or any of the assets or operations thereof). Specifically:
Notwithstanding the foregoing, at any time prior to receiving KLX stockholder approval of the merger proposal, if KLX receives a bona fide written acquisition proposal that did not result directly or indirectly from a breach of the non-solicitation provisions in the merger agreement (other than breaches that are inadvertent, de minimis and not intended to result in an acquisition proposal), KLX may contact the person who has made such acquisition proposal in order to clarify the terms of such acquisition proposal so that the KLX Board (or any committee thereof) may inform itself about such acquisition proposal, furnish information concerning its business, properties or assets to such person pursuant to a confidentiality agreement with confidentiality terms that are not less favorable to KLX than those contained in the confidentiality agreement executed between Boeing and KLX, and negotiate and participate in discussions and negotiation with such person concerning such acquisition proposal, if the KLX Board determines in good faith (after consultation with outside financial advisors and legal counsel) that such acquisition proposal constitutes, or could reasonably be expected to lead to or result in, a superior proposal (as defined below), and the KLX Board determines in good faith (after consultation with outside financial advisors and legal counsel) that the failure to take such action would be inconsistent with its fiduciary duties under applicable law.
KLX Board Recommendation and Adverse Recommendation Change
Under the terms of the merger agreement, the KLX Board has agreed to recommend that KLX stockholders vote in favor of the merger proposal. Under the merger agreement, the KLX Board and any committee thereof may not take any of the following actions (any such action, an "adverse recommendation change"):
Notwithstanding the foregoing, if, at any time prior to the receipt of stockholder approval of the merger proposal, the KLX Board receives an acquisition proposal that did not result directly or indirectly from a breach of the non-solicitation provisions in the merger agreement (other than breaches thereof that are inadvertent, de minimis and not intended to result in an acquisition proposal), that is not withdrawn, and that the KLX Board determines in good faith (after consultation with outside financial advisors and legal counsel) constitutes a superior proposal, the KLX Board may cause KLX to terminate the merger agreement and simultaneously enter into a definitive alternative acquisition agreement in respect of such superior proposal if:
In addition, prior to obtaining stockholder approval, the KLX Board may withdraw, qualify, withhold or modify, fail to make, or publicly propose to withdraw, qualify, withhold or modify its recommendation of the merger proposal, in response to any material change, event, effect, occurrence, consequence or development relating to KLX that (i) is unknown and not reasonably foreseeable as of
the date of entry into the merger agreement, (ii) does not relate to any acquisition proposal, any inquiry, indication of interest, proposal or offer that would reasonably be expected to lead to an acquisition proposal and (iii) becomes known to the KLX Board prior to KLX stockholder approval of the merger proposal (excluding any change, event, effect, occurrence, consequence or development relating to (A) Boeing or Merger Sub or any KLX competitor or (B) the market price or trading volume of the KLX stock, the ratings or the ratings outlook for KLX or any of its subsidiaries) (an "intervening event"), if
Conditions to the Closing of the Merger (see page 111)112)
The merger agreement provides that the respective obligations of each party to consummate the merger are subject to the satisfaction or (to the extent permitted by applicable law) written waiver by KLX, Boeing and Merger Sub at or prior to the closing of the following conditions:
promulgated after the date of the merger agreement, in each case, that is then in effect and has the effect of permanently restraining, enjoining or otherwise prohibiting the consummation of the merger or the other transactions contemplated by the merger agreement and the spin-off agreements (or the agreements governing the sale of the ESG Business).
The obligations of Boeing and Merger Sub to effect the merger are subject to the satisfaction or (to the extent permitted by applicable law) written waiver by Boeing at or prior to the closing of the merger of the following additional conditions:
The obligation of KLX to effect the merger is subject to the satisfaction or (to the extent permitted by applicable law) written waiver by KLX at or prior to the closing of the merger of the following additional conditions:
Termination of the Merger Agreement (see page 112)113)
Notwithstanding anything contained in the merger agreement to the contrary, the merger agreement may be terminated at any time prior to the effective time by mutual written consent of each of Boeing and KLX. In addition, the merger agreement may be terminated at any time prior to the effective time by either Boeing or KLX if:
KLX may also terminate the merger agreement if:
Boeing may also terminate the merger agreement if:
Termination Fees (see page 114)115)
We will be required to pay Boeing a termination fee equal to $70 million in cash in the following circumstances:
not capable of being cured by KLX by the termination date or is not so cured and within nine months after such termination, KLX enters into a definitive agreement with a person that made an acquisition proposal (provided that the reference to 20% in the definition of acquisition proposal is deemed to be 50% and in no case will a definitive agreement involving solely the sale of the ESG Business alone constitute an acquisition proposal).
We will be required to pay Boeing a termination fee equal to $105 million in cash in the following circumstances:
We will be required to pay Boeing a termination fee equal to $175 million in cash if the merger agreement is terminated by Boeing at any time after 5:00 p.m. (New York time) on January 11, 2019, because the conditions related to the Form 10 and the spin-off (and the sale of the ESG Business) are the only conditions that remain unsatisfied or that have not been waived by the party then entitled to give such waiver (other than those conditions that by their terms are to be satisfied at the closing of the merger, but that are capable of being satisfied as of such time (assuming the closing of the merger were to occur as of such time)) (provided that Boeing cannot terminate the merger agreement on this basis if the inaccuracy of Boeing's representations or warranties or the failure of Boeing to perform or comply with any of its obligations under the merger agreement has been the proximate cause of the failure of the conditions related to the Form 10 and the spin-off (and the sale of the ESG Business)).
Boeing will be required to pay KLX a termination fee equal to $175 million in cash in the following circumstances:
otherwise prohibiting the merger or the spin-off and such order shall have become final and non-appealable.
Directors' and Officers' Indemnification and Insurance (see page 109)110)
Boeing and Merger Sub have agreed in the merger agreement that all rights to indemnification and exculpation from liabilities, including advancement of expenses, for acts or omissions occurring at or prior to the effective time now existing in favor of the current or former directors or officers of KLX (the "D&O Indemnified Parties") as provided in KLX's certificate of incorporation and bylaws (in each case, as in effect on the date of the merger agreement) shall survive the merger and shall continue in full force and effect. For a period of six years from the effective time, the surviving corporation shall, and Boeing shall cause the surviving corporation to, maintain in effect exculpation, indemnification and advancement of expenses provisions equivalent to the provisions of KLX's certificate of incorporation and bylaws as in effect immediately prior to the effective time with respect to acts or omissions occurring prior to the effective time and shall not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any D&O Indemnified Parties; provided, however, that all rights to indemnification in respect of any action pending or asserted or any claim made within such period shall continue until the disposition of such action or resolution of such claim.
Prior to the effective time, KLX will (or, if KLX is unable to, after the effective time, Boeing will cause the surviving corporation to) purchase a six-year prepaid "tail" policy, with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under KLX's existing policies of directors' and officers' liability insurance and fiduciary liability insurance, with respect to matters arising on or before the effective time (including in connection with the merger agreement and the transactions or actions contemplated by the merger agreement), and Boeing will cause such policy to be maintained in full force and effect, for its full term, and cause all obligations thereunder to be honored by the surviving corporation, and no other party shall have any further obligation to purchase or pay for insurance under the merger agreement; provided, however, (i) that KLX will not pay, and the surviving corporation will not be required to pay, in excess of 300% of the last annual premium paid by KLX prior to the date of the merger agreement in respect of such "tail" policy and (ii) the material terms of such prepaid policies (including coverage and amount) will be no more favorable in the aggregate to such D&O Indemnified Parties than the insurance coverage otherwise required in the prior paragraph above.
If KLX or the surviving corporation for any reason fails to obtain such "tail" insurance policies prior to, as of or after the effective time, Boeing shall, for a period of six years from the effective time, cause the surviving corporation to maintain in effect the current policies of directors' and officers' liability insurance and fiduciary liability insurance maintained by KLX with respect to matters arising on or before the effective time; provided further, however, that after the effective time, neither the surviving corporation nor Boeing shall be required to pay annual premiums in excess of 300% of the last annual premium paid by KLX prior to the date of the merger agreement in respect of the coverage required to be obtained pursuant to the merger agreement, but in such case shall purchase as much coverage as reasonably practicable for such amount.
Delisting and Deregistration of KLX Common Stock (see page 85)
As promptly as practicable following the completion of the merger, KLX common stock will be delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Market Prices of KLX Common Stock (see page 124)125)
On April 30, 2018, the last trading day prior to the public announcement of the proposed merger, the closing price per share of KLX common stock on Nasdaq was $78.23. The closing price per share of KLX common stock on the Nasdaq on May 25,July 24, 2018, the most recent practicable date prior to the filing of this proxy statement, was $72.30$72.85 per share. You are encouraged to obtain current market prices of KLX common stock in connection with voting your shares of KLX common stock. The merger consideration, consisting of $63.00 in cash per share, without interest, is in addition to, and separate from, the shares of KLX Energy Services that KLX stockholders as of the record date of the spin-off will receive in the spin-off.
Spin-Off Transaction Agreements
In connection with the spin-off, on July 13, 2018, KLX and KLX Energy Services will enterentered into the distribution agreement, the employee matters agreement, the transition services agreement and the IP matters agreement (together, the "spin-off transaction agreements"). The summary of the material provisions of the distribution agreement, the employee matters agreement, the transition services agreement and the IP matters agreement, forms of each of which areis attached to this proxy statement as Annex D, Annex E, Annex F and Annex G, respectively, and each of which is hereby incorporated by reference into this proxy statement, does not purport to be complete and may not contain all of the information about these agreements that is important to you. We encourage you to read carefully each of these agreements in its entirety.
On July 13, 2018, KLX will enterentered into a distribution agreement with KLX Energy Services beforepursuant to which KLX Energy Services' common stock iswill be distributed to KLX stockholders. That agreement will setsets forth the principal actions to be taken in connection with the spin-off of the ESG Business from KLX. It will also setsets forth other agreements that govern certain aspects of KLX's relationship with KLX Energy Services following the spin-off.
The Distribution
The distribution agreement will govern the rights and obligations of the parties regarding the proposed distribution. KLX will cause its agent to distribute all of the shares of KLX Energy Services on a pro rata basis to KLX stockholders who hold shares of KLX common stock as of the record date for the spin-off.
Conditions
The distribution agreement will provideprovides that the distribution is subject to several conditions that must be satisfied. The distribution agreement will provideprovides that KLX will, in its sole discretion, determine the record date, the distribution date and the terms of the distribution and may, at any time prior to the completion of the distribution, decide to abandon or modify the distribution, subject to compliance with the terms of the merger agreement.
Termination
Unless the merger agreement has been terminated, Boeing's consent is required to terminate the distribution agreement.
Release of Claims
KLX and KLX Energy Services will each release the other and its wholly owned subsidiaries and affiliates, and their respective stockholders (other than the public stockholders of KLX), directors, officers, agents and employees (in their respective capacities as such) from any claims against any of them that arise out of or relate to events or actions occurring or failing to occur or any conditions existing at or prior to the distribution. These releases will be subject to certain exceptions set forth in the distribution agreement.
Indemnification
KLX, on the one hand, and KLX Energy Services, on the other hand, will agree to indemnify each other against certain liabilities, among others, in connection with their respective businesses.
KLX Energy Services will indemnify KLX to the extent that KLX determines that it is required to account for any gain on the distribution for U.S. federal or corresponding state and local income tax purposes, as calculated in the manner described in the distribution agreement. KLX Energy Services will pay any such indemnity to KLX, at KLX Energy Services' option, in cash, by issuing shares of its common stock to KLX or a combination of cash and shares of its common stock. In the event that, prior to January 11, 2019, KLX Energy Services has not received any required consent or waiver from its lenders or bond holders to effect the spin-off due only to Boeing's failure to provide its consent to the related consent fee, KLX Energy Services' total indemnification obligation pursuant to this provision will not exceed $50 million.
Negative Free Cash Flow Reimbursement
The distribution agreement will provideprovides that KLX Energy Services will reimburse KLX for the amount of negative free cash flow of KLX Energy Services (defined as "FCF Net Amount" in the distribution agreement), if any, in the period from the date of execution of the merger agreement through the date of effectiveness of the spin-off.
KLX Energy Services Cash
Subject to any payments pursuant to the immediately preceding paragraph, KLX Energy Services will be entitled to all cash generated by the operation of the ESG Business from May 1, 2018 through the distribution date.
Transaction Expenses
Subject to the consummation of the merger, KLX Energy Services will reimburse KLX for certain expenses in excess of $10 million incurred in connection with the spin-off. All other transaction costs and expenses will be borne by KLX.
Non-Compete
The distribution agreement will provideprovides for a worldwide five-year non-compete obligation of KLX Energy Services pursuant to which KLX Energy Services may not, subject to certain carve-outs, provide services or otherwise participate in the ownership, management, operation or control of a business that engages in the sale of aerospace fasteners and other consumables directly to suppliers to commercial, business jet, military and defense airframe manufacturers, airlines, aircraft leasing companies, MRO providers, domestic military depots or general aviation companies.
Upon or prior to the consummation of the spin-off,On July 13, 2018, KLX will enterentered into an employee matters agreement with KLX Energy Services that will setsets forth KLX's agreement with KLX Energy Services on the allocation of employees to KLX Energy Services and obligations and responsibilities regarding compensation, benefits and labor matters.
Assignment of Employees
KLX will allocate all employees of KLX and its affiliates whose duties relate to the KLX Energy Services business, on or prior to the distribution date, to KLX Energy Services. Notwithstanding the foregoing, certain employees of KLX and its affiliates whose employment duties relate to the KLX Energy Services business will remain employed by KLX after the distribution date and will provide certain shared services to KLX and KLX Energy Services. Such employees will transfer to KLX Energy Services on or prior to completion of the merger. Except with respect to certain employees, the transfer of employment will not be deemed a severance of employment for purposes of any plan or arrangement of KLX, KLX Energy Services, or their respective subsidiaries and affiliates.
Equity Awards
The employee matters agreement will provideprovides that the outstanding KLX equity awards held by employees moving to KLX Energy Services in connection with the spin-off will be permitted to remain outstanding under the LTIP and continue vesting and be satisfied at the relevant time following the distribution date in accordance with the LTIP's rules and relevant award agreements, with continued service at KLX Energy Services considered to be continued service at KLX for the purposes of vesting of such awards. Outstanding KLX Restricted Stock Awards and KLX PSU Awards and KLX RSU Awards held by employees moving to KLX Energy Services that remain in the LTIP as well as similar awards held by employees remaining with KLX after the spin-off will be equitably adjusted to preserve the aggregate fair market value (and thus the aggregate intrinsic value) of the award immediately before the distribution by multiplying the number of shares of KLX common stock subject to each such KLX Restricted Stock Award or KLX PSU Awards and KLX RSU Awards immediately prior to the distribution by a fraction, the numerator of which is the closing price per share of KLX common stock trading regular way on the Nasdaq Global Select Market on the distribution date, and the denominator of which is the opening price per share of KLX common stock on the first trading day following the distribution date on the Nasdaq Global Select Market. Such outstanding equity awards otherwise will not participate in the spin-off.
Welfare Benefit Plans
The employee matters agreement also addresses the treatment, with regard to welfare benefits, of employees remaining with KLX and employees transferring to KLX Energy Services in connection with the spin-off. In connection with the spin-off, KLX Energy Services will establish its own welfare benefit programs that are comparable to the welfare benefit programs maintained by KLX prior to the spin-off. Employees transferring to KLX Energy Services who participate in the KLX health and welfare plans will cease participation in such plans and will commence participation in the KLX Energy Services health and welfare plans. KLX will generally be responsible for all liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by KLX Energy Services participants under the KLX health and welfare plans prior to such transfer, and KLX Energy Services shall be so responsible for liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by KLX Energy Services participants under the KLX Energy Services health and welfare plans after such transfer.
Non-Qualified Deferred Compensation Plans
The employee matters agreement will provideprovides that, in connection with the spin-off, KLX Energy Services will establish deferred compensation plans for eligible KLX Energy Services employees and directors similar to those maintained by KLX. Prior to and following the distribution of KLX Energy Services, KLX will retain all liability and responsibility in accordance with and pursuant to the KLX Inc. 2014 Deferred Compensation Plan, as amended.
Defined Contribution Plan
The employee matters agreement will provideprovides that, prior to the distribution date, KLX Energy Services will establish a tax qualified defined contribution plan that is comparable to the KLX tax qualified defined contribution plan and KLX and KLX Energy Services will cause the accounts and liabilities under the KLX plan of each KLX employee that is moving to KLX Energy Services to be transferred to the KLX Energy Services plan.
Annual Incentive Plans
The employee matters agreement will provideprovides that KLX Energy Services will assume all obligations to pay eligible KLX employees that are moving to KLX Energy Services their annual cash bonuses for the fiscal year ending January 31, 2019, in accordance with the terms and conditions of the KLX annual incentive plan. KLX Energy Services is expected to implement its own annual incentive plans for the fiscal year ending January 31, 2020 and beyond.
Upon or prior to the consummation of the spin-off,On July 13, 2018, KLX will enterentered into a transition services agreement with KLX Energy Services, under which KLX, certain of its subsidiaries or certain third party service providers contracted by KLX will provide KLX Energy Services with certain services for a limited time following the spin-off to help ensure an orderly transition following the distribution.
The services to be provided by KLX include treasury (including payroll), internal audit, tax, accounting, human resources/benefits, legal, IT services and other administrative services.
The transition services agreement provides for a term of not more than six months from the date of the closing of the merger.
In connection with any breach of the transition services agreement or otherwise with respect to the transition services, KLX's and its subsidiaries' maximum liability under the transition services agreement (and the sole remedy from KLX to KLX Energy Services with respect thereto) is a refund of the total fees paid for the applicable transition services. KLX Energy Services is generally required to indemnify KLX for any losses arising out of or in connection with the transition services, including KLX Energy Services' breach of the transition services agreement or exercise of its rights under such agreement.
KLX Energy Services will have the right to terminate each service prior to the end of the term of the transition services agreement, and each party is entitled to terminate if the other party materially breaches any of its obligations under the agreement after notice and an opportunity to cure.
Upon or prior to the consummation of the spin-off,On July 13, 2018, KLX will enterentered into an IP matters agreement with KLX Energy Services, which will govern (1) the transfer of certain KLX trademarks from KLX to KLX Energy Services, which is to occur upon the consummation of the merger, and (2) the rights and obligations of each of KLX and
obligations of each of KLX and KLX Energy Services with respect to the assigned KLX trademarks prior to and after the consummation of the merger.
Co-existence
Following the spin-off but prior to the closing of the merger, KLX will grant KLX Energy Services an interim limited license to use such KLX trademarks in the form of "KLX Energy Services" in connection with the ESG Business. If the merger agreement is terminated after the distribution has been consummated, KLX and KLX Energy Services agree to enter into a long-term brand co-existence agreement with respect to the KLX trademarks.
Assignment
Upon the closing of the merger, (1) KLX will assign such KLX trademarks and related rights to KLX Energy Services, and (2) KLX Energy Services agrees that it will not use such KLX trademarks within the fields of use in which the ASG Business operates.
Rebranding
Following the closing of the merger, as soon as reasonably practicable, KLX shall (1) no later than 180 days after the closing of the merger, remove "KLX" from the names of any ASG Business entities containing "KLX", (2) no later than 180 days after the closing of the merger, cease using "KLX" on any real physical properties, equipment, and websites, and (3) no later than 365 365��days thereafter, remove "KLX" from all ASG Business products and marketing materials. For the 365 day period following the closing of the merger, KLX Energy Services will grant KLX a non-exclusive, irrevocable, royalty-free, non-transferable, non-sublicensable license to such KLX trademarks to enable the ASG Business to rebrand and transition off usage of such KLX trademarks.
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following are brief answers to certain questions that you may have regarding the merger, the special meeting and the proposals being considered at the special meeting. We urge you to carefully read the remainder of this proxy statement because the information in this section does not provide all the information that might be important to you with respect to the merger and the special meeting. Additional important information is also contained in the annexes attached to this proxy statement and the documents referred to or incorporated by reference into this proxy statement.
Boeing will acquire all of the issued and outstanding shares of KLX common stock, which at the effective time of the merger will consist only of KLX's Aerospace Solutions Group business. As a condition to the merger, prior to or simultaneously with the consummation of the merger, KLX will transfer its ESG Business to KLX Energy Services and effect a pro rata distribution of common stock representing 100% of the equity interests of KLX Energy Services to KLX stockholders as of the record date of such distribution. After the spin-off is completed, KLX Energy Services will be a separate, publicly held company that will own and operate KLX's ESG Business. The spin-off will be carried out in accordance with the terms of the distribution agreement, the employee matters agreement, the transition services agreement and the IP matters agreement.
The merger consideration is in addition to, and separate from, the shares of KLX Energy Services that KLX stockholders as of the record date of the spin-off (the "spin-off record date") will receive in the spin-off. Immediately after the spin-off, KLX stockholders as of the spin-off record date will own 100% of the issued and outstanding shares of common stock of KLX Energy Services. KLX stockholder approval is not required to complete the spin-off and, accordingly, KLX stockholders are not being asked to vote on the spin-off. Additional information regarding the
spin-off will be contained in the Form 10 to be filed by KLX Energy Services with the SEC with respect to the spin-off.
KLX will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournments or postponements thereof.
The failure of any stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the special meeting will have the same effect as a vote "AGAINST" the proposal to approve the merger agreement. If you hold your shares in "street name," the failure to instruct your bank, broker or other nominee how to vote your shares will have the same effect as a vote "AGAINST" the merger proposal. Abstentions will have the same effect as a vote "AGAINST" the merger proposal.
As of [ · ],July 24, 2018, the record date for determining who is entitled to vote at the special meeting, there were approximately [ · ]50,746,599 shares of KLX common stock issued and outstanding. Each holder of KLX common stock is entitled to one vote per share of stock owned by such holder as of the record date.
The failure of any stockholder of record to submit a signed proxy card, grant a proxy electronically over the Internet or by telephone or to vote in person by ballot at the special meeting will not have any effect on the named executive officer merger-related compensation proposal or the adjournment proposal. If you hold your shares in "street name," the failure to instruct your bank, broker or other nominee how to vote your shares will not have any effect on the named executive officer merger-related compensation proposal or the adjournment proposal. Abstentions will have the same effect as a vote "AGAINST" either proposal.
Further, if the merger is not completed as a result of the termination of the merger agreement under certain specified circumstances, KLX may be required to pay Boeing a termination fee. See "The Merger Agreement—Termination Fees and Expenses" beginning on page 114115 for a discussion of the circumstances under which such fees may be payable. The spin-off may have occurred before the termination of the merger agreement or may still occur if the merger is not completed. However, we cannot guarantee that the spin-off will occur if the merger is not completed.
agent in order to receive the cash payment of the merger consideration for each share of our common stock represented by the stock certificates. You should use the letter of transmittal to exchange your stock certificates for the cash payment to which you are entitled upon completion of the merger. Please do not send in your stock certificates now.
If your shares are held through a bank, broker or other nominee, you are considered the "beneficial owner" of the shares of KLX common stock held in "street name." In this case, this proxy statement has been forwarded to you by your bank, broker or other nominee who is considered, with respect to those shares, to be the stockholder of record. As the beneficial owner, you have the right to direct your bank, broker or other nominee how to vote your shares by following their instructions for voting. You are also invited to attend the special meeting. However, because you are not the stockholder of record, you may not vote your shares in person at the special meeting unless you request and obtain a valid legal proxy from your bank, broker or other nominee.
Whether or not you plan to attend the special meeting, we urge you to submit a proxy to vote to ensure your vote is counted. You may still attend the special meeting and vote in person if you have already submitted a proxy. Please choose only one method to cast your vote by proxy. We encourage you to vote by submitting a proxy over the Internet or by telephone, both of which are convenient, cost-effective and reliable alternatives to returning a proxy card by mail. If you vote by submitting your proxy by telephone or over the Internet or you return your signed proxy card to us
before the special meeting, and you do not subsequently revoke your proxy, we will vote your shares as you direct in such proxy.
If you are the beneficial owner of shares held in "street name," you will have to follow the instructions provided by your bank, broker or other nominee to change or revoke your voting instructions provided to such bank, broker or other nominee.
For the named executive officer merger-related compensation proposal and the adjournment proposal, you may vote "FOR," "AGAINST" or "ABSTAIN." Abstentions will have the same effect as if you vote "AGAINST" the named executive officer merger-related compensation proposal and the adjournment proposal, but will still count for the purpose of determining whether a quorum is present. Under KLX's bylaws, the named executive officer merger-related compensation proposal and the adjournment proposal each requires the affirmative vote of the holders of a majority of shares of KLX common stock present in person or represented by proxy at the special meeting, provided that a quorum is present. As a result, assuming a quorum is present at the special meeting, abstentions will have the same effect as if you vote "AGAINST" the named executed officer merger-related compensation proposal or the adjournment proposal. The failure to vote on the named executive officer merger-related compensation proposal or the adjournment proposal, however, will have no effect on the outcome of such proposals.
with the merger, you must hold your shares of KLX common stock through the effective time of the merger. Even if you sell or otherwise transfer your shares of KLX common stock after the record date for the special meeting, we encourage you to vote via the Internet or telephone or complete, date, sign and return the enclosed proxy.
Georgeson
1290 Avenue of the Americas, 9th Floor
New York, NY 10104
Domestic and Canadian Stockholders Call: 1-866-277-0928
International Stockholders Call: 1-781-575-2137
Bankers and Brokers May Call Collect: 1-866-277-0928
If your bank, broker or other nominee holds your shares, you should also call your bank, broker or other nominee for additional information.
Additional information regarding the spin-off will be contained in the Form 10 to be filed by KLX Energy Services with the SEC with respect to the spin-off.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The proxy statement and the attached annexes contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We intend for these forward-looking statements to be covered by the safe harbor provisions of the federal securities laws relating to forward-looking statements. These forward-looking statements include statements relating to: the expected timing, completion and effects of the proposed merger, the separation and the spin-off; management's beliefs about future events, transactions, strategies, operations and financial results; our expectations with respect to the costs and other anticipated financial impacts of the spin-off and the merger; future financial and operating results of KLX Energy Services and KLX; the ability of KLX, KLX Energy Services and Boeing to complete the contemplated transactions in connection with the merger and the spin-off; KLX's plans, objectives, expectations and intentions with respect to future operations and services; required approvals to complete the merger and the spin-off by our stockholders and by governmental regulatory authorities, and the timing and conditions for such approvals; the stock price of KLX Energy Services following the consummation of the transactions; the stock price of KLX prior to the consummation of the transactions; the satisfaction of the closing conditions to the proposed merger and the spin-off; and the timing of the completion of the merger and the spin-off. Such forward-looking statements often contain words such as "assume," "will," "anticipate," "believe," "predict," "project," "potential," "contemplate," "plan," "forecast," "estimate," "expect," "intend," "is targeting," "may," "should," "would," "could," "goal," "seek," "hope," "aim," "continue" and other similar words or expressions or the negative thereof or other variations thereon. Forward-looking statements are made based upon management's current expectations and beliefs and are not guarantees of future performance. Such forward-looking statements involve numerous assumptions, risks and uncertainties that may cause actual results to differ materially from those expressed or implied in any such statements. Although it is believed that the expectations reflected in such forward-looking statements are reasonable and are expressed in good faith, such expectations may not prove to be correct, and persons reading this proxy statement are therefore cautioned not to place undue reliance on these forward-looking statements, which speak only to expectations as of the date of this proxy statement. We do not undertake or plan to update or revise forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this proxy statement, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. If we make any future public statements or disclosures which modify or impact any of the forward-looking statements contained in or accompanying this proxy statement, such statements or disclosures will be deemed to modify or supersede such statements in this proxy statement.
There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those suggested by our forward-looking statements. These risks and uncertainties, which could have a material adverse effect on us and our stock price, include the occurrence of any event, change or other circumstances that could give rise to: the termination of the merger agreement; the inability to complete the proposed merger or the spin-off due to the failure to obtain stockholder approval for the proposed merger or the failure to satisfy other conditions to completion of the proposed merger or the spin-off, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transactions contemplated by the merger agreement; risks related to disruption of management's attention from KLX's ongoing business operations due to the transactions contemplated by the merger agreement, the separation and the spin-off; the effect of the announcement of the proposed merger on KLX's relationships with its customers, operating results and business generally; the risk that the proposed merger and the spin-off will not be consummated in a timely manner; economic conditions adversely affecting our business or results; the outcome of any legal proceedings that may be instituted against us and others related to the merger agreement; the fact that receipt of the all-cash merger consideration would be taxable to KLX's stockholders that are treated as U.S. holders for U.S. federal income tax purposes; the fact that KLX's
stockholders would forego the opportunity to realize the potential long-term value of the successful execution of KLX's current strategy as an independent company; the possibility that Boeing could, at a later date, engage in unspecified transactions, including restructuring efforts, special dividends or the sale of some or all of KLX's assets to one or more as yet unknown purchasers that could conceivably produce a higher aggregate value than that available to the stockholders in the merger; the fact that under the terms of the merger agreement, KLX is unable to solicit other acquisition proposals during the pendency of the merger; the fact that, under specified circumstances, KLX may be required to pay fees in the event the merger agreement is terminated and the effect this could have on KLX; the amount of the costs, fees, expenses and charges related to the merger agreement and the merger; risks that our stock price may decline significantly if the merger is not completed; the unsuccessful implementation of the spin-off; any developments related to antitrust investigations adversely affecting our financial condition, results, cash flows or reputation; pricing pressures from our customers adversely affecting our profitability; competition adversely affecting our sales, profitability or financial condition; any disruption in our information technology systems adversely impacting our business and operations; any inability to protect our intellectual property rights adversely affecting our business or our competitive position; costs or adverse effects on our business, reputation or results from governmental regulations; work stoppages or other labor issues adversely affecting our business, results or financial condition; and other risks and uncertainties set forth in KLX's Annual Report on Form 10-K for the fiscal year ended January 31, 2018, Form 10-Q for the quarter ended April 30, 2018 and subsequent quarterly reports on Form 10-Q or current reports on Form 8-K.
KLX Inc.
1300 Corporate Center Way
Wellington, FL 33414
(561) 383-5100
KLX, through its two operating segments, provides mission critical products and complex logistical solutions to support its customers' high value assets. KLX serves its customers in demanding environments that face high cost of downtime and require dependable, high quality just-in-time customer support. KLX's Aerospace Solutions Group is a leading distributor and value added service provider of aerospace fasteners and consumables, offering the broadest range of aerospace hardware and consumables and inventory and supply chain management services worldwide. Through its global facilities network and advanced information technology systems, KLX offers its services to commercial airline, business jet and defense original equipment manufacturers and their subcontractors, airlines, maintenance, repair and overhaul operators, fixed base operators and domestic military depots. KLX's Energy Services Group provides completion, intervention and production services to the major onshore oil and gas producing regions of the United States, including the Northeast Region (the Marcellus and Utica Shales as well as the Mid-Continent STACK and SCOOP and Haynesville), the Rocky Mountains Region (the Bakken formation, Williston, DJ, Uinta and Piceance Basins and Niobrara Shale) and the Southwest Region (including the Permian Basin and Eagle Ford Shale), serving the leading companies engaged in the exploration and development of North American onshore unconventional oil and natural gas reserves.
KLX's common stock is traded on the Nasdaq Global Select Market under the symbol "KLXI." KLX's corporate web address is www.klx.com. The information provided on the KLX website is not part of this proxy statement and is not incorporated in this proxy statement by reference hereby or by any other reference to KLX's website provided in this proxy statement.
The Boeing Company
100 N. Riverside Plaza
Chicago, IL 60606-1596
(312) 544-2000
Boeing is the world's largest aerospace company and leading manufacturer of commercial airplanes and defense, space and security systems. Boeing is also the world leader in combined commercial airlines and government services with customers in more than 150 countries. Boeing's products and tailored services include commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training. Boeing employs approximately 140,000 people across the United States and in more than 65 countries.
Boeing's common stock is traded on the New York Stock Exchange under the ticker symbol "BA." Boeing's corporate web address is www.boeing.com. The information provided on the Boeing website is not part of this proxy statement and is not incorporated in this proxy statement by reference hereby or by any other reference to Boeing's website provided in this proxy statement.
Kelly Merger Sub, Inc.
100 N. Riverside Plaza
Chicago, IL 60606-1596
(312) 544-2000
Merger Sub is a Delaware corporation and a wholly owned subsidiary of Boeing, the sole purpose of which is to effect the merger. Upon completion of the merger, Merger Sub will merge with and into KLX, with Merger Sub ceasing to exist and KLX surviving as a wholly owned subsidiary of Boeing.
This proxy statement is being provided to KLX stockholders as part of a solicitation by the KLX Board of proxies for use at the special meeting to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement of the special meeting.
The special meeting is scheduled to be held on [ · ],August 24, 2018 at [ · ]10:30 a.m., Eastern Time, at [ · ].the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts 02110.
Purpose of the Special Meeting
At the special meeting, KLX stockholders will be asked to consider and vote on the following proposals:
KLX will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournments or postponements thereof.
KLX stockholders must approve the merger proposal as a condition to the completion of the merger. If KLX stockholders fail to approve the merger proposal, the merger will not occur. The vote on the named executive officer merger-related compensation proposal is a vote separate and apart from the vote to approve the merger proposal. Accordingly, a stockholder may vote to approve the merger proposal and vote not to approve the named executive officer merger-related compensation proposal, and vice versa. Because the vote on the named executive officer merger-related compensation proposal is only advisory in nature, it will not be binding on KLX, Boeing or the surviving corporation. Accordingly, because KLX is contractually obligated to pay such merger-related compensation, the compensation will be payable, subject only to the conditions applicable thereto, if the merger proposal is approved, regardless of the outcome of the advisory vote.
Other than the matters described above, KLX does not expect a vote to be taken on any other matters at the special meeting or any adjournment or postponement thereof. KLX stockholder approval is not required to complete the spin-off and, accordingly, KLX stockholders are not being asked to vote on the spin-off. However, if any other matters are properly brought before the special meeting or any adjournment or postponement thereof for consideration, the holders of the proxies will have discretion to vote on such matters in accordance with their best judgment.
Recommendation of the KLX Board
The KLX Board has unanimously determined that it is in the best interests of the stockholders of KLX to enter into the merger agreement and has unanimously approved and declared advisable the merger, the merger agreement and the other transactions contemplated thereby (including the separation and the spin-off). A description of factors considered by the KLX Board in reaching its decision to approve and declare advisable the merger agreement can be found in "The Merger
Proposal (Proposal 1)—Recommendation of the KLX Board and Reasons for the Merger" beginning on page 62.
The KLX Board unanimously recommends that KLX stockholders vote "FOR" the merger proposal, "FOR" the named executive officer merger-related compensation proposal and "FOR" the adjournment proposal.
KLX stockholders' approval of the merger proposal is a condition for the merger to occur. If KLX stockholders fail to approve the merger proposal by the requisite vote, the merger will not occur.
Record Date; Stockholders Entitled to Vote
Only holders of KLX common stock at the close of business on [ · ],July 24, 2018, the record date for the special meeting, will be entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting. At the close of business on the record date, [ · ]50,746,599 shares of KLX common stock were issued and outstanding.
Holders of KLX common stock are entitled to one vote for each share of KLX common stock they own at the close of business on the record date.
The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of KLX common stock issued and outstanding at the close of business on the record date and entitled to vote at the meeting will constitute a quorum. As a result, there must be [ · ]25,373,300 shares represented by proxy or by stockholders present and entitled to vote at the special meeting in order to have a quorum. There must be a quorum for business to be conducted at the special meeting. If a quorum does not exist, the chairman of the meeting or the stockholders, by the affirmative vote of a majority of the shares of KLX common stock present or represented by proxy at the special meeting, may adjourn the meeting to another place, date or time. Failure of a quorum to be represented at the special meeting will necessitate an adjournment of the special meeting and may subject KLX to additional expense.
If you submit your proxy over the Internet or by telephone or submit a properly executed proxy card, even if you abstain from voting, your shares will be counted as present for purposes of determining whether a quorum exists at the special meeting.
Approval of the merger proposal requires the affirmative vote of a majority of the shares of KLX common stock outstanding at the close of business on the record date and entitled to vote thereon.
Under KLX's bylaws, approval of the named executive officer merger-related compensation proposal and the adjournment proposal requires the affirmative vote of the holders of a majority of the shares of KLX common stock present in person or represented by proxy at the special meeting, provided that a quorum is present. If no quorum is present at the special meeting, the chairman of the meeting or the stockholders, by the affirmative vote of the holders of a majority of the shares of KLX common stock present or represented by proxy at the special meeting, may adjourn the special meeting.
Abstentions and Broker Non-Votes
An abstention occurs when a stockholder attends a meeting, either in person or by proxy, but abstains from voting. At the special meeting, abstentions will be counted as present for purposes of determining whether a quorum exists.Abstaining from voting will have the same effect as a vote
"AGAINST" the merger proposal, the named executive officer merger-related compensation proposal and the adjournment proposal.
If no instruction as to how to vote is given (including no instruction to abstain from voting) in an executed, duly returned and not revoked proxy, the proxy will be voted "FOR" (i) approval of the merger proposal, (ii) approval of the named executive officer merger-related compensation proposal, which approval shall be on a non-binding, advisory basis, and (iii) approval of the adjournment proposal.
Broker non-votes are shares held in "street name" by banks, brokers and other nominees, but with respect to which the bank, broker or other nominee is not instructed by the beneficial owner of such shares how to vote on a particular proposal and such bank, broker or nominee does not have discretionary voting power on such proposal. Under Nasdaq rules, banks, brokers and other nominees holding shares in "street name" do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement. Accordingly, if a beneficial owner of shares of KLX common stock held in "street name" does not give voting instructions to the bank, broker or other nominee, then those shares will not be counted as present in person or by proxy at the special meeting.
If you are a stockholder of record and you do not sign and return your proxy card or vote over the Internet, by telephone or in person at the special meeting, your shares will not be voted at the special meeting, will not be counted as present in person or by proxy at the special meeting and will not be counted as present for purposes of determining whether a quorum exists.
Under Nasdaq rules, banks, brokers and other nominees that hold shares in "street name" for their customers do not have discretionary voting authority with respect to the merger proposal, the named executive officer merger-related compensation proposal and the adjournment proposal. Accordingly, if you are the beneficial owner of shares held in "street name" and you do not issue voting instructions to your bank, broker or other nominee, your shares will not be voted at the special meeting. Assuming a quorum is present at the special meeting, the failure to issue voting instructions to your bank, broker or other nominee will have no effect on the outcome of the named executive officer merger-related compensation proposal or the adjournment proposal. However, the vote to approve the merger proposal is based on the total number of shares of KLX common stock outstanding on the record date, not just the shares that are counted as present in person or by proxy at the special meeting. As a result, if you fail to issue voting instructions to your bank, broker or other nominee, it will have the same effect as a vote "AGAINST" the merger proposal.
A failure to have your shares present at the special meeting will have no effect on the outcome of the named executive officer merger-related compensation proposal or the adjournment proposal (assuming a quorum is present). However, the vote to approve the merger proposal is based on the total number of shares of KLX common stock outstanding at the close of business on the record date and entitled to vote thereon, not just the shares that are counted as present in person or by proxy at the special meeting.As a result, if you fail to vote your shares, it will have the same effect as a vote "AGAINST" the merger proposal.
Voting by KLX's Directors and Executive Officers
At the close of business on May 25,July 24, 2018, directors and executive officers of KLX were entitled to vote 801,613707,550 shares of KLX common stock, or approximately 1.58%1.39% of the shares of KLX common stock issued and outstanding on that date. KLX's directors and executive officers have informed us that they intend to vote their shares in favor of the merger proposal and the other proposals to be considered at the special meeting, although none of KLX's directors and executive officers is obligated to do so.
If your shares are registered directly in your name with our transfer agent, you are considered a "stockholder of record" (also referred to in this proxy statement as a "registered stockholder"), and there are four methods by which you may vote your shares at the special meeting. You may attend the special meeting and vote your shares in person, rather than signing and returning your proxy card, or you may cause your shares to be voted by authorizing the persons named as proxies on the proxy card to vote your shares at the special meeting by returning the proxy card through the Internet, by telephone or by mail,.mail. If you choose to submit a proxy to vote your shares over the Internet or by telephone, there is no need for you to mail back your proxy card.Although KLX offers four different voting methods, KLX encourages you to submit a proxy to vote either over the Internet or by telephone to ensure that your shares are represented and voted at the special meeting.
If your shares are held by your bank, broker or other nominee, you are considered the beneficial owner of shares held in "street name" and you will receive a vote instruction form from your bank, broker or other nominee seeking instruction from you as to how your shares should be voted. If you are a beneficial owner and you wish to vote in person at the special meeting, you must bring to the special meeting a proxy from the bank, broker or other nominee that holds your shares authorizing you to vote in person at the special meeting.
If you sign your proxy, but do not indicate how you wish to vote, your shares will be voted"FOR" the merger proposal,"FOR" the named executive officer merger-related compensation proposal, and"FOR" adjournment proposal.
Stockholders who are entitled to vote at the special meeting may attend the special meeting. Beneficial owners who have not obtained a proxy but who wish to attend the special meeting should bring a copy of an account statement reflecting their ownership of KLX common stock as of the record date. All stockholders and proxyholders should bring photo identification.
You can change or revoke your proxy at any time before the final vote at the special meeting. If you are the stockholder of record of your shares, you may revoke your proxy by:
If you are the beneficial owner of shares held in "street name," you should contact your bank, broker or other nominee with questions about how to change or revoke your voting instructions.
The KLX Board is soliciting your proxy, and KLX will bear the cost of soliciting proxies. Georgeson has been retained by KLX to assist with the solicitation of proxies. Georgeson will be paid approximately $9,000 and will be reimbursed for its reasonable and documented out-of-pocket expenses for these and related services in connection with the special meeting. Solicitation initially will be made by mail. Forms of proxies and proxy materials may also be distributed through banks, brokers and other nominees to the beneficial owners of shares of KLX common stock, in which case these parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail, or other electronic medium by certain of KLX's directors, officers and employees, without additional compensation.
In addition to the merger proposal and the named executive officer merger-related compensation proposal, KLX stockholders are also being asked to approve the adjournment proposal, which will enable the adjournment of the special meeting for the purpose of soliciting additional votes in favor of the merger proposal, if there are not sufficient votes at the time of the special meeting to approve the merger proposal. If a quorum is not present, the chairman of the meeting or the stockholders, by the affirmative vote of the holders of a majority of the shares of KLX common stock present or represented by proxy at the special meeting, may adjourn the special meeting to another place, date or time. In addition, the special meeting could be postponed before it commences. If the special meeting is adjourned or postponed for the purpose of soliciting additional votes, stockholders who have already submitted their proxies will be able to revoke them at any time prior to the final vote on the proposals.
The KLX Board unanimously recommends a vote "FOR" the adjournment proposal, if necessary or appropriate, to solicit additional proxies.
You should not return your stock certificate (if any) or send documents representing KLX common stock with the proxy card. If the merger is completed, the paying agent for the merger will send you a letter of transmittal and instructions for exchanging your shares of KLX common stock for the consideration to be paid to the former KLX stockholders in connection with the merger.
If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please contact Georgeson, our proxy solicitor, by calling 1-866-277-0928 (for domestic and Canadian stockholders) or 1-781-575-2137 (for international stockholders).
THE MERGER PROPOSAL (PROPOSAL 1)
The following summary describes certain material provisions of the merger agreement. The complete text of the merger agreement is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. We urge you to read the merger agreement carefully and in its entirety.
Subject to the terms and conditions of the merger agreement and in accordance with the DGCL, at the effective time, Merger Sub will merge with and into KLX, the separate corporate existence of Merger Sub will cease and KLX will survive the merger as the surviving corporation and a wholly owned subsidiary of Boeing. As a result of the merger, KLX common stock will no longer be publicly traded, KLX common stock will be delisted from Nasdaq and deregistered under the Exchange Act, and KLX will no longer file periodic reports with the SEC on account of KLX common stock. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation.
Merger Consideration—What KLX Stockholders Will Receive in the Merger
Upon the terms and subject to the conditions of the merger agreement, at the effective time of the merger, each outstanding share of KLX common stock (other than any shares that may be held in the treasury of KLX, by Boeing or by any direct or indirect wholly owned subsidiary of Boeing, and other than shares owned by stockholders who have properly made and not withdrawn a demand for appraisal rights under the DGCL) will be automatically converted into the right to receive $63.00 in cash, without interest. After the merger is completed, holders of KLX common stock will have only the right to receive a cash payment in respect of their shares of KLX common stock and will no longer have any rights as holders of KLX common stock, including voting or other rights. Shares of KLX common stock held by us as treasury stock or held, directly or indirectly, by Boeing or Merger Sub will be cancelled at the effective time.
The merger consideration is in addition to, and separate from, the shares of KLX Energy Services that KLX stockholders as of the record date of the spin-off will receive in the spin-off. Immediately after the spin-off, stockholders of KLX of record as of the record date of the spin-off will own 100% of the issued and outstanding shares of common stock of KLX Energy Services. KLX stockholder approval is not required to complete the spin-off and, accordingly, KLX stockholders are not being asked to vote on the spin-off. Additional information regarding the spin-off will be contained in the Form 10 to be filed by KLX Energy Services with the SEC with respect to the spin-off.
Treatment of KLX Equity Awards
The merger agreement provides that outstanding equity-based awards issued under KLX's equity incentive plans will be treated as set forth below:
KLX Restricted Stock Awards. Without prejudice to any rights in respect of the spin-off, as of the effective time, (i) each KLX Restricted Stock Award that is outstanding immediately prior to the effective time will, to the extent not vested, become fully vested, provided that to the extent that such award is subject to performance conditions, any performance conditions shall be deemed to have been satisfied at the maximum level and (ii) each KLX Restricted Stock Award will be canceled without any action on the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the surviving corporation's general payroll practices, a lump sum cash payment with respect thereto equal to the product of the merger consideration and the number of shares of KLX common stock represented by such KLX Restricted Stock Award, less any applicable withholding or other taxes or other amounts required by applicable law to be withheld, without interest.
KLX PSU Awards and KLX RSU Awards. Without prejudice to any rights in respect of the spin-off, as of the effective time, (i) each KLX PSU Award and each KLX RSU Award, in each case, subject to time-based, performance or other vesting restrictions, that is outstanding immediately prior to the effective time, will, to the extent not vested, become fully vested, provided that to the extent that such award is subject to performance conditions, any performance conditions will be deemed to have been satisfied at the maximum level and (ii) each KLX PSU Award and KLX RSU Award, in each case, whether payable in cash or shares of KLX common stock, will be canceled without any action on the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the surviving corporation's general payroll practices, a lump sum cash payment with respect thereto equal to the product of the merger consideration and the number of shares of KLX common stock represented by such KLX PSU Award or KLX RSU Award, less any applicable withholding or other taxes or other amounts required by applicable law to be withheld, without interest. Any payment in respect of any KLX PSU Award and KLX RSU Award, in each case, which immediately prior to such cancellation was treated as "deferred compensation" subject to section 409A of the Internal Revenue Code will be converted to the merger consideration and paid on the applicable settlement date for such KLX RSU Award or KLX PSU Award if required in order to comply with section 409A of the Internal Revenue Code.
Effect of Spin-off on Equity Awards. At the time of the spin-off, then outstanding KLX equity-based awards granted prior to the date of the spin-off will be equitably adjusted to reflect the dilutive impact of the spin-off, but will otherwise not participate in the spin-off. Following the spin-off, all KLX equity-based awards held by KLX employees and KLX Energy Services employees will continue to vest in accordance with their terms based on their respective holders' continued service with KLX or KLX Energy Services, as applicable.
2018 KLX Equity Awards. In accordance with the merger agreement, KLX may grant its annual 2018 KLX Restricted Stock Awards, KLX PSU Awards or KLX RSU Awards to its employees under the LTIP in the ordinary course of business consistent with past practice following the date of the merger agreement. However, in the event that the effective time of the merger occurs on or prior to the first anniversary of the grant date of the 2018 Awards, only one-third of the 2018 Awards will be accelerated in connection with the consummation of the merger and become eligible to receive the merger consideration, and the remaining two-thirds will be forfeited for no consideration.
Effects on KLX if the Merger is Not Completed
If the merger proposal is not approved by KLX stockholders or if the merger is not completed for any other reason, KLX stockholders will not receive any payment for their shares in connection with the merger. Instead, KLX will remain an independent public company and shares of KLX common stock will continue to be listed and traded on Nasdaq and registered under the Exchange Act and we will continue to file periodic reports with the SEC on account of KLX common stock. In addition, if the merger is not completed, KLX expects that management will operate KLX's business in a manner similar to that in which it is being operated today and that KLX stockholders will continue to be subject to the same risks and opportunities to which they are currently subject, including, without limitation, risks related to the highly competitive industry in which KLX operates and adverse economic conditions.
Furthermore, if the merger is not completed, and depending on the circumstances that would have caused the merger not to be completed, it is possible that the price of KLX common stock will decline significantly. If that were to occur, it is uncertain when, if ever, the price of KLX common stock would return to the price at which it trades as of the date of this proxy statement. Accordingly, if the merger is not completed, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of KLX common stock. Further, if the merger proposal is not approved by KLX stockholders or if the merger is not completed for any other reason, there can be no assurance
that any other transaction acceptable to KLX will be offered or that KLX's business, prospects or results of operations will not be adversely impacted.
The spin-off may occur prior to a termination of the merger agreement or, if the merger is not completed, the spin-off may still occur, but we cannot guarantee that the spin-off will occur if the merger is not completed.
If the merger agreement is terminated under certain specified circumstances, KLX may be required to pay Boeing a termination fee. In some cases, Boeing may be required to pay KLX a termination fee. See "The Merger Agreement—Termination Fees and Expenses" beginning on page 114115 for a discussion of the circumstances under which such fee may be payable.
As part of the KLX's ongoing strategic planning process, the KLX Board and KLX management regularly review and assess KLX's businesses and operations, and periodically review and assess various potential strategic alternatives available to enhance value for KLX's stockholders. As part of such review, KLX from time-to-time has examined its competitive position and evaluated various potential alternatives, including the continued execution of its strategy as a stand-alone publicly traded company, the acquisition of one or more businesses, divestitures, dividends, share repurchases, a sale of KLX as a whole to a third party or some other business combination. In addition, KLX from time-to-time has held discussions with such potential strategic transaction partners.
The following chronology sets forth a summary of the material events leading up to the execution of the merger agreement.
In late August 2017, in light of industry dynamics discussed below, KLX management began informally discussing KLX's industry position with Goldman Sachs, KLX's investment banker. Goldman Sachs agreed to prepare materials to assist KLX in its review of its industry position.
On September 25, 2017, the KLX Board held a telephonic meeting, in which members of KLX management and representatives of KLX's outside legal counsel, Freshfields Bruckhaus Deringer US LLP ("Freshfields"), participated. During this meeting, the KLX Board, with input from KLX management, discussed KLX's industry positioning, potential acquisition targets and the benefit of understanding KLX's position in the marketplace in light of the current environment in the aerospace industry, including the trends in consolidation and competition, the changes in the distribution market generally and the likely effect of these factors on KLX. KLX management and the KLX Board further discussed the fact that market conditions were favorable for a strategic transaction (based on, among other factors, trading multiples of peer companies, precedent transaction multiples and the low cost of capital) and expressed a desire to continue to review the feasibility of a process relating to a sale of KLX or other strategic transaction, and the potential participants in such a process. The KLX Board then directed Goldman Sachs to discuss with third parties, as part of its regular outreach, publicly available information about KLX and its business. KLX management did not request authorization to begin a formal sale process at this time. At the conclusion of this meeting, the KLX Board authorized KLX management to seek Goldman Sachs's assistance in analyzing KLX's position within its industry.
On September 28, 2017, Goldman Sachs made a presentation to KLX management regarding KLX's historical growth, the strengths of its business, its financial profile within its industry and its financial position relative to its peers.
Beginning in October 2017, as authorized by the KLX Board, Goldman Sachs conducted discreet outreach to third parties to update them on KLX, its business and its position in the industry. The parties that Goldman Sachs contacted included financial sponsors and participants in the aerospace and defense, distribution and logistics, and e-commerce industries that Goldman Sachs and KLX management believed could potentially present a strategic fit with KLX and that Goldman Sachs and
KLX management believed were likely to find KLX's financial profile within its industry and its financial position relative to its peers attractive. The strategic parties contacted included a number of multi-industry companies that were looking to expand into new platforms through acquisitions.
By letter dated November 8, 2017, Freshfields was officially engaged by KLX to act as its legal advisor in connection with KLX's review of potential strategic alternatives.
On November 10, 2017, the KLX Board held a telephonic meeting in which representatives of Goldman Sachs and Freshfields also participated. Freshfields reviewed the directors' fiduciary duties under Delaware law. Goldman Sachs then updated the KLX Board on its discussions with third parties. Goldman Sachs reported that it had spoken to three categories of parties: (1) distribution and logistics and e-commerce companies; (2) aerospace and defense companies; and (3) financial sponsors. Mr. Amin J. Khoury, Chairman and CEO of KLX, reported that he had subsequently been contacted by the CEO of a logistics company, referred to as Party B, who indicated that his company wished to conduct more detailed due diligence on KLX should an opportunity for a strategic transaction arise.
Goldman Sachs then reviewed with the KLX Board a potential timeline for a formal process in respect of such a strategic transaction, and suggested that interested parties would likely need six to eight weeks to complete their due diligence review of KLX. KLX management advised that any decision on launching a formal process should occur only after completion of KLX's 2018 budget. At the conclusion of this meeting, the KLX Board authorized Goldman Sachs to continue its work in assisting KLX with its strategic review and to begin preparing marketing materials that could ultimately be distributed to interested parties should KLX launch a formal process in respect of a strategic transaction.
On December 6, 2017, a representative of Goldman Sachs reported to members of KLX management that he had spoken to representatives of Boeing on December 5, 2017, and that such representatives indicated that they would be interested in learning more about, and exploring a possible strategic transaction with, KLX should the opportunity arise. Goldman Sachs also reported that it had a positive call with a private equity firm, referred to as Party X, which expressed an interest in exploring an acquisition of KLX as a whole.
On December 7, 2017, the KLX Board held a meeting at which members of KLX management were present. Mr. Khoury presented the results of operations of KLX for the three and nine months ended October 31, 2017, including the financial results of operations for each of the ASG Business and ESG Business. Mr. Khoury reviewed two product line expansion opportunities for the ASG Business. Mr. Khoury also presented to the KLX Board a review of KLX's 2018 budget, which was approved by a vote of the KLX Board. Finally, Mr. Khoury provided an update on Goldman Sachs's work in assisting KLX with the review of its industry position.
Throughout early and mid-December, Goldman Sachs continued to hold discussions with third parties. This included outreach to parties with expertise investing in oilfield services businesses.
Also during this period, as instructed by the KLX Board, Goldman Sachs began disseminating confidentiality and non-disclosure agreements to third parties that had expressed an interest in receiving further information about KLX. Each of the confidentiality and non-disclosure agreements contained a standstill provision that would automatically fall away upon, among other things, the entry by KLX into a binding definitive agreement with any third party to consummate a transaction.
As part of KLX's strategic review and throughout the eventual formal process conducted in connection therewith and described in further detail below, 44 parties were contacted in total, 25 parties were sent confidentiality and non-disclosure agreements and, ultimately, 22 parties executed confidentiality and non-disclosure agreements with KLX.
On December 18, 2017, KLX management and representatives of Goldman Sachs met with representatives of Party B in Wellington, Florida to discuss Party B's interest in a potential transaction involving KLX.
On December 19, 2017, KLX and Boeing executed a confidentiality and non-disclosure agreement.
On December 20, 2017, KLX management and representatives of Goldman Sachs met with Boeing management and representatives of Citigroup Global Markets Inc. ("Citi"), Boeing's financial advisor, in Plano, Texas. During the meeting, KLX management provided information about the performance and outlook of KLX's business, including separate breakdowns of the ASG and ESG Businesses. KLX management and Boeing management also held preliminary discussions regarding the potential benefits of a business combination as Boeing had expressed interest in a strategic transaction involving the ASG Business or involving KLX after a separation of the ESG Business.
On December 22, 2017, the KLX Board held a telephonic meeting. Members of KLX management and representatives of Goldman Sachs and Freshfields participated in the meeting. Goldman Sachs representatives provided the KLX Board with an update on Goldman Sachs's work in connection with KLX's review of its industry position. Goldman Sachs updated the KLX Board on discussions that Goldman Sachs and members of KLX management had held with Party B and with Boeing and reported that, at that time, six other strategic parties and financial sponsors had either executed, or were negotiating, confidentiality and non-disclosure agreements in order to obtain confidential information about KLX. Goldman Sachs noted that some parties had indicated an interest in a strategic transaction involving KLX as a whole and others, including Boeing, had indicated an interest in such a transaction involving either the ASG Business only or the ESG Business only.
The KLX Board then discussed the work that would be required to set up a process for a review of KLX's strategic alternatives in respect of the ESG Business. Mr. Khoury stated that in order for KLX to prepare for a potential strategic transaction, including a separate process involving the ESG Business, KLX would need the assistance of additional KLX employees. He also stated that the risk of leaks would increase as KLX began circulating confidentiality agreements to a number of interested parties. In light of these considerations, among others, the Board discussed issuing a press release stating that KLX was undertaking a review of strategic alternatives.
After this discussion, Goldman Sachs exited the meeting. At this point, Mr. Khoury explained the terms of the engagement letter pursuant to which it was proposed that KLX formally engage Goldman Sachs to assist with KLX's strategic review, including the fees to which Goldman Sachs would be entitled if KLX executed any strategic transaction, either during the term of the Goldman Sachs engagement or during the 12 months following the termination of such engagement. Mr. Khoury proposed that the KLX Board authorize KLX to engage Goldman Sachs on the terms discussed.
At the close of this meeting, the KLX Board resolved to (1) engage Goldman Sachs to assist KLX with its strategic review on the terms presented to the KLX Board, (2) engage Deloitte to conduct a carve-out audit of the ESG Business in preparation for a potential sale or other strategic transaction involving the ESG Business and (3) issue a press release stating that KLX was undertaking a formal process to explore strategic alternatives for KLX focused on maximizing stockholder value.
On December 22, 2017, KLX executed an engagement letter with Goldman Sachs on the terms presented to the KLX Board.
On December 22, 2017, KLX issued a press release announcing that KLX was undertaking a formal process to explore strategic alternatives for KLX focused on maximizing stockholder value. The press release stated that such strategic alternatives could include, among others, a sale of KLX as a whole or a sale of a division or divisions thereof, a business combination or continuing as a standalone entity executing on its business plan. The press release detailed KLX's engagement of Goldman Sachs
as financial advisor and of Freshfields as legal advisor in connection with a potential strategic transaction.
In late December 2017, the compensation committee of the KLX Board retained Proskauer Rose LLP ("Proskauer") as independent legal counsel to provide advice regarding potential bonus payments to KLX's senior executives in connection with a potential strategic transaction. KLX had previously disclosed in its annual proxy statement to stockholders that, in order to ensure that the interests of KLX stockholders and KLX's senior executives are aligned in the event of a potential strategic transaction that would constitute a change of control of KLX, the compensation committee of the KLX Board had concluded that it would favorably consider discretionary strategic transaction bonuses for such executives, which payments would be in addition to amounts payable to such executives under their existing employment agreements.
In late December 2017, Goldman Sachs engaged in discussions with a second potential strategic bidder in the aerospace industry, referred to as Party C, regarding its interest in a potential strategic transaction with KLX. In these discussions, Goldman Sachs provided an update on KLX's business, as well as KLX's strategic review process. A follow-up discussion was scheduled for early January, when KLX's business would be discussed in more detail. Throughout these discussions, Party C expressed an interest in acquiring the ASG Business only.
Throughout January and February 2018, 15 interested parties (each of which had executed a confidentiality agreement with KLX) attended meetings with KLX management to discuss KLX's business. On January 25, 2018, KLX management, representatives from Goldman Sachs and representatives from Freshfields met with Boeing in Wellington, Florida to discuss additional business and tax due diligence topics.
From the last week of January 2018 through the first week of February 2018, KLX management had two meetings in New York with parties interested in the ASG Business only (with Party C and with a financial sponsor, referred to as Party A) and four meetings in various cities with parties interested in the ESG Business only. Goldman Sachs attended all of these meetings.
On January 22, 2018, the CEO of Party B contacted Mr. Khoury to indicate that Party B would no longer participate in KLX's strategic review process.
On January 31, 2018, at the direction of KLX management and following review and comment by management and KLX's advisors, a process letter was distributed by Goldman Sachs to 15 interested parties (three strategic parties and 12 financial sponsors). The process letter requested that the interested parties submit preliminary indications of interest by February 13, 2018 regarding a potential acquisition of (1) 100% of the outstanding common stock of KLX in a single transaction, (2) only the ESG Business or (3) only the ASG Business.
On February 12, 2018, representatives of Party C discussed KLX's financial model with members of KLX management and representatives of Goldman Sachs. The representatives of Party C present at this meeting expressed interest in a potential strategic transaction involving the ASG Business. However, in mid-February 2018, Party C advised Goldman Sachs that it would not further consider a potential strategic transaction with KLX at that time given its other priorities.
On February 13 and February 14, 2018, Goldman Sachs received five initial indications of interest: two parties (Party A and Boeing) submitted an indication of interest with respect to the ASG Business; and three parties (a special purpose acquisition company referred to as Party Y, Party X and a financial sponsor referred to as Party Z) submitted an indication of interest with respect to the ESG Business. None of the five parties submitted an indication of interest to acquire KLX as a whole (including both the ASG and ESG Businesses). The indications of interest for the ASG Business were structured as an acquisition of KLX but were each conditioned on a sale of the ESG Business.
The indication of interest from Party A proposed to acquire the issued and outstanding shares of common stock of KLX for $68.00 per share and included an assumption of $350 million of cash proceeds from the sale of the ESG Business. The indication of interest from Boeing proposed to purchase 100% of the issued and outstanding shares of common stock of KLX for $68.00 per share and included an assumption of $400 million of net cash proceeds from the sale of the ESG Business. The indications of interest received for the ESG Business offered purchase prices in a range from $250 million to $400 million and were based on an estimate of ESG EBITDA (without taking into account any synergies) of $73 million for 2018.
On February 21, 2018, the KLX Board held a telephonic meeting. Members of KLX management and representatives of Goldman Sachs and Freshfields also participated in the meeting. Goldman Sachs provided an update on its work in connection with KLX's review of strategic alternatives. Goldman Sachs noted that over the course of its outreach in late 2017 and early 2018, it and/or KLX had engaged with 28 interested parties, both strategic and financial. Of these parties, 12 specifically indicated an interest in the ESG Business only. Goldman Sachs discussed the companies and institutions contacted, the interested parties, and the management meetings held. Goldman Sachs further detailed the five indications of interest received (two for the ASG Business (from Party A and Boeing) and three for the ESG Business (from Party X, Party Y and Party Z)) and discussed for each the offer price and form of consideration, the valuation assumptions and methodology (including assumptions relating to the sale of the ESG Business in the indications of interest from Party A and Boeing), the expected sources of financing, premium and multiple calculations, timing to signing and key due diligence areas, advisors engaged and key approvals needed.
After this report, the KLX Board engaged in a discussion with Goldman Sachs regarding the financial aspects of the indications of interest received from Boeing and Party A, and Goldman Sachs provided financial analyses and information to the KLX Board. The KLX Board also engaged in a discussion about how any cash that would be received from a sale of the ESG Business would be treated by Party A and Boeing. Following these discussions, the KLX Board determined that none of the five indications of interest received was sufficiently attractive from a financial point of view but that further discussion with all parties who had submitted such indications was warranted.
The KLX Board decided to proceed with the next phase of the strategic review process, in which all five potentially interested parties who submitted indications of interest would be invited to conduct further due diligence, to mark-up transaction documentation and to submit a final offer.
Later on February 21, 2018, Mr. Khoury received a call from Gary Roberts, Vice President and General Manager of the ESG Business, who told Mr. Khoury that a representative of a financial sponsor, referred to as Party W, had contacted Mr. Roberts about the possibility of a strategic transaction involving the ESG Business. On February 24, 2018, KLX and Party W signed a confidentiality agreement.
Also on February 21, 2018, a representative from Goldman Sachs had a discussion with a representative from a financial sponsor, referred to as Party V, about the possibility of an acquisition of KLX's ESG business. On February 23, 2018, KLX entered into a confidentiality agreement with Party V.
On February 22, 2018, a representative from Goldman Sachs spoke with a representative from Boeing and indicated that Boeing would need to improve the economic terms of Boeing's proposal in order for KLX to further consider a potential combination with Boeing. Goldman Sachs further noted that Boeing's assumption as to the cash to be received in a sale of the ESG Business was higher than the bids for the ESG business received to date. Boeing indicated that it would need another four to six weeks to complete its due diligence process before it could submit a definitive bid for the ASG Business.
On February 27, 2018, Mr. Khoury met with representatives of Party A to discuss a potential business combination with one of Party A's portfolio companies. Representatives from Goldman Sachs were also present at this meeting. Mr. Khoury also indicated to Party A that its existing bid was not sufficiently attractive and that its price assumption for the ESG Business was too high based on bids received to date.
During this period, representatives of Goldman Sachs also contacted those parties that had submitted an indication of interest for the ESG Business and indicated that they needed to increase their offers for the ESG Business from the prices stated in the indications of interest submitted.
On February 27, 2018, Party W submitted an indication of interest with respect to the acquisition of the ESG Business, that was within the range of the indications of interest received from Party X, Party Y and Party Z.
On February 28, 2018, Goldman Sachs was informed by the CEO of Party Y that it would no longer participate in KLX's strategic review process.
On March 1, 2018, a representative of a financial sponsor, referred to as Party U, notified Goldman Sachs that Party U was interested in acquiring the ESG Business directly rather than through Party Y (a special purpose acquisition company of which Party U was the sponsor). After discussions with KLX management, where Party U verbally confirmed that its view on value was consistent with Party Y's proposal, Party U was included in the process.
In late February 2018, KLX opened virtual data rooms (one related to the ASG Business for the parties interested in the ASG Business and another related to the ESG Business for the parties interested in the ESG Business) to the six bidders that had submitted an indication of interest and to their advisors. KLX also executed a "clean team" agreement with Boeing's outside counsel, Kirkland & Ellis ("Kirkland"), and opened a separate "clean room" in accordance with that agreement to which Kirkland would be granted access.
During late February and throughout March 2018, at the direction of KLX's management, representatives of KLX (together with representatives of Goldman Sachs and Freshfields) held several calls with the six interested parties (Party A and Boeing, with respect to the ASG Business, and Party U, Party W, Party X and Party Z, with respect to the ESG Business) to answer questions that had arisen in the course of their due diligence review.
In the first week of March 2018, KLX held separate meetings with executives of Party X, executives of Party U and executives of Party W at the headquarters of the ESG Business in order to discuss the ESG Business.
On March 7, 2018, the KLX Board held a regular meeting in which members of KLX management participated. Among other things, the KLX Board reviewed projected transaction costs and expenses associated with the review of strategic alternatives, including, if approved by the compensation committee of the KLX Board, proposed transaction bonuses that might be paid to KLX senior management upon a change of control of KLX.
On March 7, 2018, the auction drafts of the merger agreement and the Equity Purchase Agreement regarding the potential sale of the ESG Business (the "equity purchase agreement") were delivered to interested parties.
On March 10, 2018, Mr. Khoury received a call from an executive of Party U, informing KLX that Party U wanted to negotiate an exclusive strategic transaction with respect to the ESG Business and that Party U had retained outside counsel who would contact Freshfields. KLX advised Party U that the value of the offer and the magnitude of the at-risk capital would be, among others, important factors in considering any offer by Party U.
On March 13, 2018, members of KLX management and representatives of Party A met to conduct a management meeting and site visit with respect to the ASG Business. That evening, representatives of Party A had dinner with executives of the ASG Business in Florida.
On March 14, 2018, members of KLX management and representatives of Boeing met to discuss the operations of the ASG Business and to conduct a site visit at the ASG Business headquarters in Miami. The next day, members of KLX management met with representatives of Boeing in Miami to discuss remaining elements of Boeing's financial due diligence.
On March 14, 2018, a draft of KLX's disclosure schedules to the merger agreement were made available to Party A. On March 19, 2018, a version of these disclosure schedules was provided to Citi for distribution to Boeing.
On March 14, 2018, an executive from Party U sent Mr. Khoury an exclusivity agreement relating to the sale of the ESG Business. The letter detailed Party U's proposal that Party U be granted an exclusive right to negotiate a potential acquisition of the ESG Business that would extend until 11:59 PM (Central Time) on April 15, 2018. As consideration for this exclusivity, Party U proposed to provide 1% of its proposed purchase price of $330 million as a down payment, which would not be returned to Party U in the event the two parties did not successfully consummate a strategic transaction. The executive from Party U indicated that Party U had formally retained counsel to advise Party U on a strategic transaction. On March 15, 2018, Mr. Khoury communicated to Party U that KLX would continue its process and that Goldman Sachs and Freshfields would contact them and their counsel with respect to that process.
From March 15 through March 28, 2018, KLX continued to conduct due diligence calls and management discussions and to facilitate site visits with Party X and Party U relating to the ESG Business and at key ESG Business sites, and with Boeing and Party A relating to the ASG Business and at key ASG Business sites.
On March 19, 2018, a representative of Party Z contacted Goldman Sachs to indicate that Party Z would no longer participate in KLX's strategic review process.
On March 21, 2018, Goldman Sachs sent letters to Boeing and Party A detailing the next steps in the process. These letters specified a deadline of April 4, 2018 (12:00 PM Eastern Time) for the submission of a final markup of the draft merger agreement previously provided to the bidders and a deadline of April 11, 2018 (12:00 PM Eastern Time) for the submission of a written definitive proposal to Goldman Sachs. This timeline was set, in part, based on indications received from both Boeing and Party A regarding the time they needed to complete their due diligence and, with respect to Party A, to finalize its financing arrangements. The letters indicated that a definitive offer should assume that (1) the ESG Business would be sold on a cash-free, debt-free basis with no post-closing adjustments to the purchase price and (2) the amount in cash provided to the ASG buyer on a sale of the ESG Business (with the balance, if any, to be for the account of KLX stockholders, as provided for in the draft merger agreement) would be $300 million. Further, the bidders were told that their definitive offers must include, in addition to the proposed purchase price, a description of all material assumptions on which the offer was based and sources and certainty of financing.
On March 23, 2018, Goldman Sachs sent letters to the three bidders that were interested in acquiring the ESG Business (Party U, Party W and Party X). These letters specified a deadline of April 2, 2018 (12:00 PM Eastern Time) for the submission of a final mark-up of the draft equity purchase agreement previously provided to the bidders and a deadline of April 9, 2018 (12:00 PM Eastern Time) for the submission of a written definitive proposal to Goldman Sachs. These letters indicated that a definitive offer must clearly include: (1) the purchase price to be paid for the ESG Business on a cash-free, debt-free basis; (2) a description of all material assumptions on which the definitive offer was based; and (3) the sources and certainty of financing.
On March 28, 2018, the KLX Board conducted a telephonic meeting, in which representatives of Goldman Sachs and Freshfields participated. Goldman Sachs provided an update on its work in connection with KLX's review of strategic alternatives, the two parties that submitted indications of interest for the ASG Business and the three parties that submitted indications of interest for the ESG Business and who remained in the ESG process, including a discussion of the due diligence activities engaged in by the respective bidders and management's participation therein. Goldman Sachs also presented financial analyses and information regarding KLX and the ASG Business and the ESG Business.
The KLX Board engaged in a discussion with Goldman Sachs about the financial analyses and information provided and the two indications of interest received from Party A and Boeing, including a discussion of the likely treatment of the price to be received for the ESG Business and about the analysis that Goldman Sachs had performed on each of the bids.
Mr. Khoury then requested that Goldman Sachs leave the meeting so that the KLX Board and Freshfields could discuss a letter provided by Goldman Sachs, which summarized the nature of Goldman Sachs's relationships with bidders that remained in the process as of March 23, 2018 (Boeing, Party A, Party W, Party X and Party U). The KLX Board, after discussion with Freshfields, concluded that none of the relationships disclosed would interfere with Goldman Sachs's ability to fulfill its responsibilities.
During the first two weeks of April 2018, KLX continued to conduct due diligence calls and site visits with the five interested parties.
On April 2, 2018, representatives of Freshfields held a telephonic meeting with representatives of Party A's outside counsel to discuss matters related to expenses and employees, including severance arrangements.
On April 4, 2018, representatives of Freshfields held a call with outside counsel for Party X to discuss aspects of the equity purchase agreement, working capital matters, financing, indemnification, transaction expenses and certain matters related to employees.
On April 5, 2018, representatives of KLX and representatives of Freshfields held a telephonic discussion with representatives of Party U and its outside counsel to discuss the capital expenditure plan and the operating budget for the ESG Business and Party U's request for a capital expenditures adjustment (which could impact the proceeds payable to KLX).
On April 7, 2018, both Boeing and Party A submitted revised drafts of the merger agreement.
On April 9, 2018, Party X submitted a definitive offer to Goldman Sachs for the purchase of the ESG Business. The definitive offer proposed to acquire 100% of the ESG Business for $250 million in cash, subject to certain assumptions related to the tax treatment of the transaction, working capital and capital expenditures. Party X also provided a draft of an equity commitment letter supporting the purchase price Party X offered and noted that, while it would ultimately seek other financing for the transaction, it would do so between signing and closing and that Party X would not subject the transaction to a financing contingency.
On April 9, 2018, Freshfields held a call with Party A's outside counsel to discuss the merger agreement as revised by Party A, including certain mechanics related to the transaction structure and the process related to the sale of the ESG Business.
On April 9, 2018, Freshfields held a call with representatives of Boeing and representatives of Kirkland to discuss the revised merger agreement Boeing submitted on April 7, 2018, including with respect to the sale of the ESG Business, termination fees and antitrust conditions, tax matters, conditions to closing and representations and warranties.
On April 10, 2018, KLX received a draft of the equity purchase agreement from Party U with respect to the purchase of the ESG Business. Over the next few days, Party U also submitted various draft debt commitment papers related to its anticipated proposal. None of the draft debt commitment letters submitted was in final form, and most contained various contingencies. The revised draft equity purchase agreement from Party U provided for a purchase price of $305 million, subject to a capital expenditures adjustment.
On April 11, 2018, representatives of Freshfields held a telephonic discussion with Party X's outside counsel to discuss the equity purchase agreement as revised by Party X, including purchase price adjustments, antitrust issues, closing conditions, termination fees and indemnities.
On April 12, 2018, representatives of Freshfields held a telephonic discussion with representatives of Party U and its outside counsel to receive an update on the sources and status of Party U's financing.
On April 13, 2018, KLX received a revised offer from Boeing, proposing to purchase 100% of the issued and outstanding shares of common stock of KLX for $69.00 per share, representing an enterprise value of $4.4 billion. This offer assumed (i) at least $300 million of net cash proceeds from the sale of the ESG Business and (ii) the absence of any post-transaction liabilities or obligations in respect of the ESG Business. Boeing stated that its revised offer reflected an increase of over $3.00 per share over its initial proposal, which had assumed that KLX would obtain $400 million in net proceeds from the sale of the ESG Business and did not reflect a number of additional costs that Boeing stated it had identified since its initial proposal. In light of these adjustments, Boeing stated its belief that the revised offer represented an approximately 5% improvement over its initial proposal.
On April 13, 2018, a representative of Goldman Sachs provided an update to KLX management regarding a discussion with Boeing about the purchase price in Boeing's revised offer for the ASG Business, in which Goldman Sachs had communicated to Boeing that Boeing's offer did not fully reflect the highest value for KLX.
On April 13, 2018, a representative from Goldman Sachs had a discussion with a representative of Party A regarding the status of Party A's due diligence, financing and revised offer for the ASG Business. The representative of Party A indicated that Party A would likely submit an offer in a range from $69.00 - $69.50 per share for KLX (assuming receipt of $300 million from the sale of the ESG Business) but that it was still in the process of securing its financing.
On April 13, 2018, the KLX Board conducted a telephonic meeting. KLX management and representatives of Goldman Sachs and Freshfields also participated. Freshfields reviewed the fiduciary duties of the KLX Board under Delaware law. Goldman Sachs provided an update with respect to the activities undertaken with Boeing and Party A and the two parties that submitted formal bids for the ESG Business (Party U and Party X). The KLX Board also discussed differences in the nature of the bidders and their offers, the regulatory analysis of Boeing's bid in light of its participation in the industry and Party A's need for financing. The KLX Board engaged in a discussion with Goldman Sachs about the current offer valuations for the ASG Business and the ongoing discussion with Boeing and Party A. Goldman Sachs provided an update on the revised offer received from Boeing earlier that day, as well as on the discussions with Party A regarding its likely offer range. Goldman Sachs noted that Boeing indicated it could act quickly and only had confirmatory due diligence remaining, whereas Party A had not yet submitted a formal offer and had requested an additional two weeks in which to finalize its financing and complete further due diligence. Goldman Sachs further noted that Boeing's revised offer requested a period of exclusivity through April 25, 2018.
Goldman Sachs also provided an overview of the formal bids received from Party U and Party X for the ESG Business. The KLX Board engaged in a discussion with Goldman Sachs about the current offer valuations for the ESG Business, the certainty to closing of each based on the financing
commitments received and the ongoing discussions with Party U and Party X. Goldman Sachs also presented to the KLX Board an updated analysis of KLX's historical stock performance.
During this telephonic meeting, Mr. Khoury suggested that, in light of the disappointing bids received for the ESG Business relative to public market valuations for comparable companies, especially in the context of the positive outlook for the ESG Business, an alternative to the sale of the ESG Business ought to be considered in the form of a spin-off of the ESG Business, as that could potentially deliver more value to KLX stockholders. The KLX Board engaged in a discussion with Goldman Sachs about the potential value to stockholders represented by the spin-off, such as the potential for future value increases assuming continued market improvement, possible downsides to pursuing a spin-off, such as uncertainty in the energy market and how the timing of a spin-off might affect a strategic transaction for the ASG Business. Freshfields also answered questions regarding the KLX Board's fiduciary duties under Delaware law. After such discussion, the KLX Board expressed support for exploring a potential spin-off of the ESG Business while continuing discussions with Party X and Party U.
At the end of the meeting, the KLX Board proposed that Goldman Sachs revert to the participants in the strategic review process and indicate that KLX expected to see upward price revisions in revised offers to be submitted alongside further revised draft merger agreements and equity purchase agreements. The KLX Board discussed whether Goldman Sachs should give the parties a range of valuations to meet and noted that Goldman Sachs should encourage Party A to finalize any work outstanding so it could submit a formal offer. The KLX Board further proposed that Goldman Sachs consider potential scenarios related to the contemplated spin-off transaction of the ESG Business and that Freshfields begin to explore the regulatory requirements associated with that contemplated transaction.
On April 15, 2018, a representative from Goldman Sachs, after discussion with KLX management, indicated to a representative from Citi that Boeing should consider an upward price revision to at least $72.50 per share, and that KLX expected to be protected by a meaningful antitrust reverse termination fee in the event that Boeing failed to consummate the transaction after signing of the merger agreement for regulatory reasons. On April 16, 2018, a representative from Goldman Sachs indicated to a representative from Party A that the process was quickly moving forward with another bidder and urged Party A to finalize any outstanding work so that it could submit a finalized offer as soon as possible.
On April 15, 2018, Freshfields also sent revised versions of the equity purchase agreement to the two parties interested in the ESG Business (Party X and Party U).
On April 16, 2018, a representative from Citi spoke to a representative from Goldman Sachs and stated that Boeing would raise its offer to $70.00 per share (assuming $300 million in net proceeds from the sale of the ESG Business and Boeing retaining the value of any tax benefits that would arise from the sale of the ESG Business), subject to termination fees and other material transaction terms being negotiated and KLX granting Boeing exclusivity through April 27, 2018 with respect to a sale of the ASG Business. That same day, Citi sent an exclusivity letter to Goldman Sachs, which provided that KLX would negotiate a sale of the ASG Business on an exclusive basis with Boeing and cease all existing discussions and negotiations with any other entity with respect to a strategic transaction related to the ASG Business (but specifically excluding discussions relating to the ESG Business).
Goldman Sachs updated KLX management and Freshfields regarding its call with the representative of Citi. KLX management instructed Goldman Sachs to respond asking for a revised draft of the merger agreement from Boeing and to negotiate for a purchase price of $71.00 per share.
Following that discussion, a representative from Goldman Sachs called a representative from Citi to propose an offer of $71.00 per share for KLX and to request Boeing's revised draft of the merger agreement. The representative from Citi stated that Boeing would not increase its offer beyond $70.00 per share for KLX and indicated that Boeing's comments to the merger agreement would be forthcoming.
On April 16, 2018, Party A submitted a revised draft of the merger agreement but did not submit a bid for the purchase of the ASG Business. In a discussion with Goldman Sachs, Party A indicated that it needed additional time to secure its financing and reiterated that its potential bid would likely be in the range of $69.00 - $69.50 per share.
On April 17, 2018, a representative from Goldman Sachs spoke with Party A and told them that KLX had received a higher offer from another party. Party A indicated to Goldman Sachs that, at that time, it was still unable to make a definitive bid and that it expected its offer would be $69.50 per share.
On April 17, 2018, a representative of Citi indicated to a representative of Goldman Sachs that Boeing wanted to participate in face-to-face negotiations with KLX and its advisors and reaffirmed that Boeing was willing to work quickly to execute definitive documentation if it was granted exclusivity.
Later that day, a representative of Goldman Sachs spoke again with a representative of Citi, at which point the Citi representative stated that Boeing would not meet with KLX in person unless KLX agreed to enter into an exclusivity agreement with Boeing continuing through April 27, 2018, as previously proposed.
Goldman Sachs subsequently communicated to Party A on April 17, 2018 that KLX was considering entering into an exclusivity agreement with another bidder. Party A reiterated that it needed further time to finalize its financing and remained unable to submit a definitive bid at such time.
Also later on April 17, 2018, KLX management and representatives from Goldman Sachs and Freshfields discussed the request from Boeing to enter into an exclusivity agreement. The participants discussed Party A's inability to submit a definitive bid at such time and the lack of certainty of the offer price from Party A due to the extent and nature of Party A's financing. Those factors were weighed against Boeing's offer and Boeing's readiness to move quickly towards executing a definitive merger agreement. After this discussion, Mr. Khoury communicated with each of the members of the KLX Board individually and informed them that KLX intended to execute an exclusivity agreement with Boeing, pursuant to which KLX and its representatives would agree to cease all existing negotiations, discussions and communications with any other person or entity with respect to any alternative strategic transaction (to that being contemplated with Boeing), other than a transaction involving solely the ESG Business, until 11:59 PM (Eastern Time) on April 27, 2018. Later that day, KLX executed such exclusivity agreement with Boeing.
Also on April 17, 2018, KLX management held a call with representatives from Goldman Sachs and Freshfields at which Goldman Sachs discussed the viability of and considerations related to the spin-off. Goldman Sachs discussed the ESG Business's anticipated revenue and EBITDA for 2018 and 2019, the expected reaction from the market following a possible announcement of a spin-off, comparable publicly traded entities and the potential costs associated with a spin-off.
During this time period, revised proposals for the ESG Business were received. On April 17, 2018, Party U submitted a revised proposal for the ESG Business, which reflected a purchase price of $320 million and fewer requested capital expenditure adjustments. The funding for this proposal remained uncertain. On April 18, 2018, Party X submitted a revised offer, which reflected a purchase price of $325 million and contemplated additional financing. Both ESG bidders indicated to Goldman Sachs that their valuations were constrained as debt financing remained difficult for oilfield-related businesses.
On April 18 and 19, 2018, KLX management met with representatives of Boeing (including Mr. Kent Fisher, Boeing's vice president of corporate development) at Freshfields' offices in New York. Representatives of Goldman Sachs, Freshfields, Citi and Kirkland also participated in these meetings.
On the first day of meetings, KLX and Boeing discussed the potential spin-off of the ESG Business in light of disappointing offers received for the ESG Business, including the impact of any such spin-off on the proposed transaction terms. The parties also addressed open issues on the merger agreement and negotiated various provisions, including those dealing with termination fees, termination rights, conditions to closing, employee retention agreements, interim operating covenants and certain tax matters. In the context of various termination provisions, the parties negotiated termination fees (including a termination fee if the spin-off did not occur by January 11, 2019, if Boeing had already received regulatory approval for the merger). Boeing also agreed to a $175 million reverse termination fee in the event that antitrust approval was not obtained and to shorten the time period for regulatory approval from 18 months to 15 months.
On April 18, 2018, Party A submitted a revised proposal to purchase KLX for $70.00 per share. This purchase price assumed $300 million in proceeds from a sale of the ESG Business as well as the retention by KLX of tax losses triggered by such sale. As KLX was bound by the exclusivity agreement with Boeing, neither KLX nor its representatives responded to this proposal.
On April 19, 2018, during the morning of the second day of negotiations with Boeing, the KLX Board conducted a telephonic meeting in which KLX management and representatives of Goldman Sachs and Freshfields participated. Goldman Sachs reviewed the process that had been conducted to date and summarized the upward price movements in bids from Party A and Boeing that had occurred during the course of the process. Freshfields reviewed the fiduciary duties of the KLX Board under Delaware law. Mr. Khoury reviewed with the KLX Board Boeing's position that it would not increase its valuation further and that it would not meet or enter into further negotiations unless KLX agreed to negotiate exclusively with Boeing, that Party A had not yet submitted a formal bid and indicated it would need more time to finalize its bid, and, given those facts, KLX had entered into an exclusivity agreement with Boeing. Goldman Sachs provided an update to the KLX Board of the previous day's discussions with Boeing and its advisors.
Goldman Sachs also provided the KLX Board with an update on the bid that Party A submitted on April 18, 2018. Goldman Sachs informed the KLX Board of its view that it was unlikely that Party A would be able to increase its offer given its financing structure, that it required any tax loss incurred upon a sale of ESG to remain as an asset of the ASG Business and that it was unaware from any conversations with KLX that a spin-off was being considered.
The KLX Board then discussed how best to maximize the value of KLX's assets, the potential value represented by the proposed spin-off and the timing of the two transactions—a sale of KLX following either a sale of the ESG Business or a spin-off. Mr. Khoury also discussed the need to ensure that the ESG Business was well capitalized at the time of a spin-off and that the retention of tax attributes by the ESG Business would be of significant value to the ESG Business going forward, anticipating that these issues would be the subject of discussion in the second day of in-person negotiations with Boeing. KLX management and the KLX Board discussed the benefits of the timing of selling the ASG Business, given the strength of the aerospace industry and the attractive offer from Boeing, as well as the drawbacks to the timing of selling the ESG Business, given rapidly improving market conditions in the energy industry, the public market valuations of comparable companies based upon forecasted 2018 and 2019 financial performance and the positive outlook of the ESG Business in light of, among other things, updated EBITDA projections for that business. These factors were considered by the KLX Board and weighed against the bids received to date (which were impacted by the bidders' difficulties in obtaining financing due to the fact that their bids were based largely on performance during the trailing twelve month period and current quarter annualized financial results, as well as fixed asset liquidation values that, in each case, KLX management did not believe captured
the current going concern value of the ESG Business or its prospects). This juxtaposition further informed the KLX Board's conclusion that the spin-off provided greater value to stockholders when compared with a sale of the ESG Business at this time. Members of the KLX Board expressed their support for the spin-off of the ESG Business.
The KLX Board concluded the meeting by authorizing management to negotiate the best strategic transaction possible, assuming a spin-off of the ESG Business, subject in all cases to approval by the KLX Board of any changes in price and of final contractual terms.
During the second day of negotiations between KLX and Boeing, the parties discussed the effect of a spin-off of the ESG Business on Boeing's offer of $70.00 per share for KLX, as Boeing would not receive $300 million in cash from an ESG sale that it had assumed and would not receive tax benefits related to such a sale that Boeing stated were also assumed in its proposed valuation. Management of KLX also discussed the need to capitalize the ESG Business at the time of the spin-off and its desire to maintain for the benefit of the ESG Business any built-in tax losses existing at the time of the spin-off of the ESG Business. The parties agreed that, given the amount of cash from the sale of the ESG Business assumed in Boeing's offer for KLX, the price for KLX after giving effect to the spin-off was $64.00 per share. In negotiations, the parties agreed that the ESG Business could be capitalized with $50 million of cash prior to completing the spin-off and that any built-in tax losses existing at the time of the spin-off would be retained by the ESG Business, provided that if a tax gain was generated in connection with the spin-off, the ESG Business would indemnify KLX for any taxes paid on such gain payable in either stock or cash, at the option of the ESG Business. Given those negotiations, the parties agreed that the per share offer price for KLX, assuming the spin-off with the benefit of the $50 million cash contribution and with the value of the built-in tax losses to be for the account of the ESG Business, would be $63.00 per share.
On April 20, 2018, the KLX Board conducted another telephonic meeting in which KLX management and representatives of Goldman Sachs and Freshfields also participated. During this meeting, Goldman Sachs and Freshfields updated the KLX Board on the negotiations that had taken place with Boeing in New York and on the agreements that had been reached, in particular with respect to (1) the per share price of $63.00, (2) the retention of the tax loss by the ESG Business for the benefit of KLX stockholders (which KLX management believed would shelter $32 million per year of income over the next nine years) and (3) the fact that KLX would capitalize the ESG Business with $50 million in connection with the spin-off. During the meeting, the KLX Board was informed that Boeing requested an extension of the exclusivity agreement from Friday (April 27, 2018) to Monday (April 30, 2018). Mr. Khoury informed the KLX Board that the Chairman and CEO of Boeing, Mr. Dennis A. Muilenburg, had called him the day before to express his support for the prospect of adding KLX to Boeing's business.
In order to preserve the progress achieved through the in-person negotiations with Boeing and in recognition of the time required to finalize a strategic transaction, the KLX Board voted to authorize management to continue to negotiate a sale of the ASG Business to Boeing and to extend the exclusivity agreement with Boeing so that it would expire at 11:59 PM (Eastern Time) on April 30, 2018. In making such determination, the KLX Board considered, among other things, the terms and viability of Party A's bid, the progress in the negotiations with Boeing and the uncertainty that would ensue if the exclusivity period expired and KLX re-engaged with Party A.
On April 20, 2018, and over the course of the next several days, KLX granted certain Boeing personnel access to the virtual data room's "clean room" in order to finalize its due diligence.
On April 21, 2018, Boeing and KLX executed an extension of the exclusivity letter previously executed on April 17, 2018, which extended the period of exclusivity to 11:59 PM (Eastern Time) on April 30, 2018, in order to provide the parties time to complete negotiations with respect to a potential strategic transaction between KLX and Boeing.
On April 23, 2018, members of Boeing's senior management contacted Mr. John Cuomo, Vice President and General Manager of the ASG Business, to discuss Mr. Cuomo's willingness to remain with KLX following the effective time of the merger. Mr. Cuomo retained Wilson Sonsini Goodrich & Rosati P.C. ("Wilson Sonsini") to advise him regarding the terms of any future employment with KLX following the effective time of the merger. Mr. Cuomo subsequently informed KLX management of the possibility that he would continue to work for KLX following the effective time of the merger.
On April 23, 2018, Freshfields circulated to KLX, Boeing and Kirkland a list of outstanding issues to be negotiated between the parties. On April 24, 2018, Freshfields and representatives of KLX held a telephonic discussion regarding the issues list. In the afternoon of April 24, 2018, representatives of KLX, representatives of Freshfields, representatives of Boeing and representatives of Kirkland held another discussion on the issues list.
On April 24, 2018, the representatives from KLX and Boeing discussed outstanding items in the merger agreement by phone. Both parties' legal counsel participated in the discussions.
Between April 24, 2018 and April 27, 2018, Freshfields and Kirkland held a series of conference calls to discuss outstanding issues pertaining to antitrust filings, taxes and the transaction documents generally and exchanged a series of drafts of the merger agreement and ancillary agreements, including documentation affecting the spin-off. During this period, the open issues on which discussions between the parties focused included, among others: the timing of the spin-off; conditionality in the merger agreement; the ESG Business tax indemnity; transaction expenses; the necessity of operating the ESG Business in the ordinary course of business during the period between signing and closing; obtaining the consent of lenders under KLX's credit facility; and obtaining consent of KLX's noteholders under KLX's notes (in both cases, in order to permit the consummation of the spin-off earlier than at the closing of the merger); the right to cash flow generated in the ESG Business during the period between signing the merger agreement and the consummation of a potential transaction for the ESG Business; employee awards and severance matters; and the level of guaranteed employee compensation during a period following closing.
On April 25, 2018, Mr. Fisher contacted Mr. Khoury to convey that Boeing wanted to terminate Mr. Khoury's consulting agreement with KLX, dated May 25, 2017, which would otherwise have become effective upon closing of the merger agreement. In exchange for terminating this consulting agreement, which provided for a consulting fee and other benefits over a five year period, Boeing suggested that Mr. Khoury would receive a one-time cash payment, payable upon closing of the merger. Mr. Fisher stated that finalization of this arrangement was for Boeing a condition to signing the merger agreement. Mr. Khoury was represented in ensuing negotiations with Boeing by Paul, Weiss, Rifkind, Wharton & Garrison LLP ("Paul Weiss"). Paul Weiss also represented senior management of KLX in their discussions with the compensation committee of the KLX Board.
On April 27, 2018, the KLX Board conducted a telephonic meeting. Representatives of Goldman Sachs and Freshfields also participated. The representatives of Goldman Sachs discussed in detail the financial features of the contemplated strategic transaction with Boeing. They provided financial analyses and information regarding KLX, the ASG Business, and the aerospace and defense industry, including recent transaction multiples data.
Goldman Sachs also discussed the spin-off and the contemplated distribution of shares in a publicly traded entity comprising the ESG Business, including their expectations as to how shares in such a publicly traded entity would trade in the short-term and long-term. They discussed several methods of valuing the ESG Business and concluded that the spin-off represented a higher value to stockholders when compared to a sale based on the offers received from bidders for the ESG Business. The KLX Board then engaged in a discussion with Goldman Sachs about the overall value to stockholders represented by a merger and subsequent spin-off, other practical considerations involved
in a spin-off as an alternative to a sale and how the timing of a spin-off would affect a strategic transaction for the ASG Business.
Also at the meeting, Freshfields discussed the KLX Board's fiduciary duties under Delaware law, discussed in detail the transaction documents and provided an update on the progress of negotiations with Boeing. The presentation by Freshfields in respect of the transaction documents focused on, among other topics, potential regulatory risks associated with the transaction and how they had been addressed in the merger agreement, fiduciary protections included in the merger agreement and termination rights afforded to the parties. Freshfields also discussed the several ancillary agreements being negotiated in connection with the spin-off. Following each of the presentations by Goldman Sachs and Freshfields, the directors asked a number of questions and a discussion ensued. Following this discussion, Mr. Khoury advised that Boeing was interested in retaining Mr. Cuomo and confirmed Mr. Cuomo's willingness to remain with KLX pursuant to the terms of an employment agreement to be negotiated and executed at or immediately prior to signing of the merger agreement.
On April 27, 2018, the compensation committee of the KLX Board held a telephonic meeting in which its independent counsel, Proskauer, participated. A representative of Proskauer began the meeting by previewing for the committee the proposed meeting agenda items regarding the consideration of potential transaction bonus payments to KLX senior management and reviewed with the committee their discussions of such payments at prior committee meetings held on February 16, 2018, March 6, 2018 and March 16, 2018. At these prior meetings, the committee had reviewed certain reports and analyses with its independent compensation consultant, Pearl Meyer, regarding transaction bonus market practice and the compensation the executives would otherwise be entitled to receive upon a change in control transaction pursuant to existing agreements. Freshfields participated at the beginning of the meeting to provide an update on communications between KLX and Boeing regarding potential transaction bonus payments to senior management under consideration by the committee. Freshfields reported that KLX had previously disclosed to Boeing that the compensation committee was considering a potential transaction bonus of up to one percent (1%) of the transaction value (including the value of the ESG Business spin-off or sale) and had made available to Boeing the Section 280G analyses and calculations relating to the proposed bonus payments (which analyses and calculations were previously prepared for KLX senior management and shared with compensation committee members), as well as a form of transaction bonus agreement that was being considered. The representative of Freshfields informed the committee that neither Boeing nor any of its representatives had objected to or raised any concerns regarding the proposed transaction bonus payments or the forms of agreements.
Following Freshfields' departure from the meeting, the committee members continued their discussion regarding potential transaction bonus payments to senior management in connection with a strategic transaction with Boeing in recognition of KLX's strong performance and return to stockholders. Among other topics, the committee members agreed that, provided certain conditions were met, senior management should receive transaction bonuses payable at the close of the transaction in order to (1) reward senior management for their efforts towards the success of KLX and the returns to its stockholders, including a recognition of the financial return achieved for KLX stockholders by the proposed sale of the aeronautics portion of the business to Boeing and the introduction of the alternative approach of a spin-off of the ESG Business, (2) reward them for their willingness to enter into restrictive covenant agreements with KLX on terms satisfactory to Boeing, (3) incentivize senior management to facilitate the successful and satisfactory consummation of the transactions contemplated under the proposed merger agreement with Boeing, including a successful spin-off or sale of the ESG Business, and (4) retain senior management's services through the consummation of the merger and spin-off transactions. The approval of the transaction bonus payments was conditioned on the execution by KLX of the merger agreement with Boeing and Boeing not requiring a purchase price reduction in respect of such bonuses.
Between April 24, 2018 and April 28, 2018, Mr. Cuomo and his counsel, Wilson Sonsini, negotiated with members of Boeing management regarding the terms of his future employment. On April 28, 2018, Mr. Cuomo notified KLX's senior management that he had accepted Boeing's offer of
employment. On April 29, 2018, Mr. Cuomo formally accepted Boeing's offer by countersigning and delivering an offer letter outlining the terms of his employment.
Over the weekend of April 27, 2018 to April 30, 2018, KLX, Boeing, Kirkland and Freshfields, and various combinations of the foregoing parties, held several negotiation and drafting calls to finalize the terms of the proposed transactions and resolve outstanding issues. The topics discussed over this weekend included, among other things: the operation of the ESG Business during the period between signing and closing; responsibility for transaction expenses associated with the spin-off and transaction expenses in general; the standard of the bring-down of certain representations and warranties; termination fees; tax-related indemnities associated with the spin-off; the requirement to obtain noteholder and lender consent in order to consummate the spin-off earlier than the closing of the merger; and employee compensation.
In the afternoon of April 30, 2018, Freshfields circulated an execution version of the merger agreement to the KLX Board, KLX senior management and Goldman Sachs, which also included an update to previous drafts received and reviewed by the KLX Board.
Later that day, the KLX Board conducted a telephonic meeting. Representatives of Goldman Sachs and Freshfields also participated in the meeting. Freshfields provided an overview of the negotiation process since the last board meeting and discussed changes made to the draft of the merger agreement since the last board meeting, including changes made to accommodate Boeing's specific requests in relation to the bring-down at closing of certain representations and warranties. Freshfields also provided an overview of changes in the merger agreement since the last board meeting relating to the treatment of KLX employees. During these discussions, the directors asked questions relating to specific terms in the merger agreement, including interim operating covenants, the treatment of employees, termination provisions, representations and warranties and conditions to closing. Freshfields also provided an overview of the changes to the distribution agreement and other ancillary agreements related to the spin-off and discussed transitional arrangements for the ESG Business if the spin-off occurred prior to the merger closing. Freshfields also informed the KLX Board that Boeing had recently requested that Mr. Khoury terminate his post-merger consulting arrangements for a sum to be paid at closing and that Boeing had stated that such an agreement on termination was a condition to it signing the merger agreement. Freshfields summarized the proposed terms of such termination and informed the KLX Board that such terms had been negotiated between Mr. Khoury's counsel Paul Weiss and Boeing's counsel Kirkland. The directors raised several questions pertaining to the terms of the agreements and the negotiation process. Freshfields then reviewed the Board's fiduciary duties under Delaware law.
Goldman Sachs then reviewed with the KLX Board its financial analysis of the merger consideration provided for in the merger agreement and delivered to the KLX Board its oral opinion, which was subsequently confirmed in writing, to the effect that, as of such date and based upon and subject to the factors and assumptions set forth in its written opinion, the $63.00 in cash per share to be paid to the holders (other than Boeing and its affiliates) of shares of KLX common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.
After further discussion, the KLX Board approved the merger, the merger agreement, the spin-off, the ancillary agreements and the amendment to the employment agreement of the CEO of KLX, subject to finalization of the ancillary documents in a form satisfactory to management of KLX.
Later in the evening of April 30, 2018, KLX and Boeing executed and delivered the merger agreement.
Early in the morning on May 1, 2018, KLX and Boeing each publicly announced the entry into the merger agreement.
Recommendation of the KLX Board and Reasons for the Merger
Recommendation of the KLX Board
The KLX Board unanimously recommends that KLX stockholders vote "FOR" the merger proposal.
By unanimous vote, the KLX Board, at a meeting held on April 30, 2018, with the advice and assistance of KLX management and KLX's legal counsel and financial advisor, determined that it is advisable and in the best interests of KLX and KLX stockholders to enter into the merger agreement and unanimously approved the merger agreement and the transactions contemplated by the merger agreement, including the merger, and resolved to recommend the adoption of the merger agreement by KLX stockholders and to submit the adoption of the merger agreement to a vote at a meeting of KLX stockholders.The KLX Board unanimously recommends that KLX stockholders vote "FOR" the merger proposal, "FOR" the named executive officer merger-related compensation proposal and "FOR" the adjournment proposal.
When you consider the KLX Board's recommendation, you should be aware that KLX's directors and executive officers may have interests in the merger that may be different from, or in addition to, those of KLX stockholders. For more information about such interests, see below under the heading "The Merger Proposal (Proposal 1)—Interests of KLX's Executive Officers and Directors in the Merger."
Reasons for the Merger
In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement and the related spin-off transaction documents, the KLX Board consulted with KLX's senior management, its outside legal counsel and its financial advisor and considered a number of substantive factors and potential benefits of the merger. In recommending that KLX stockholders vote their shares of KLX common stock in favor of adoption of the merger agreement and the merger, the KLX Board considered the following material factors and potential benefits of the merger and the other transactions contemplated by the merger agreement (not necessarily in order of relative importance), each of which it believed supported its decision:
potential acquisition targets and the possibility of strategic transactions involving the entire business or only a portion of the business with third parties (other than Boeing and including competitors), and in this regard, specifically considered the risks and uncertainties associated with each such alternative;
and to benefit from any appreciation in the value of the ESG Business, including any appreciation in value that could be realized as a result of improvements to the operations of the ESG Business or as a standalone strategic asset after the spin-off;
The KLX Board also considered and balanced against the potential benefits of the merger and the other transactions contemplated by the merger agreement a number of uncertainties and risks concerning the merger and the other transactions contemplated by the merger agreement, including the following (not necessarily in order of relative importance):
that all potentially interested parties were contacted in connection with KLX's review of its strategic alternatives and the termination fee was reasonable in amount and would not unduly deter any other party that might be interested in making a competing proposal);
While the KLX Board considered potentially positive and potentially negative factors, the KLX Board concluded that, overall, the potentially positive factors outweighed the potentially negative factors. Accordingly, the KLX Board unanimously determined that the merger agreement and the merger are advisable and fair to, and in the best interests of, KLX and its stockholders.
The foregoing discussion is not intended to be an exhaustive list of the information and factors considered by the KLX Board in its consideration of the merger, but includes the material positive factors and material negative factors considered by the KLX Board in that regard. In view of the number and variety of factors and the amount of information considered, the KLX Board did not find it practicable to, and did not make specific assessments of, quantify or otherwise assign relative weights to, the specific factors considered in reaching its determination. In addition, individual members of the KLX Board may have given different weights to different factors. Based on the totality of the information presented, the KLX Board collectively reached the unanimous decision to approve and declare advisable the merger agreement and the merger in light of the factors described above and other factors that the members of the KLX Board felt were appropriate.
Portions of this explanation of KLX's reasons for the merger and other information presented in this section are forward-looking in nature and, therefore, should be read in light of the section entitled "Cautionary Statement Regarding Forward-Looking Statements."
Opinion of Goldman Sachs & Co. LLC
At a meeting of the KLX Board held on April 30, 2018, Goldman Sachs rendered its oral opinion to the KLX Board, subsequently confirmed in writing, to the effect that, as of April 30, 2018 and based upon and subject to the factors and assumptions set forth therein, the $63.00 in cash per share to be paid to the holders (other than Boeing and its affiliates) of shares of KLX common stock pursuant to the merger agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated April 30, 2018, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B. Goldman Sachs provided advisory services and its opinion for the information and assistance of the KLX Board in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of KLX common stock should vote with respect to the merger or any other matter.
In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:
Goldman Sachs also held discussions with members of the senior management of KLX regarding their assessment of the past and current business operations, financial condition and future prospects of KLX; reviewed the reported price and trading activity for the shares of KLX common stock; compared certain financial and stock market information for KLX with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the distribution industry and the aerospace and defense industries; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.
For purposes of rendering its opinion, Goldman Sachs, with KLX's consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs assumed with KLX's consent that the Forecasts and the Tax Analyses were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of KLX. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of KLX or any of its subsidiaries, including KLX Energy Services, LLC, and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transactions contemplated by the merger agreement and the spin-off transaction agreements (which includes, among other things, the merger and the distribution to KLX's stockholders of the outstanding shares of common stock of KLX Energy Services in accordance with the terms of the distribution agreement (the "distribution" and, together with the merger, are referred to in this section and in the section captioned "Summary—Opinion of Goldman Sachs & Co. LLC" beginning on page 7 of this proxy statement collectively as the "transactions")) will be obtained without any adverse effect on KLX or on the expected benefits of the transactions in any way meaningful to its analysis. Goldman Sachs has also assumed that the transactions will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.
Goldman Sachs' opinion does not address the underlying business decision of KLX to engage in the transactions or the relative merits of the transactions as compared to any strategic alternatives that may be available to KLX, nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs' opinion addresses only the fairness from a financial point of view to the holders (other than Boeing and its affiliates) of shares of KLX common stock, as of the date of the opinion, of the $63.00 in cash per share to be paid to such holders pursuant to the merger agreement. Goldman Sachs' opinion does not express any view on, and does not address, any other term or aspect of the merger agreement or the transactions (including the distribution) or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the transactions, including the spin-off transaction agreements, or any election made, or consideration payable, in connection therewith, the distribution, the fairness of the transactions to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors or other constituencies of KLX, nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of KLX, or class of such persons in connection with the transactions, whether relative to the $63.00 in cash per share to be paid to the holders (other than Boeing and its affiliates) of shares of KLX common stock pursuant to the merger agreement or otherwise. Goldman Sachs' opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of the date of, the
opinion and, Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. In addition, Goldman Sachs does not express any opinion as to the prices at which the shares of KLX Energy Services will trade at any time or as to the impact of the transactions on the solvency or viability of KLX, KLX Energy Services or Boeing or the ability of KLX, KLX Energy Services or Boeing to pay their respective obligations when they come due. Goldman Sachs' opinion was approved by a fairness committee of Goldman Sachs.
The following is a summary of the material financial analyses delivered by Goldman Sachs to the KLX Board in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs' financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before April 25, 2018 and is not necessarily indicative of current market conditions.
Implied Multiples Analysis. Goldman Sachs calculated the implied equity value of KLX, which we refer to as the "Implied Equity Value," by multiplying the $63.00 in cash price per share of KLX common stock to be paid pursuant to the merger agreement by the total number of fully diluted shares of KLX common stock as of April 23, 2018, calculated using information provided by KLX management and reflecting the treatment of any dilutive securities in accordance with the merger agreement. The Implied Equity Value was $3,261 million. Goldman Sachs then calculated the implied enterprise value of KLX, which we refer to as the "Implied Enterprise Value," by adding to the Implied Equity Value the amount of KLX's net debt (defined as total debt less cash and cash equivalents) of $945 million as of January 31, 2018, as provided by KLX management, and $50 million of cash to be contributed by KLX to KLX Energy Services prior to the closing of the merger to capitalize KLX Energy Services pursuant to the merger agreement. The Implied Enterprise Value was $4,256 million.
Using that information, Goldman Sachs calculated the Implied Enterprise Value as a multiple of:
The results of these calculations are as follows:
Implied Enterprise Value as a Multiple of: | Multiple | |||
---|---|---|---|---|
2017 EBITDA | 15.7x | |||
2018 Adjusted EBITDA | 14.3x | |||
2019 EBITDA | 13.2x |
Selected Companies Analysis. Goldman Sachs reviewed and compared certain financial information for KLX to corresponding financial information, ratios and public market multiples for the following publicly traded companies in the distribution industry (referred to as "Distribution Peers") and the aerospace and defense industry (referred to as "Select MRO Player and Aerospace Supplier Peers" and, together with the Distribution Peers, collectively referred to as the "selected companies"):
Distribution Peers:
Select MRO Player and Aerospace Supplier Peers:
Although none of the selected companies is directly comparable to KLX, the companies included were chosen because they are publicly traded companies with operations that for purposes of analysis may be considered similar to certain operations of KLX.
For each of the selected companies, Goldman Sachs calculated and compared various financial multiples and ratios based on information it obtained from SEC filings, Bloomberg market data and Institutional Brokers' Estimate System ("IBES") estimates as of April 25, 2018 and, in the case of KLX, both IBES estimates and the Forecasts. With respect to its analysis, Goldman Sachs calculated for KLX and the selected companies:
The results of these analyses are summarized as follows:
| 2018 EV/adjusted EBITDA | 2019 EV/adjusted EBITDA(1) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Range | Median | Range | Median | |||||||||
Distribution Peers | 9.7x - 13.2x | 11.2x | 8.9x - 12.3x | 10.3x | |||||||||
Select MRO Player and Aerospace Supplier Peers | 8.6x - 23.1x | 10.4x | 8.0x - 21.4x | 9.7x |
Based on its review of the Distribution Peers and its professional judgment and experience, Goldman Sachs applied a reference range of 2018 EV/adjusted EBITDA multiples of 10.0x to 13.5x to KLX's 2018 Adjusted EBITDA to derive a reference valuation range per share of KLX common stock of $38.25 to $58.50 (rounded to the nearest $0.25).
Based on its review of the Select MRO Player and Aerospace Supplier Peers and its professional judgment and experience, Goldman Sachs applied a reference range of 2018 EV/adjusted EBITDA multiples of 10.0x to 13.0x to KLX's 2018 Adjusted EBITDA to derive a valuation range per share of KLX common stock of $38.25 to $55.50 (rounded to the nearest $0.25).
Illustrative Discounted Cash Flow Analysis. Using the Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on KLX. Using discount rates ranging from 9.0% to 10.0%, reflecting estimates of KLX's weighted average cost of capital, Goldman Sachs discounted to present value as of January 31, 2018 (i) estimates of unlevered free cash flow for KLX for the period from January 31, 2018 through January 31, 2023, as reflected in the Forecasts, and (ii) a range of illustrative terminal values for KLX, which were calculated by applying perpetuity growth rates ranging from 2.5% to 3.5% to a terminal year estimate of the unlevered free cash flow to be generated by KLX, as reflected in the Forecasts (which analysis implied exit terminal year Adjusted EBITDA (which is adjusted to add back stock-based compensation expense) multiples ranging from 9.5x to 13.0x). Goldman Sachs derived the illustrative discount rate range by application of the Capital Asset Pricing Model, which requires certain company-specific inputs, including the company's target capital structure weightings, the cost of long-term debt, after-tax yield on permanent excess cash, if any, future applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the U.S. financial markets generally. The range of perpetuity growth rates was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation. In addition, using an illustrative discount rate of 9.5%, reflecting an estimate of KLX's weighted average cost of capital, Goldman Sachs discounted to present value as of January 31, 2018 the estimated cash tax benefits of KLX's federal net operating losses ("NOLs") and its amortization of goodwill for the period from January 31, 2018 through January 31, 2032, at an effective tax rate of 24% as per KLX management, as set forth in the Tax Analyses.
Goldman Sachs then derived the range of illustrative enterprise values for KLX by adding the range of present values it derived above and the present value it derived for the estimated cash tax benefits of the federal NOLs and goodwill amortization. Goldman Sachs then subtracted from the range of illustrative enterprise values it derived for KLX the amount of net debt of KLX as of January 31, 2018, as provided by KLX management, and the amount of cash to be contributed to capitalize KLX Energy Services pursuant to the merger agreement, to derive a range of illustrative equity values for KLX. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of KLX common stock, as provided by KLX
management as of April 23, 2018, to derive a range of illustrative present values per share of KLX common stock ranging from $48.50 to $69.50 (rounded to the nearest $0.25).
Selected Transactions Analysis. Goldman Sachs analyzed certain information relating to the following selected transactions in the distribution and the aerospace and defense industries since 2006 using information obtained from public filings, press releases and Wall Street research. For each of the selected transactions, Goldman Sachs calculated and compared the enterprise value of the target company disclosed publicly at the time of the announcement as a multiple of the target company's adjusted EBITDA for the twelve-month period ended prior to the transaction's announcement, which is referred to below as "EV/LTM adjusted EBITDA." While none of the companies in the distribution or the aerospace and defense industries that participated in the selected transactions is directly comparable to KLX, the companies that participated in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of KLX's results, market size and product profile.
The following tables present the results of these analyses:
Distribution Selected Transactions:
Date Announced | Target | Acquirer | EV/LTM adjusted EBITDA | |||||
---|---|---|---|---|---|---|---|---|
May 2006 | Aviall, Inc. | The Boeing Company | 14.7x | |||||
October 2007 | Hagemeyer, N.V. | Rexel S.A. | 14.1x | |||||
August 2014 | Berlin Packaging LLC | Oak Hill Capital Partners | 14.0x | |||||
July 2006 | DT Group A/S | Wolseley plc | 11.7x | |||||
May 2014 | The Hillman Companies, Inc. | CCMP Capital, LLC | 11.6x | |||||
January 2006 | Hughes Supply, Inc. | The Home Depot, Inc. | 11.3x | |||||
July 2015 | Interline Brands, Inc. | The Home Depot, Inc. | 11.3x | |||||
November 2017 | Stark Group | Lone Star Funds | 10.3x | |||||
June 2007 | HD Supply, Inc. | Bain Capital Partners, LLC, The Carlyle Group and Clayton, Dubilier & Rice, Inc. | 10.2x | (1) | ||||
April 2015 | ProBuild Holdings LLC | Builders FirstSource, Inc. | 10.1x | |||||
May 2012 | Interline Brands, Inc. | Goldman Sachs Capital Partners | 9.7x | |||||
September 2013 | Edgen Group Inc. | Sumitomo Corp. | 9.5x | |||||
August 2017 | Allied Building Products Corp. | Beacon Roofing Supply, Inc. | 8.7x | |||||
Median | 11.3x | (2) |
Aerospace and Defense Selected Transactions:
Date Announced | Target | Acquirer | EV/LTM adjusted EBITDA | |||||
---|---|---|---|---|---|---|---|---|
May 2017 | Zodiac Aerospace S.A. | Safran S.A. | 21.0x | (1) | ||||
September 2017 | Rockwell Collins, Inc. | United Technologies Corp. | 15.9x | |||||
July 2015 | Cytec Industries Inc. | Solvay S.A. | 15.2x | |||||
September 2017 | Orbital ATK, Inc. | Northrop Grumman Corporation | 14.3x | |||||
October 2016 | B/E Aerospace, Inc. | Rockwell Collins, Inc. | 14.0x | (2) | ||||
March 2015 | RTI International Metals, Inc. | Alcoa Inc. | 13.1x | |||||
September 2010 | McKechnie Aerospace Holdings Inc. | TransDigm Group Incorporated | 12.9x | |||||
September 2011 | Goodrich Corp. | United Technologies Corp. | 12.9x | |||||
August 2013 | ARINC Inc. | Rockwell Collins, Inc. | 12.6x | |||||
August 2015 | Precision Castparts Corp. | Berkshire Hathaway Inc. | 12.3x | |||||
May 2014 | Aeroflex Holding Corp. | Cobham plc | 11.4x | |||||
December 2012 | Avio S.p.A. | General Electric Company | 8.5x | |||||
Median | 13.0x |
Based on its review of the selected transactions in the distribution industry and its professional judgment and experience, Goldman Sachs applied an illustrative EV/LTM adjusted EBITDA multiple range of 10.0x to 15.0x to KLX's 2017 EBITDA, which indicated an implied valuation range per share of KLX common stock of $33.00 to $59.00 (rounded to the nearest $0.25).
Based on its review of the selected transactions in the aerospace and defense industry and its professional judgment and experience, Goldman Sachs applied an illustrative EV/LTM adjusted EBITDA multiple range of 11.5x to 16.0x to KLX's 2017 EBITDA, which indicated an implied valuation range per share of KLX common stock of $40.75 to $64.25 (rounded to the nearest $0.25).
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs' opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to KLX or Boeing or the contemplated transaction.
Goldman Sachs prepared these analyses for purposes of Goldman Sachs' providing its opinion to the KLX Board as to the fairness from a financial point of view to the holders (other than Boeing and its affiliates) of shares of KLX common stock, as of the date of the opinion, of the $63.00 in cash per share to be paid to such holders pursuant to the merger agreement. These analyses do not purport to
be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of KLX, Boeing, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.
The merger consideration was determined through arm's-length negotiations between KLX and Boeing and was approved by the KLX Board. Goldman Sachs provided advice to KLX during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to KLX or the KLX Board or that any specific amount of consideration constituted the only appropriate consideration for the merger.
As described above, Goldman Sachs' opinion to the KLX Board was one of many factors taken into consideration by the KLX Board in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex B.
Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities in which they invest or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of KLX, Boeing, any of their respective affiliates and third parties, or any currency or commodity that may be involved in the transactions. Goldman Sachs acted as financial advisor to KLX in connection with, and participated in certain of the negotiations leading to the transactions. During the two-year period ended April 30, 2018, the Investment Banking Division of Goldman Sachs has not been engaged by KLX or its affiliates to provide financial advisory or underwriting services for which Goldman Sachs has received compensation. Goldman Sachs has provided certain financial advisory or underwriting services to Boeing and/or its affiliates from time to time for which the Investment Banking Division of Goldman Sachs has received, and may receive, compensation, including having acted: as joint bookrunner in connection with the issuance of Boeing's 3.375% Global Notes due 2046 (aggregate principal amount of $400 million), 2.250% Global Notes due 2026 (aggregate principal amount of $400 million) and 1.875% Global Notes due 2023 (aggregate principal amount of $400 million) in May 2016; as joint bookrunner in connection with the issuance of Boeing's 3.650% Global Notes due 2047 (aggregate principal amount of $300 million), 2.800% Global Notes due 2027 (aggregate principal amount of $300 million) and 2.125% Global Notes due 2022 (aggregate principal amount of $300 million) in February 2017; and as joint bookrunner in connection with the issuance of Boeing's 3.625% Global Notes due 2048 (aggregate principal amount of $350 million), 3.550% Global Notes due 2038 (aggregate principal amount of $350 million), 3.250% Global Notes due 2028 (aggregate principal amount of $350 million) and 2.800% Global Notes due 2023 (aggregate principal amount of $350 million) in February 2018. During the two year period ended April 30, 2018, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by its Investment Banking Division to Boeing and/or its affiliates of approximately $1.2 million. Goldman Sachs may also in the future provide investment banking services to KLX, Boeing and their respective affiliates for which the Investment Banking Division of Goldman Sachs may receive compensation.
The KLX Board selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transactions. Pursuant to a letter agreement dated December 22, 2017 as amended April 24, 2018, KLX engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transactions.
The engagement letter between KLX and Goldman Sachs provides for a transaction fee that is estimated, based on the information available as of the date of announcement, of approximately $33.5 million, $5.0 million of which became payable to Goldman Sachs upon the announcement of the execution of the merger agreement, $3.5 million of which is payable in connection with the spin-off, and the remainder of which is contingent upon consummation of the transactions. In addition, KLX has agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys' fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under the federal securities laws.
KLX does not as a matter of course make public projections as to future performance, earnings or other results and is especially cautious of making financial forecasts for extended periods because of the unpredictability of the underlying assumptions and estimates. Our management has prepared certain non-public, unaudited, stand-alone, financial forecasts regarding KLX's anticipated future operations following the consummation of the spin-off, which we refer to as "Projections", described below. Our management provided the Projections to the KLX Board for review in connection with the KLX Board's evaluation of the proposed merger and directed Goldman Sachs, our financial advisor, to use and rely upon the Projections in connection with its financial analyses and opinion to the KLX Board as described above under "Opinion of Goldman Sachs & Co. LLC". Our management also provided a portion of the Projections to the prospective purchasers, including Boeing, that participated in the Company's process to review strategic alternatives.
The Projections were developed for internal use and for our financial advisors, were not prepared with a view toward public disclosure and do not necessarily comply with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts or U.S. Generally Accepted Accounting Principles ("GAAP"). Our independent registered public accounting firm has not audited, reviewed, compiled or performed any procedures with respect to the Projections and does not express an opinion or any form of assurance related thereto. The summaries of the Projections are not being included in this proxy statement to influence any KLX stockholder's decision whether to vote for the merger proposal, but are being included because they were made available to the KLX Board, Boeing and our financial advisors for their respective evaluation of the proposed merger.
The Projections, while presented with numerical specificity, necessarily were based on numerous estimates, variables and assumptions that are inherently uncertain and many of which are beyond our control. Because the Projections cover multiple years, by their nature, they become subject to greater uncertainty with each successive year. The assumptions upon which the Projections were based necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. The Projections also reflect assumptions as to certain business decisions that are subject to change. Furthermore, the Projections do not take into account any circumstances or events occurring after the date they were prepared, including the announcement of the potential acquisition of KLX by Boeing pursuant to the merger agreement or our compliance with our covenants under the merger agreement. Important factors that may affect actual results and result in the Projections not being achieved include, but are not limited to, the risk factors described in our annual report on Form 10-K for the fiscal year ended January 31, 2018, quarterly reports on Form 10-Q and current reports on Form 8-K. In addition, the Projections may be affected by our ability to achieve strategic goals, objectives and targets over the applicable period.
The Projections are forward-looking statements. For information on factors that may cause our future financial results to materially vary, see the section entitled "Cautionary Statement Regarding Forward-Looking Statements" beginning on page 35 of this proxy statement.
There can be no assurance that the Projections would be realized following the consummation of the merger, and actual results may vary materially from those shown. The inclusion of the Projections in this proxy statement should not be regarded as an indication that we or any of our affiliates, advisors or representatives considered or consider the Projections to be predictive of actual future events, and they should not be relied upon as such. Neither we nor any of our affiliates, advisors, officers, directors or representatives can give any assurance that actual results will not differ from the Projections, and none of them undertakes any obligation to update or otherwise revise or reconcile the Projections to reflect circumstances existing after the respective dates on which they were prepared or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the Projections are shown to be in error. We do not intend to make publicly available any update or other revision to the Projections, except as otherwise required by applicable law. Neither we nor any of our affiliates, advisors, officers, directors or representatives has made or makes any representation to any KLX stockholder or other person regarding our ultimate performance compared to the information contained in the Projections or that the Projections will be achieved. We have made no representation to Boeing in the merger agreement or otherwise concerning the accuracy or reliability of the Projections.
Certain of the measures included in the Projections may be considered non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as used by KLX may not be comparable to similarly titled amounts used by other companies.
The following table is a summary of the Projections:
| Fiscal Year(1) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||
Revenues | $ | 1,537 | $ | 1,575 | $ | 1,650 | $ | 1,733 | $ | 1,819 | ||||||
EBITDA(2) | 298 | (3) | 322 | 347 | 373 | 400 | ||||||||||
EBIT(2) | 263 | (3) | 285 | 310 | 335 | 361 | ||||||||||
Free cash flow | 287 | (4) | 286 | 314 | 339 | 368 |
Note:
EBITDA is a non-GAAP operating financial measure defined as earnings before interest, tax, depreciation and amortization.
EBIT is a non-GAAP operating financial measure defined as earnings before interest and income taxes.
Free cash flow is a non-GAAP operating financial measure defined as net cash flow from operations minus capital expenditures and excludes the effect of any interest expense.
In addition, the following table shows the estimated amountamounts of unlevered free cash flows of the ASG Business that were calculated by Goldman Sachs using the Projections and information provided by theKLX management, of KLX, which calculations were reviewed and approved by KLX for Goldman Sachs' use in connection with the illustrative discounted cash flow analyses as described above under "The Merger
"The Merger Proposal (Proposal 1)—Opinion of Goldman Sachs & Co. LLC" on page 67. These calculations were not included in the forecasted financial information provided to Boeing.
| Fiscal Year | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | 2019 | 2020 | 2021 | 2022 | |||||||||||
Unlevered free cash flow | $ | 222 | $ | 222 | $ | 243 | $ | 260 | $ | 282 |
Unlevered free cash flow is a non-GAAP operating financial measure defined as tax-effected EBIT (which, for fiscal year 2018 as noted above, excludes one-time costs of $22 million associated with the transition of facility of the ASG Business), plus depreciation and amortization, less capital expenditures and plus/less, as applicable, changes in net working capital. The components are the same as free cash flow as set forth in the Projections except that EBIT is tax-effected in the calculation of unlevered free cash flow set forth above.
Interests of KLX's Executive Officers and Directors in the Merger
In considering the recommendations of the KLX Board with respect to the merger, KLX stockholders should be aware of the benefits available to the executive officers and directors of KLX in connection with the merger. These individuals have certain interests in the merger that may be different from, or in addition to, the interests of KLX stockholders generally. The KLX Board was aware of these interests and considered them, among other matters, in making the recommendations included in this proxy statement.
Treatment of KLX Equity-Based AwardsAwards.
KLX's directors and executive officers have received awards of restricted stock, performance stock units and/or restricted stock units. The merger agreement provides that such outstanding equity-based awards issued under KLX's equity incentive plans will be treated as set forth below:
KLX Restricted Stock Awards.
Without prejudice to any rights in respect of the spin-off, as of the effective time, (i) each KLX Restricted Stock Award that is outstanding immediately prior to the effective time will, to the extent not vested, become fully vested; provided that to the extent that such award is subject to performance conditions, any performance conditions shall be deemed to have been satisfied at the maximum level and (ii) each KLX Restricted Stock Award will be canceled without any action on the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the surviving corporation's general payroll practices, a lump sum cash payment with respect thereto equal to the product of the merger consideration and the number of shares of KLX common stock represented by such KLX Restricted Stock Award, less any applicable withholding or other taxes or other amounts required by applicable law to be withheld, without interest.
KLX PSU Awards and KLX RSU Awards.
Without prejudice to any rights in respect of the spin-off, as of the effective time, (i) each KLX PSU Award and each KLX RSU Award, in each case, subject to time-based, performance or other vesting restrictions, that is outstanding immediately prior to the effective time will, to the extent not vested, become fully vested, provided that to the extent that such award is subject to performance conditions, any performance conditions will be deemed to have been satisfied at the maximum level and (ii) each KLX PSU Award and KLX RSU Award, in each case, whether payable in cash or shares of KLX common stock, will be canceled without any action on the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the surviving corporation's general payroll practices, a lump sum cash payment with respect thereto equal to the product of the merger
consideration and the number of shares of KLX common stock represented by such KLX PSU Award or KLX RSU Award, less any applicable withholding or other taxes or other amounts required by applicable law to be withheld, without interest. Any payment in respect of any KLX PSU Award and KLX RSU Award, in each case, which immediately prior to such cancellation was treated as "deferred compensation" subject to section 409A of the Internal Revenue Code will be converted to the merger consideration and paid on the applicable settlement date for such KLX RSU Award or KLX PSU Award if required in order to comply with section 409A of the Internal Revenue Code.
2018 KLX Equity Awards.
In accordance with the merger agreement, KLX may grant its 2018 Awards to its employees under the LTIP in the ordinary course of business consistent with past practice following the date of the merger agreement. However, in the event that the effective time of the merger occurs on or prior to the first anniversary of the grant date of the 2018 Awards, only one-third of the 2018 Awards will be accelerated in connection with the consummation of the merger and become eligible to receive the merger consideration, and the remaining two-thirds will be forfeited for no consideration.
Effect of Spin-off on Equity Awards.
At the time of the spin-off, then outstanding unvested KLX equity-based awards granted prior to the date of the spin-off will be equitably adjusted to reflect the dilutive impact of the spin-off but will otherwise not participate in the spin-off. Following the spin-off, all outstanding unvested KLX equity-based awards held by KLX employees and KLX Energy Services employees will continue to vest in accordance with their terms based on their respective holders' continued service with KLX or KLX Energy Services, as applicable.
The value of KLX Restricted Stock Awards, PSU Awards and RSU Awards, in each case, held by KLX's executive officers and directors and to be cashed out in the merger (assuming the effective time of the merger occurs on May 25,July 24, 2018), is included in "The Merger Proposal (Proposal 1)—Interests of KLX's Executive Officers and Directors in the Merger—Summary of Potential Transaction Payments to Executive Officers and Directors of KLX" beginning on page 81 of this proxy statement.
Transaction Bonus and Noncompetition Agreements.
In connection with ensuring that the interests of KLX stockholders and KLX's senior executives are aligned in the event of a transaction that would constitute a change of control of KLX, as KLX had previously disclosed in its annual proxy statement to KLX stockholders, the compensation committee and the KLX Board have each previously concluded that it would favorably consider a discretionary transaction bonus at such time for certain senior executives of KLX. Accordingly, on April 30, 2018, KLX entered into transaction bonus and noncompetition agreements with each of Amin Khoury, Tom McCaffrey, Mike Senft and Roger Franks. The transaction bonus agreements provide that, upon and subject to the completion of the merger, Messrs. Khoury, McCaffrey, Senft and Franks will receive transaction bonuses equal to $20,720,000, $9,620,000, $3,330,000 and $3,330,000, respectively. The transaction bonus agreements provide that, during each of the executives' employment with KLX and for a period of three (3) years subsequent to each of the executives' termination of employment with KLX, the executives will not engage in any employment, consulting or other activity in any business directly competitive with KLX's operations and services as of the date of the effective time, without KLX's written consent, which consent will not be unreasonably withheld, except that the executives are not precluded from serving as a director of any corporation or a partner or investor in any private equity firm. The transaction bonus agreements also provide the executives with fully paid customary and market outplacement services following their termination of employment for a period of up to 12 months.
In the event that Messrs. Khoury, McCaffrey, Senft or Franks experiences a termination of employment due to death or "incapacity," terminates their employment with KLX for "good reason" or is terminated prior to the effective time by KLX for any reason other than for "cause" (in each case, as such term is defined in the applicable executive's employment agreement), the transaction bonus agreements provide that such terminated executive will remain eligible to receive the transaction bonus. Payment of the transaction bonuses is conditioned upon the completion of the merger on or prior to December 31, 2019.
The value of the transaction bonuses for Messrs. Khoury, McCaffrey, Senft and Franks (assuming, and subject to, the effective time of the merger occurring on or prior to December 31, 2019) is included in "The Merger Proposal (Proposal 1)—Interests of KLX's Executive Officers and Directors in the Merger—Summary of Potential Transaction Payments to Executive Officers and Directors of KLX" beginning on page 81 of this proxy statement.
Annual Incentive Award.
The compensation committee of the KLX Board may, in its sole discretion, authorize the cash payment of a pro rata annual bonus under KLX's annual incentive plan to each of Messrs. McCaffrey, Senft and Franks for the fiscal year in which the effective time of the merger occurs, in respect of the period of active service of such executives for such fiscal year, the amount of which is to be determined assuming the annualization of KLX's performance for the portion of the fiscal year in which the effective time occurs. Any such pro rata annual bonus will be payable by KLX in cash upon the effective time.
The value of the pro rata annual bonus to each of Messrs. McCaffrey, Senft and Franks (assuming the effective time of the merger occurs on May 25,July 24, 2018, which is the latest practicable date prior to the filing of this proxy statement), is included in "The Merger Proposal (Proposal 1)—Interests of KLX's Executive Officers and Directors in the Merger—Summary of Potential Transaction Payments to Executive Officers and Directors of KLX" beginning on page 81 of this proxy statement.
Employment Agreements and Amendment.
KLX is a party to amended and restated employment agreements with each of Messrs. Khoury, McCaffrey, Senft, Franks and John Cuomo. Pursuant to the employment agreements, as of the effective time, each of Messrs. Khoury's, McCaffrey's, Senft's, Cuomo's and Franks' employment with KLX will terminate, and each will receive (i) any accrued and unpaid salary and benefits (including automobile allowance and vacation for each executive, other than Mr. Khoury) through the date of termination, (ii) any earned but unpaid bonuses for any fiscal periods ending prior to the date of termination and (iii) a lump-sum amount equal to the sum of (A) a prorated portion of 75% of the executive's then current base salary (175%, in the case of Mr. Khoury, and 150%, in the case of Mr. McCaffrey), with the prorated amount to be determined in respect of the period of active service for the fiscal year during which the termination date occurs, (B) the executive's base salary for the remainder of the employment term, (C) in the case of Messrs. Khoury, McCaffrey and Senft, the retirement contributions that would have been made during the remainder of the employment term (which, for Mr. Khoury, will be at the rate in effect on January 31, 2017) and in the case of Messrs. Cuomo and Franks, the maximum annual contribution under KLX's deferred compensation plan of 7.5% of Messrs. Cuomo's and Franks' total base salary and annual cash bonus that would have been made during the remainder of the employment period (determined in accordance with the terms of the applicable deferred compensation plan) and (D) two times the executive's target bonus. In addition to the foregoing payments and benefits, Mr. Khoury will be entitled to a pro rata portion of his annual bonus for the fiscal year in which the effective time of the merger occurs in respect of the period of his active service for such fiscal year, based on assumed performance achievement at the maximum performance pay out level applicable for the fiscal year of termination. In addition, any equity awards
granted to the executives that would not have vested on or prior to the termination date will receive the treatment of KLX equity-based awards as described above in the section captioned "The Merger Agreement—Treatment of KLX Equity Awards" beginning on page 9293 of this proxy statement.
On April 30, 2018, at the request of Boeing and as a condition to Boeing's execution of the merger agreement, KLX entered into an employment agreement amendment with Mr. Khoury, effective upon, and subject to, the completion of the merger. The employment agreement amendment addresses certain matters relating to Mr. Khoury's contemplated employment by KLX Energy Services, as well as the elimination of KLX's and Mr. Khoury's obligations pursuant to the consulting agreement by and between KLX and Mr. Khoury, which would otherwise have become effective for a period of five years following Mr. Khoury's termination of employment. In consideration for the elimination of the consulting arrangement and the valuable benefits to which Mr. Khoury otherwise would have been entitled thereunder, Mr. Khoury agreed to accept a lump sum cash payment of $7,500,000.
The value of the severance payments and benefits, and the value of payments to be made pursuant to the employment agreement amendment (assuming the effective time of the merger occurs on May 25,July 24, 2018, which is the latest practicable date prior to the filing of this proxy statement), is included in "The Merger Proposal (Proposal 1)—Interests of KLX's Executive Officers and Directors in the Merger—Summary of Potential Transaction Payments to Executive Officers and Directors of KLX" beginning on page 81 of this proxy statement.
Change of Control Severance Plan.
The KLX Board adopted the Change in Control Severance Plan for Corporate Level Employees, which provides certain executive officers, other than the named executive officers, with financial assistance in the event that they experience a qualifying termination of employment within a specified period following the effective time of the merger. Qualifying terminations of employment under the plan include terminations of employment by KLX without "cause" (other than due to the executive officer's death or disability) or by the eligible executive officer with "good reason" (in each case, as defined in the plan). If an eligible executive officer has an effective and executed agreement with KLX or its affiliates that provides for specific severance in connection with a termination of employment that are in addition to the benefits provided by the plan, the payments and benefits provided by the plan will be reduced by the payments and benefits under such agreement. In the event that certain KLX executive officers who are participants in the plan experience a qualifying termination of employment on or before the second anniversary of the effective time of the merger, such executive officers would be eligible to receive a lump sum payment equal to 24 months of their base salary.
The value of the potential severance payments to KLX's executive officers pursuant to the plan (assuming the effective time of the merger occurs on May 25,July 24, 2018, which is the latest practicable date prior to the filing of this proxy statement, and a contemporaneous qualifying termination of employment) is included in "The Merger Proposal (Proposal 1)—Interests of KLX's Executive Officers and Directors in the Merger—Summary of Potential Transaction Payments to Executive Officers and Directors of KLX" beginning on page 81 of this proxy statement.
KLX Inc. Deferred Compensation Plan.
KLX sponsors the 2014 Deferred Compensation Plan, which is a nonqualified deferred compensation plan pursuant to which certain senior executives of KLX are eligible to defer a portion of their base salary, cash bonus and equity-based awards. Certain KLX contributions credited to the accounts of certain executive officers (other than the named executive officers) under the plan are subject to vesting restrictions that will lapse upon the completion of the merger. The accounts of all of our named executive officers are currently fully vested without regard to the pending merger.
The value of the accelerated amounts in respect of the accounts of certain executive officer participants in the plan (other than the named executive officers), assuming the effective time of the merger occurs on May 25,July 24, 2018, which is the latest practicable date prior to the filing of this proxy statement, is included in the table contained in "The Merger Proposal (Proposal 1)—Interests of KLX's Executive Officers and Directors in the Merger—Summary of Potential Transaction Payments to Executive Officers and Directors of KLX" beginning on page 81 of this proxy statement.
Summary of Potential Transaction Payments to Executive Officers and Directors of KLX.
The following table indicates the dollar amounts potentially payable to KLX's executive officers and directors under the compensation arrangements described above upon the effective time of the merger, assuming the effective time of the merger occurs on May 25,July 24, 2018, which is the latest practicable date prior to the filing of this proxy statement, and a contemporaneous qualifying termination of employment.
Merger-Related Compensation Table
| Cash(1) | Equity(2) | Pension/ NQDC(3) | Perquisites/ Benefits(4) | Total | Cash(1) | Equity(2) | Pension/ NQDC(3) | Perquisites/ Benefits(4) | Total | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Executive Officer | ||||||||||||||||||||||||||||||||
Amin J. Khoury | $ | 40,904,472 | $ | 27,209,744 | — | $ | 30,000 | $ | 68,144,216 | $ | 41,700,322 | $ | 27,402,673 | — | $ | 30,000 | $ | 69,132,995 | ||||||||||||||
Thomas P. McCaffrey | $ | 16,745,313 | $ | 17,853,569 | — | $ | 30,000 | $ | 34,628,882 | $ | 16,838,724 | $ | 17,980,473 | — | $ | 30,000 | $ | 34,849,197 | ||||||||||||||
Michael F. Senft | $ | 7,177,296 | $ | 5,655,354 | — | $ | 30,000 | $ | 12,862,650 | $ | 7,141,390 | $ | 5,695,122 | — | $ | 30,000 | $ | 12,866,512 | ||||||||||||||
John Cuomo | $ | 2,254,590 | $ | 4,590,954 | — | $ | 8,000 | $ | 6,853,544 | $ | 2,223,155 | $ | 4,623,280 | — | $ | 8,000 | $ | 6,854,435 | ||||||||||||||
Roger Franks | $ | 5,594,186 | $ | 4,254,350 | — | $ | 151,000 | $ | 9,999,536 | $ | 5,656,215 | $ | 4,284,309 | — | $ | 151,000 | $ | 10,091,524 | ||||||||||||||
All other executive officers as a group (3 individuals)(5) | $ | 2,818,195 | $ | 5,788,672 | $ | 181,923 | $ | 80,856 | $ | 8,869,646 | $ | 3,027,654 | $ | 5,829,651 | $ | 182,554 | $ | 80,856 | $ | 9,120,715 | ||||||||||||
Non-Employee Directors(5) | ||||||||||||||||||||||||||||||||
John T. Collins | — | $ | 260,135 | — | — | $ | 260,135 | — | $ | 262,114 | — | — | $ | 262,114 | ||||||||||||||||||
Peter V. Del Presto | — | $ | 257,533 | — | — | $ | 257,533 | — | $ | 259,492 | — | — | $ | 259,492 | ||||||||||||||||||
Richard G. Hamermesh | — | $ | 234,469 | — | — | $ | 234,469 | — | $ | 236,253 | — | — | $ | 236,253 | ||||||||||||||||||
Benjamin A. Hardesty | — | $ | 255,581 | — | — | $ | 255,581 | — | $ | 257,525 | — | — | $ | 257,525 | ||||||||||||||||||
Stephen M. Ward, Jr | — | $ | 216,755 | — | — | $ | 216,755 | — | $ | 218,404 | — | — | $ | 218,404 | ||||||||||||||||||
Theodore L. Weise | — | $ | 255,581 | — | — | $ | 255,581 | — | $ | 257,525 | — | — | $ | 257,525 | ||||||||||||||||||
John T. Whates, Esq. | — | $ | 258,183 | — | — | $ | 258,183 | — | $ | 260,147 | — | — | $ | 260,147 |
Messrs. McCaffrey, Senft and Franks for the fiscal year in which the effective time occurs, in an amount equal to $409,056, $200,559$624,349, $306,116 and $173,210,$264,374, respectively and (iv) in the case of Mr. Khoury, the lump sum cash payment of $7,500,000 in respect of the buy-out of the consulting arrangement, which was agreed to at the request of Boeing and as a condition to Boeing's execution of the merger agreement.
Executive Officers
Non-Employee Directors
Such accelerated vesting and payment will occur solely as a result of the effective time of the merger, without regard to whether there is a corresponding termination of service. Consistent with the requirements of Instruction 1 to Item 402(t)(2) of Regulation S-K, the aggregate values of the
of the equity awards are based on the per share merger consideration of $63.00, and assuming an equitable adjustment to the number of shares underlying outstanding equity awards to reflect the dilutive impact of the spin-off, using an adjustment ratio of approximately 1.1476,1.1563, based on the closing price of KLX common stock on the Nasdaq of $72.30$72.85 on May 25,July 24, 2018, the latest practicable date prior to the filing of this proxy statement.
John Cuomo Employment Agreement.
On April 28, 2018, Boeing presented an offer letter to John A. Cuomo outlining the terms of his future employment (the "offer letter"). On April 29, 2018, Mr. Cuomo countersigned and delivered the offer letter. Pursuant to the offer letter, Mr. Cuomo would, subject to the satisfaction of certain employment requirements and contingent upon the closing of the merger, become employed as Vice President, Aerospace Services Group, with Boeing Global Services on an at-will basis. The offer letter sets forth Mr. Cuomo's annual base salary as well as target annual incentive opportunity and certain other benefits. Mr. Cuomo would also be eligible for grants of incentive equity that are subject to vesting requirements.
Indemnification of Directors and Executive Officers; Directors' and Officers' Insurance.
Boeing and Merger Sub have agreed in the merger agreement that all rights to indemnification and exculpation from liabilities, including advancement of expenses, for acts or omissions occurring at or prior to the effective time now existing in favor of the D&O Indemnified Parties as provided in KLX's certificate of incorporation and bylaws (in each case, as in effect on the date of the merger agreement) shall survive the merger and shall continue in full force and effect. For a period of six years from the effective time, the surviving corporation shall, and Boeing shall cause the surviving corporation to, maintain in effect the exculpation, indemnification and advancement of expenses equivalent to the provisions of KLX's certificate of incorporation and bylaws as in effect immediately prior to the effective time with respect to acts or omissions occurring prior to the effective time and shall not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any D&O Indemnified Parties; provided, however, that all rights to indemnification in respect of any action pending or asserted or any claim made within such period shall continue until the disposition of such action or resolution of such claim.
Prior to the effective time, KLX will (or, if KLX is unable to, after the effective time, Boeing will cause the surviving corporation to) purchase a six-year prepaid "tail" policy, with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under KLX's existing policies of directors' and officers' liability insurance and fiduciary liability insurance, with respect to matters arising on or before the effective time (including in connection with the merger agreement and the transactions or actions contemplated by the merger agreement), and Boeing will cause such policy to be maintained in full force and effect, for its full term, and cause all obligations thereunder to be honored by the surviving corporation, and no other party shall have any further obligation to purchase or pay for insurance under the merger agreement; provided, however, (i) that KLX will not pay, and the surviving corporation will not be required to pay, in excess of 300% of the last annual premium paid by KLX prior to the date of the merger agreement in respect of such "tail" policy and (ii) the material terms of such prepaid policies (including coverage and amount) are no
more favorable in the aggregate to such D&O Indemnified Parties than the insurance coverage otherwise required in the prior paragraph above. If KLX or the surviving corporation for any reason fails to obtain such "tail" insurance policies prior to, as of or after the effective time, Boeing shall, for a period of six years from the effective time, cause the surviving corporation to maintain in effect the current policies of directors' and officers' liability insurance and fiduciary liability insurance maintained by KLX with respect to matters arising on or before the effective time; provided further, however, that after the effective time, neither the surviving corporation nor Boeing shall be required to pay annual premiums in excess of 300% of the last annual premium paid by KLX prior to the date of the merger agreement in respect of the coverage required to be obtained pursuant to the merger agreement, but in such case shall purchase as much coverage as reasonably practicable for such amount.
The indemnification and insurance covenants described above are intended to be for the benefit of, and are enforceable by, each of the D&O Indemnified Parties and their respective heirs only if the merger is consummated and will not be deemed exclusive of any other rights to which any such person is entitled, whether pursuant to applicable law, contract or otherwise.
Regulatory Clearances and Approvals Required for the Merger
U.S. Antitrust.
Under the HSR Act, we cannot complete the merger until we have given notification and furnished information to the FTC and the Antitrust Division of the DOJ and until the applicable waiting period has expired or has been terminated. On May 14, 2018, KLX and Boeing each filed a premerger notification and report form under the HSR Act, and Boeing refiled its HSR form on June 15, 2018. The required 30-day waiting period under the HSR Act expired at 11:59 p.m. Eastern time on July 16, 2018. KLX and Boeing are also required to obtain approvals, clearances or consents in several other countries before completing the merger. The parties will work cooperatively toward obtaining these regulatory clearances.
General.
Under the merger agreement, each of the parties is required to use its reasonable best efforts to cooperate with each other and take, or cause to be taken, or do, or cause to be done, all things necessary, proper or advisable to satisfy, or cause to be satisfied, all conditions to the obligations of the parties under the merger agreement over which it has control or influence, to obtain all other necessary actions, waivers, consents, licenses, permits and registrations (or transfers of the foregoing) and approvals from governmental authorities or any other person (it being understood that such actions, waivers, consents, licenses, permits and registrations shall not be deemed to be a condition to any party's obligations to consummate the transactions contemplated by the merger agreement unless otherwise set forth in the merger agreement), and to cause the merger to be consummated as promptly as practicable in accordance with the terms of the merger agreement.
In addition, each of the parties is required to use its reasonable best efforts to defend through litigation on the merits any claim asserted in court by any party in order to avoid entry of, or to have vacated or terminated, any order of any governmental authority (whether temporary, preliminary or permanent) that would prevent or materially delay the consummation of the closing.
Notwithstanding the foregoing, Boeing is not required to propose, negotiate, commit to or effect, by consent decree, hold separate orders or otherwise, (i) the sale, divestiture, license or disposition, in whole or in part of, or suffer any restriction on the operation of, Boeing's or its subsidiaries' assets, properties or businesses or (ii) the sale, divestiture, license or disposition, in whole or part of any of KLX's assets, properties or businesses to be acquired by Boeing pursuant to the merger agreement.
The approval of any regulatory application or completion of regulatory review merely implies the satisfaction of certain regulatory criteria, which do not include review of the merger from the
standpoint of the adequacy of the consideration to be received by KLX stockholders. Further, regulatory approvals or reviews do not constitute an endorsement or recommendation of the merger.
Material U.S. Federal Income Tax Consequences of the Merger
The merger will be treated as a taxable sale of KLX shares. You should read the section entitled "Material U.S. Federal Income Tax Consequences of the Merger" beginning on page 127128 and consult your tax advisors regarding the U.S. tax consequences of the merger to you in your particular circumstances.
Accounting Treatment.
The merger will be accounted for as a "purchase transaction" for purposes of financial accounting.
Delisting and Deregistration of KLX Common Stock
As promptly as practicable following the completion of the merger, the shares of KLX common stock currently listed on Nasdaq will cease to be listed on Nasdaq and will be deregistered under the Exchange Act.
If the merger is completed, KLX stockholders will be entitled to appraisal rights under Section 262 of the DGCL, provided that they comply with the conditions and requirements established therein.
Under Section 262 of the DGCL, KLX stockholders of record who do not wish to accept the merger consideration provided for in the merger agreement have the right to demand appraisal of their shares of KLX common stock and to receive payment in cash of the fair value of their shares of KLX common stock as of the effective time, exclusive of any element of value arising from the accomplishment or expectation of the merger, as determined by the Delaware Court of Chancery, together with interest, if any, to be paid upon the amount determined to be such fair value (or, in certain circumstances described below, on the difference between the amount determined to be the fair value and the amount paid to each stockholder entitled to appraisal prior to the entry of judgment in the appraisal proceeding), provided that they comply with the conditions and requirements established in Section 262 of the DGCL. The "fair value" per share of your shares of KLX common stock as determined by the Delaware Court of Chancery in an appraisal proceeding may be more or less than, or the same as, the merger consideration that you are otherwise entitled to receive under the terms of the merger agreement. KLX stockholders who do not vote in favor of the merger proposal who properly demand appraisal for their shares in compliance with the provisions of Section 262 of the DGCL, who do not withdraw such demand or otherwise waive or lose their right to appraisal and who comply with the other requirements to exercise appraisal rights under the DGCL will be entitled to appraisal rights under the DGCL. Strict compliance with the statutory procedures in Section 262 of the DGCL is required. Failure to follow precisely any of the statutory requirements may result in the loss of your appraisal rights.
This section is intended only as a brief summary of certain provisions of the Delaware statutory procedures that a stockholder must follow in order to seek and perfect appraisal rights. We urge you to carefully read Section 262 of the DGCL, which is attached to this proxy statement as Annex C, in its entirety for a more complete understanding of the Delaware statutory procedures that a stockholder must follow in order to seek and perfect appraisal rights. The following summary does not constitute any legal or other advice, nor does it constitute a recommendation that stockholders exercise their appraisal rights under Section 262 of the DGCL.
Under Section 262 of the DGCL, where a merger agreement is to be submitted for adoption at a meeting of stockholders, KLX must notify the stockholders who were stockholders of record on the record date for notice of such meeting with respect to shares for which appraisal rights are available, not less than 20 days before the meeting to vote on the merger, that appraisal rights will be available. A copy of Section 262 of the DGCL must be included with such notice. This proxy statement constitutes KLX's notice to our stockholders that appraisal rights are available in connection with the merger and the full text of Section 262 of the DGCL is attached to this proxy statement as Annex C, in compliance with the requirements of Section 262 of the DGCL. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 of the DGCL contained in Annex C. Failure to comply timely and properly with the requirements of Section 262 of the DGCL may result in the loss of your appraisal rights under the DGCL. Moreover, because of the complexity of the procedures for exercising the right to seek appraisal of shares of KLX common stock, KLX believes that if a stockholder is considering exercising such rights, such stockholder should seek the advice of legal counsel.
If you wish to demand appraisal of your shares of KLX common stock, you must satisfy each of the following conditions:
If you fail to comply with any of these four conditions and the merger is completed, your shares of KLX common stock will be converted into the right to receive payment of the merger consideration for your shares of KLX common stock as provided for in the merger agreement, but you will lose your appraisal rights with respect to your shares of KLX common stock.
A holder of shares of KLX common stock wishing to exercise appraisal rights must hold of record the shares of KLX common stock on the date the written demand for appraisal is made and must continue to hold the shares of KLX common stock of record through the effective time. A proxy that is submitted and does not contain voting instructions will, unless revoked, be voted "FOR" the merger proposal, and it will result in the loss of the stockholder's right of appraisal and will nullify any previously delivered written demand for appraisal. Therefore, a stockholder who submits a proxy and who wishes to exercise appraisal rights must either submit a proxy containing instructions to vote "AGAINST" the merger proposal or abstain from voting on the merger proposal. Voting against or failing to vote for the merger proposal by itself does not constitute a demand for appraisal within the meaning of Section 262 of the DGCL. The written demand for appraisal must be in addition to and separate from any proxy or vote on the merger proposal.
All demands for appraisal should be addressed to KLX Inc., 1300 Corporate Center Way, Wellington, Florida 33414, and must be delivered before the vote is taken to approve the merger proposal at the special meeting and must be executed by, or on behalf of, the record holder of the
shares of KLX common stock for which appraisal is demanded. The demand must reasonably inform KLX of the identity of the stockholder and the intention of the stockholder to demand appraisal of his, her or its shares of KLX common stock in connection with the merger. A stockholder's failure to deliver to KLX the written demand for appraisal prior to the taking of the vote on the merger proposal at the special meeting will result in the loss of appraisal rights.
Only a holder of record of shares of KLX common stock is entitled to demand an appraisal of the shares registered in that holder's name. Accordingly, to be effective, a demand for appraisal by a holder of KLX common stock must be made by, or on behalf of, the record stockholder. The demand should set forth, fully and correctly, the record stockholder's name as it appears on the stockholder's stock certificate(s) or in the transfer agent's records, in the case of uncertificated shares, should specify the stockholder's mailing address and the number of shares registered in the stockholder's name. The demand must state that the person intends thereby to demand appraisal of the stockholder's shares in connection with the merger. The demand cannot be made by the beneficial owner if he or she does not also hold the shares of KLX common stock of record. The beneficial holder must, in such cases, have the registered owner, such as a bank, broker or other nominee, submit the required demand in respect of those shares of KLX common stock. If you hold your shares of KLX common stock through a bank, broker or other nominee and you wish to exercise appraisal rights, you should consult with your bank, broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee and obtaining notice of the effective time.
If shares of KLX common stock are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal must be made in that capacity. If the shares of KLX common stock are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand must be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner or owners. A record owner, such as a bank, broker or other nominee, who holds shares of KLX common stock as a nominee for others, may exercise his or her right of appraisal with respect to the shares of KLX common stock held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares of KLX common stock as to which appraisal is sought. Where no number of shares of KLX common stock is expressly mentioned, the demand will be presumed to cover all shares of KLX common stock held in the name of the record owner. If a stockholder holds shares of KLX common stock through a broker who in turn holds the shares through a central securities depository nominee such as Cede & Co., a demand for appraisal of such shares must be made by or on behalf of the depository nominee and must identify the depository nominee as record owner.
Within 10 days after the effective time, the surviving corporation must give notice of the date that the merger became effective to each KLX record stockholder who has demanded appraisal in accordance with Section 262 of the DGCL and who did not vote in favor of the merger proposal. At any time within 60 days after the effective time, any stockholder who has not commenced an appraisal proceeding or joined a proceeding as a named party may withdraw the stockholder's demand and accept the consideration specified by the merger agreement for that stockholder's shares of KLX common stock by delivering to the surviving corporation a written withdrawal of the demand for appraisal. However, any such attempt to withdraw the demand made more than 60 days after the effective time will require the written approval of the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, with such approval conditioned upon such terms as the Delaware Court of Chancery deems just; provided, however that the limitation set forth in this sentence will not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding
as a named party to withdrawn such stockholder's demand for appraisal and accept the merger consideration within 60 days of the effective time. If the surviving corporation does not approve a request to withdraw a demand for appraisal when that approval is required, or if the Delaware Court of Chancery does not approve the dismissal of an appraisal proceeding, the stockholder will be entitled to receive only the appraised value of his, her or its shares of KLX common stock determined in any such appraisal proceeding, plus interest, if any, which value could be less than, equal to or more than the consideration offered pursuant to the merger agreement.
Within 120 days after the effective time, but not thereafter, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 of the DGCL and is entitled to appraisal rights under Section 262 of the DGCL may commence an appraisal proceeding by filing a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of KLX common stock held by all such stockholders. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon the surviving corporation. The surviving corporation has no obligation to file such a petition, has no present intention to file a petition and holders should not assume that the surviving corporation will file a petition. Accordingly, it is the obligation of KLX stockholders to initiate all necessary petitions to perfect their appraisal rights in respect of shares of KLX common stock within the time prescribed in Section 262 of the DGCL and the failure of a stockholder to file such a petition within the period specified in Section 262 of the DGCL could nullify the stockholder's previous written demand for appraisal. In addition, within 120 days after the effective time, any stockholder who has properly complied with the requirements of Section 262 of the DGCL and who did not vote in favor of the merger proposal will be entitled to receive from the surviving corporation, upon written request, a statement setting forth the aggregate number of shares of KLX common stock not voted in favor of the merger proposal and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. The statement must be mailed within 10 days after such written request has been received by the surviving corporation or within 10 days after the expiration of the period for delivery of demands for appraisal, whichever is later. A person who is the beneficial owner of shares of KLX common stock held either in a voting trust or by a nominee on behalf of such person for which appraisal has been properly demanded may, in such person's own name, file a petition for appraisal or request from the surviving corporation such statement.
If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, then the surviving corporation will be obligated, within 20 days after receiving service of a copy of the petition, to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares of KLX common stock and with whom agreements as to the value of their shares of KLX common stock have not been reached. After notice to stockholders who have demanded appraisal from the Register in Chancery, if such notice is ordered by the Delaware Court of Chancery, the Delaware Court of Chancery will conduct a hearing upon the petition and determine those stockholders who have become entitled to the appraisal rights provided by Section 262 of the DGCL. The Delaware Court of Chancery may require stockholders who have demanded appraisal of their shares of KLX common stock to submit their stock certificates to the Register in Chancery for notation of the pendency of the appraisal proceedings, and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder. In addition, the Delaware Court of Chancery will dismiss the proceedings as to all holders of such shares who are otherwise entitled to appraisal rights unless (1) the total number of shares of KLX common stock entitled to appraisal exceeds 1% of the outstanding shares of KLX common stock or (2) the value of the consideration provided in the merger for such total number of shares of KLX common stock exceeds $1 million.
After determination of the stockholders entitled to appraisal of their shares of KLX common stock, the Delaware Court of Chancery will appraise the shares of KLX common stock, determining
their fair value as of the effective time after taking into account all relevant factors exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value (or, in certain circumstances described below, on the difference between the amount determined to be the fair value and the amount paid to each stockholder entitled to appraisal prior to the entry of judgment in the appraisal proceeding). When the fair value has been determined, the Delaware Court of Chancery will direct the payment of such value (with interest, if any), in the case of holders of uncertificated stock forthwith, and, in the case of holders of shares represented by certificates, upon surrender by those stockholders of the certificates representing their shares of KLX common stock. Unless the Delaware Court of Chancery in its discretion determines otherwise for good cause shown, interest from the effective time through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective time and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Delaware Court of Chancery and (2) interest theretofore accrued, unless paid at that time.
You should be aware that an investment banking opinion as to the fairness from a financial point of view of the consideration to be received in a sale transaction, such as the merger, is not an opinion as to fair value under Section 262 of the DGCL. Although we believe that the per share merger consideration is fair, no representation is made as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and stockholders should recognize that such an appraisal could result in a determination of a value higher or lower than, or the same as, the per share merger consideration. Moreover, we do not anticipate offering more than the per share merger consideration to any stockholder exercising appraisal rights and reserve the right to assert, in any appraisal proceeding that, for purposes of Section 262 of the DGCL, the "fair value" of a share of KLX common stock is less than the per share merger consideration. In determining "fair value," the Delaware Court of Chancery is required to take into account all relevant factors. Section 262 of the DGCL provides that fair value is to be "exclusive of any element of value arising from the accomplishment or expectation of the merger."
Costs of the appraisal proceeding (which do not include attorneys' fees or the fees and expenses of experts) may be determined by the Delaware Court of Chancery and imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery, as it deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys' fees and the fees and expenses of experts used in the appraisal proceeding, to be charged pro rata against the value of all shares of KLX common stock entitled to appraisal. Any stockholder who demanded appraisal rights will not, after the effective time, be entitled to vote shares of KLX common stock subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares of KLX common stock, other than with respect to payment as of a record date prior to the effective time. If no petition for appraisal is filed within 120 days after the effective time, or if the stockholder otherwise fails to perfect, successfully withdraws or loses such holder's right to appraisal, then the right of that stockholder to appraisal will cease and that stockholder will be deemed to have been converted at the effective time into the right to receive the merger consideration (without interest) for his, her or its shares of KLX common stock pursuant to the merger agreement.
Failure to comply strictly with all of the procedures set forth in Section 262 of the DGCL may result in the loss of a stockholder's appraisal rights.
In view of the complexity of Section 262 of the DGCL, KLX stockholders who may wish to pursue appraisal rights should consult their legal and financial advisors.
Legal Proceedings Regarding the Merger
Following the announcement of the merger, on July 2, 2018, KLX received a demand letter from counsel for a purported KLX stockholder pursuant to Section 220 of the DGCL seeking inspection of KLX's books and records. After negotiation with counsel for this purported stockholder, and pursuant to an agreement governing the confidentiality of any produced documents, KLX agreed to produce certain books and records in connection with the proposed merger between KLX and Boeing.
On July 6, 2018, a putative class action was filed by a purported KLX stockholder in the United States District Court for the District of Delaware, captioned The Vladimir Gusinsky Rev. Trust v. KLX Inc., et. al., Case No. 1:18-cv-01000, which we refer to as the Complaint. Plaintiff purports to bring the litigation as a class action on behalf of the public stockholders of KLX. The Complaint names as defendants the members of the KLX Board and KLX. The Complaint alleges that KLX and the KLX Board failed to disclose material information in the First Amended Preliminary Proxy Statement on Form 14A filed on June 28, 2018. The Complaint seeks, among other things, equitable relief, including to enjoin the closing of the merger, to direct disclosure of all material information in the proxy statement and to award plaintiff's costs, including attorney's and expert's fees.
The following discussion sets forth the principal terms of the merger agreement. The complete text of the merger agreement is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. The rights and obligations of the parties are governed by the express terms and conditions of the merger agreement and not by this discussion, which is summary by nature. You are encouraged to read the merger agreement carefully in its entirety, as well as this proxy statement and any documents incorporated by reference herein, before making any decisions regarding the merger. This section is not intended to provide you with any factual information about us. Such information can be found elsewhere in this proxy statement and in the public filings we make with the SEC, as described in the section entitled "Where You Can Find More Information," beginning on page 131.132.
Upon the terms and subject to the conditions of the merger agreement, and in accordance with the DGCL, at the effective time, Merger Sub will be merged with and into KLX, whereupon the separate existence of Merger Sub will cease, KLX will continue as the surviving corporation and a direct or indirect, wholly owned subsidiary of Boeing and Boeing will own all of the issued and outstanding shares of KLX common stock. Prior to the effective time, KLX intends to effect a pro rata distribution of common stock representing 100% of the equity interests of KLX Energy Services to KLX stockholders as of the record date of such distribution, which will become a public company upon the completion of the spin-off and will own and operate the ESG Business.
Closing and Effectiveness of the Merger
Upon the terms and subject to the conditions set forth in the merger agreement, unless KLX and Boeing otherwise agree in writing, the closing of the merger and the consummation of the spin-off will take place concurrently (unless the spin-off has been consummated as of an earlier date) on a date to be specified by KLX and Boeing but no later than the third business day after the satisfaction or waiver of the conditions specified in the merger agreement (other than those conditions that by their terms are to be satisfied at the closing, but subject to the satisfaction or waiver of such conditions at the closing) (the "closing date"). The merger will become effective at the time that a certificate of merger with respect to the merger has been duly filed with the Delaware Secretary of State or at such other date and time as is agreed between Boeing and KLX and specified in the certificate of merger.
Each share of KLX common stock issued and outstanding immediately prior to the effective time (other than any shares of KLX common stock held by KLX as treasury stock or held, directly or indirectly, by Boeing or Merger Sub immediately prior to the effective time, and other than shares of KLX common stock owned by stockholders who have not voted in favor of the adoption of the merger agreement or consented thereto in writing, have properly exercised and perfected their demand for appraisal rights under the DGCL and have not effectively withdrawn or lost such rights) will be converted into the right to receive from Boeing, in accordance with the terms of the merger agreement, $63.00 per share, without interest. Each share of KLX common stock to be converted into the right to receive the merger consideration will no longer be outstanding and will be automatically canceled and will cease to exist, and the holders of certificates or book-entry shares that, immediately prior to the effective time, represented such KLX common stock, will cease to have any rights with respect to such KLX common stock other than the right to receive, upon surrender of such certificates or book-entry shares in accordance with the merger agreement, the merger consideration.
Each share of KLX common stock held by KLX as treasury stock or held, directly or indirectly, by Boeing or Merger Sub immediately prior to the effective time will automatically be canceled and
retired and will cease to exist, and no consideration or payment will be delivered in exchange therefor or in respect thereof. In addition, to the extent that holders of KLX common stock are entitled to appraisal rights under Section 262 of the DGCL, shares of KLX common stock issued and outstanding immediately prior to the effective time and held by a holder who has not voted in favor of the adoption of the merger agreement or consented thereto in writing, has properly exercised and perfected his, her or its demand for appraisal rights and has not effectively withdrawn or lost such holder's rights to appraisal, will not be converted into the right to receive the merger consideration, but the holders of such dissenting shares will be entitled to receive such consideration as may be determined pursuant to Section 262 of the DGCL (it being understood and acknowledged that at the effective time, such dissenting shares will no longer be outstanding, will automatically be canceled and will cease to exist, and such holder will cease to have any rights with respect thereto other than the right to receive the "fair value" of such dissenting shares as determined in accordance with Section 262 of the DGCL).
Pursuant to the merger agreement, Boeing, KLX, the surviving corporation and the paying agent (who shall be a nationally recognized financial institution reasonably acceptable to Boeing and KLX) will be entitled to, without duplication, (i) deduct and withhold from the merger consideration and any other amounts otherwise payable or distributable in cash or in kind (including, for the avoidance of doubt, as a result of the spin-off) pursuant to the merger agreement such amounts as Boeing, KLX, the surviving corporation or the paying agent are required to deduct and withhold with respect to the making of such payments under the Internal Revenue Code or any provision of applicable tax law and (ii) collect any forms required by applicable law to comply with withholding obligations with respect to such payments. Any amounts so withheld will be treated for all purposes of the merger agreement as having been paid to the person in respect of which such deduction and withholding was made by Boeing, KLX, the surviving corporation or the paying agent, as the case may be.
The merger consideration is in addition to, and separate from, the shares of KLX Energy Services that KLX stockholders as of the record date of the spin-off will receive in the spin-off. Immediately after the consummation of the spin-off, KLX stockholders of record as of the spin-off record date will own 100% of the issued and outstanding shares of KLX Energy Services common stock. The merger consideration is in addition to, and separate from, the shares of KLX Energy Services that KLX stockholders as of the record date of the spin-off will receive in the spin-off. KLX stockholder approval is not required to complete the spin-off and, accordingly, KLX stockholders are not being asked to vote on the spin-off. Additional information regarding the spin-off will be contained in the Form 10 to be filed by KLX Energy Services with the SEC with respect to the spin-off.
At or prior to the effective time, Boeing shall deposit or cause to be deposited with the paying agent cash in an aggregate amount necessary to pay the merger consideration (exclusive of any amounts payable in respect of specified incentive equity, which shall be paid as set forth in the merger agreement and the "Treatment of KLX Equity Awards" section below). Promptly following the effective time (and in any event not later than the third business day thereafter), Boeing will cause the paying agent to mail to each holder of record of a certificate or book-entry share that immediately prior to the effective time represented outstanding shares of KLX common stock (i) a letter of transmittal, which shall specify that delivery will be effected, and risk of loss and title to the certificates or book-entry shares, as applicable, will pass only upon proper delivery of the certificates (or affidavits of loss in lieu thereof) or book-entry shares to the paying agent, and which shall be in the form and have such other provisions as Boeing may reasonably specify, and (ii) instructions for use in effecting the surrender of the certificates or book-entry shares in exchange for cash in an amount equal to the merger consideration multiplied by the number of shares of KLX common stock previously represented by such certificates or book-entry shares.
Upon surrender of a certificate (or affidavit of loss in lieu thereof) or book-entry share for cancellation to the paying agent, together with a letter of transmittal duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be reasonably required or requested pursuant to such instructions, the holder of such certificate or book-entry share will be entitled to receive in exchange therefor, and Boeing will direct the paying agent to pay and deliver in exchange therefor as promptly as reasonably practicable, cash in an amount equal to the merger consideration multiplied by the number of shares of KLX common stock previously represented by such certificate or book-entry shares. The paying agent will accept such certificates (or affidavits of loss in lieu thereof) or book-entry shares upon compliance with such reasonable terms and conditions as the paying agent may impose. Without prejudice to any rights in respect of the spin-off and subject to any dissenters' rights or amounts payable to any governmental authority, after the effective time and until so surrendered, each certificate and book-entry share will represent only the right to receive the merger consideration payable in respect of the shares of KLX common stock represented thereby.
Treatment of KLX Equity Awards
The merger agreement provides that outstanding equity-based awards issued under KLX's equity incentive plans will be treated as set forth below:
KLX Restricted Stock Awards. Without prejudice to any rights in respect of the spin-off, as of the effective time, (i) each KLX Restricted Stock Award that is outstanding immediately prior to the effective time will, to the extent not vested, become fully vested; provided that to the extent that such award is subject to performance conditions, any performance conditions shall be deemed to have been satisfied at the maximum level; provided further that Boeing will not assume any such award and (ii) each KLX Restricted Stock Award will be canceled without any action on the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the surviving corporation's general payroll practices, a lump sum cash payment with respect thereto equal to the product of the merger consideration and the number of shares of KLX common stock represented by such KLX Restricted Stock Award, less any applicable withholding or other taxes or other amounts required by applicable law to be withheld, without interest.
KLX PSU Awards and KLX RSU Awards. Without prejudice to any rights in respect of the spin-off, as of the effective time, (i) each KLX PSU Award and each KLX RSU Award, in each case, subject to time-based, performance or other vesting restrictions, that is outstanding immediately prior to the effective time will, to the extent not vested, become fully vested, provided that to the extent that such award is subject to performance conditions, any performance conditions will be deemed to have been satisfied at the maximum level and (ii) each KLX PSU Award and KLX RSU Award, in each case, whether payable in cash or shares of KLX common stock, will be canceled without any action on the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the surviving corporation's general payroll practices, a lump sum cash payment with respect thereto equal to the product of the merger consideration and the number of shares of KLX common stock represented by such KLX PSU Award or KLX RSU Award, less any applicable withholding or other taxes or other amounts required by applicable law to be withheld, without interest. Any payment in respect of any KLX PSU Award and KLX RSU Award, in each case, which immediately prior to such cancellation was treated as "deferred compensation" subject to section 409A of the Internal Revenue Code will be converted to the merger consideration and paid on the applicable settlement date for such KLX RSU Award or KLX PSU Award if required in order to comply with section 409A of the Internal Revenue Code. For the avoidance of doubt, Boeing will not assume any KLX PSU Award or any KLX RSU Award.
KLX Employee Stock Purchase Plan (the "KLX ESPP"). As soon as practicable following the date of the merger agreement, the KLX Board (or, if applicable, any committee thereof administering the
KLX ESPP) must provide that: (i) any outstanding option period(s) under the KLX ESPP must terminate and each option to purchase KLX common stock thereunder will be deemed to have been exercised in accordance with the terms of the KLX ESPP upon the earlier to occur of (A) the day that is four complete trading days prior to the effective time or (B) the date on which such option period(s) would otherwise end, and no additional option period(s) may commence under the KLX ESPP after the date of the merger agreement; (ii) no individual participating in the KLX ESPP may be permitted to (A) increase the amount of his, her or its rate of payroll contributions thereunder from the rate in effect as of the date of the merger agreement or (B) except to the extent required by applicable law, make separate non-payroll contributions to the KLX ESPP on or following the date of the merger agreement; (iii) no individual who is not participating in the KLX ESPP as of the date of the merger agreement may commence participation in the KLX ESPP following the date of the merger agreement; (iv) no new offerings will commence, nor will any existing offerings be extended, following the date of the merger agreement; and (v) subject to the consummation of the merger, the KLX ESPP will terminate, effective immediately prior to the effective time.
2018 KLX Equity Awards. KLX may award its annual 2018 KLX Restricted Stock Awards, KLX PSU Awards or KLX RSU Awards to its employees under the LTIP in the ordinary course of business consistent with past practice following the date of the merger agreement. However, in the event that the effective time occurs on or prior to the first anniversary of the grant date of the 2018 Awards, only one-third of the 2018 Awards will be accelerated in connection with the consummation of the merger and become eligible to receive the merger consideration, and the remaining two-thirds will be forfeited for no consideration.
Representations and Warranties
The merger agreement contains representations and warranties that we, on the one hand, and Boeing and Merger Sub, on the other hand, have made to one another (in some cases, as of specific dates) relating to our business (with certain limited exceptions, generally excluding KLX Energy Services, its subsidiaries and assets and the ESG Business) and their respective businesses. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the merger agreement. Accordingly, KLX stockholders should not rely on representations and warranties as characterizations of the actual state of facts or circumstances and should bear in mind that the representations and warranties were made solely for the benefit of the parties to the merger agreement, were negotiated for purposes of allocating contractual risk among the parties to the merger agreement rather than to establish matters as facts, may be qualified by disclosures made by one party to the merger agreement to the other parties thereto and may be subject to contractual standards of materiality different from those generally applicable to stockholders. Moreover, information concerning the subject matter of such representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be reflected in our public disclosures. This description of the representations and warranties is included to provide KLX stockholders with information regarding the terms of the merger agreement. The representations and warranties in the merger agreement and their description in this proxy statement should be read in conjunction with the other information contained in the reports, statements and filings we publicly file with the SEC.
Our representations and warranties relate to, among other things:
Some of our representations and warranties are qualified as to materiality or by exceptions related to the absence of a material adverse effect. Under the merger agreement, a "material adverse effect" with respect to KLX means any event, change, circumstance, state of fact, condition, occurrence or effect that, individually or in the aggregate, (i) has or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, liabilities or results of operations of KLX and its subsidiaries, assuming and having given effect to the consummation of the spin-off (or the sale of the ESG Business), taken as a whole (KLX and its subsidiaries, assuming and giving such effect to the spin-off or such sale, "KLX Ex-ESG"), or (ii) prevents or materially interferes with, hinders or delays the consummation of the transactions contemplated by the merger agreement and the spin-off agreements (or the agreements governing the sale of the ESG Business); provided, however, that none of the following events, changes, circumstances, states of fact, conditions, occurrences or effects, either alone or in combination, will constitute, or be considered in determining whether there has been, a material adverse effect:
otherwise excluded by this proviso may be taken into account in determining whether a material adverse effect has occurred or would reasonably be expected to occur);
provided, however, that any event, change, circumstance, state of fact, condition, occurrence, effect or other matter referred to in the first six bullets immediately above will be taken into account in determining whether a material adverse effect has occurred or would reasonably be expected to occur to the extent that such event, change, circumstance, effect, state of fact, condition, occurrence or other matter has a disproportionate impact on KLX Ex-ESG as compared to other participants in the industries and markets in which KLX Ex-ESG operates.
Boeing and Merger Sub also make a number of representations and warranties to us regarding various matters pertinent to the merger and their respective businesses. Such representations and warranties relate to, among other things:
Some of Boeing's and Merger Sub's representations and warranties are qualified as to materiality or by exceptions related to the absence of a material adverse effect on the ability of Boeing or Merger Sub to consummate the transactions contemplated by the merger agreement.
The representations and warranties of each of the parties to the merger agreement will terminate at the effective time.
Conduct of Business Pending the Merger
We have agreed to restrictions on the operation of our business until the earlier of the effective time and the date on which the merger agreement is terminated. Except as may be required by applicable law, as may be consented to in writing by Boeing (which consent may not be unreasonably withheld, delayed or conditioned), as expressly required or expressly permitted pursuant to the merger agreement or the spin-off agreements (or the agreements governing the sale of the ESG Business), or as disclosed to Boeing pursuant to the merger agreement, (i) subject to the restrictions set forth in clause (ii) below, we will, and will cause our subsidiaries to, conduct our and our subsidiaries' business in the ordinary course of business and in a manner consistent with past practice and, to the extent consistent therewith, use our reasonable best efforts to preserve our assets and business organization and maintain satisfactory relationships with material customers, suppliers, distributors, regulators, landlords and other business partners and (ii) we will not, and will cause our subsidiaries (other than KLX Energy Services and its subsidiaries, except as set forth below) not to, directly or indirectly:
(other than KLX Energy Services and its subsidiaries) capital stock or other equity interests or other securities (including "phantom" equity), or any options, equity or equity-based compensation, warrants, convertible securities or other rights of any kind to acquire any shares of KLX's or any of its subsidiaries' (other than KLX Energy Services and its subsidiaries) capital stock or other equity interests or other securities; provided, however, that KLX may issue shares upon the settlement of any KLX RSU Award or KLX PSU Award outstanding as of the date of the merger agreement and in accordance with the merger agreement and the applicable KLX RSU Award or KLX PSU Award, as made available to Boeing;
the ability of Boeing or any of its affiliates after the effective time, to operate its business in any geographic area, (B) would, after the effective time, restrict KLX, Boeing or any of their respective affiliates or subsidiaries from soliciting, hiring, engaging, retaining or employing any person's current or former employees in any respect (other than customary non-solicitation obligations undertaken in the ordinary course of business consistent with past practice) or (C) restricts the ability of KLX Ex-ESG or its affiliates to own, operate, sell, transfer, pledge or otherwise dispose of any material amount of assets or businesses;
Certain Covenants Related to the ESG Business
The merger agreement contains various agreements by KLX with respect to the spin-off and the spin-off documents. Specifically:
Under the terms of the merger agreement, KLX was required to notify Boeing by May 30, 2018 if KLX elected to enter into an agreement to sell the ESG Business in lieu of consummating the spin-off. KLX did not make such election by May 30, 2018, and pursuant to the terms of the merger agreement, KLX will not be entitled to sell the ESG Business to a third party in lieu of the spin-off without Boeing's prior written consent. KLX iswas required to enter into the distribution agreement with KLX Energy Services by July 14, 2018, which it did on July 13, 2018.
Restrictions on Solicitation of Acquisition Proposals
Non-Solicitation Provisions and Exceptions.
From the date of the merger agreement until the earlier of the effective time and the termination of the merger agreement in accordance with its terms, we are subject to restrictions on our ability to initiate or solicit third party proposals relating to alternative transactions or to provide information to or engage in discussions or negotiations with a third party in relation to an alternative transaction (subject to certain exceptions prior to the approval of the merger proposal by KLX stockholders at the special meeting described further in this proxy statement and except as related solely to the spin-off or a sale of the ESG Business or any of the assets or operations thereof). Specifically:
Notwithstanding the provisions in the merger agreement relating to acquisition proposals:
favorable to KLX than those contained in Boeing's confidentiality agreement, and negotiate and participate in discussions and negotiation with such person concerning such acquisition proposal, in each case if the KLX Board determines in good faith (after consultation with outside financial advisors and legal counsel) that such acquisition proposal constitutes, or could reasonably be expected to lead to or result in, a superior proposal, and the KLX Board determines in good faith (after consultation with outside financial advisors and legal counsel) that the failure to take such action would be inconsistent with its fiduciary duties under applicable law;
KLX (A) must promptly (and in any case within 24 hours) provide Boeing notice of the receipt of any acquisition proposal and any confidentiality agreement entered into with any third party and must disclose the identity of the third party and the terms of such acquisition proposal, (B) must promptly (and in any case within 24 hours) make available to Boeing copies of all information of KLX and the same access provided by KLX to such third party but not previously made available to Boeing and (C) must keep Boeing informed on a reasonably prompt (and at Boeing's request, which will not be more frequently than daily) basis of the status and material details of (including amendments and proposed amendments to and the negotiation or discussion of) any such acquisition proposal, or such other inquiry, offer or proposal.
KLX agreed in the merger agreement not to release or permit the release of any person from, or to waive or permit the waiver or termination of any provision of, any confidentiality, standstill or similar agreement (or any standstill or confidentiality provision of any other contract or agreement) to which any of KLX or any subsidiary of KLX is a party or any "moratorium," "control share acquisition," "fair price," "interested stockholder," "affiliate transaction," "business combination" or other antitakeover contract or applicable law, and KLX agreed to use its reasonable best efforts to enforce or cause to be enforced to the fullest extent permitted by applicable law each such agreement or applicable law; provided, however, that nothing herein will apply to standstill or similar provisions contained in any agreements that are terminated, released or waived in accordance with their terms without any action by KLX. Any breach of the provisions in the merger agreement regarding nonsolicitation, acquisition proposals and superior proposals by any subsidiary or representative of KLX will be deemed to be a breach of such provisions by KLX.
Notwithstanding the foregoing, the provisions regarding alternative proposals and adverse recommendation changes shall not in any way limit or prohibit any action taken by KLX in furtherance of its efforts to consummate the spin-off, including holding discussions, negotiations and
communications with, or providing non-public information unrelated to KLX Ex-ESG to, any persons in connection with the spin-off (including to potential financing sources).
KLX Board Recommendation and Adverse Recommendation Change
Under the terms of the merger agreement, subject to certain exceptions, the KLX Board has agreed to recommend that KLX stockholders vote in favor of the merger proposal. Under the merger agreement, the KLX Board and any committee thereof may not take any of the following actions (any such action, an adverse recommendation change):
Notwithstanding the foregoing, the KLX Board may take the following actions in connection with a superior proposal or an intervening event (as defined below), subject to specified terms as further described below.
If, at any time after the date of the merger agreement and prior to the receipt of KLX stockholder approval of the merger proposal, the KLX Board first receives an acquisition proposal that did not result directly or indirectly from a breach of the non-solicitation provisions in the merger agreement (other than breaches thereof that are inadvertent, de minimis and not intended to result in an acquisition proposal), that is not withdrawn, and that the KLX Board determines in good faith (after consultation with outside financial advisors and legal counsel) constitutes a superior proposal, the KLX Board may cause KLX to, concurrently with the payment of a $105 million fee by KLX to Boeing, terminate the merger agreement and simultaneously enter into a definitive alternative acquisition agreement in respect of such superior proposal if:
transactions contemplated by the merger agreement so that the failure to take such action would no longer be inconsistent with the KLX Board's fiduciary duties under applicable law (it being understood and agreed that any amendment to any material term or condition of any superior proposal shall require a new notice and a new negotiation period that shall expire on the later to occur of (1) three business days following delivery of such new notice from KLX to Boeing and (2) the expiration of the original four business day period); and
Other than in connection with a superior proposal (which shall be subject to the provisions described in the prior paragraph), prior to KLX obtaining stockholder approval of the merger proposal, the KLX Board may withdraw, qualify, withhold or modify, fail to make or publicly propose to withdraw, qualify, withhold or modify its recommendation of the merger proposal, in response to an intervening event (as defined below), only if:
Certain Definitions
In this proxy statement, an "acquisition proposal" refers to any inquiry, indication of interest, proposal or offer from any person (other than Boeing, Merger Sub or their subsidiaries), relating to, or that would reasonably be expected to lead to, any (i) merger, consolidation, share exchange, business combination, recapitalization (including a leveraged recapitalization or extraordinary dividend), reorganization, equity investment, business combination, joint venture or similar transaction involving KLX or any of its subsidiaries, pursuant to which any such person would own or control, directly or indirectly, 20% or more of the voting power of KLX or any of its subsidiaries, (ii) sale, lease, license, dissolution, liquidation or other disposition, directly or indirectly, of assets of KLX or any subsidiary of KLX (excluding the sale of inventory held for sale in the ordinary course of business) representing 20% or more of the consolidated assets, revenues or net income of KLX and its subsidiaries taken as a
whole, or to which 20% or more of KLX's revenues, earnings or assets on a consolidated basis are attributable, taken as a whole, (iii) issuance or sale or other disposition of capital stock or other equity interests representing 20% or more of the voting power of KLX, (iv) tender offer (including self-tender), exchange offer or any other transaction or series of transactions in which any person will acquire, directly or indirectly, beneficial ownership or the right to acquire beneficial ownership of capital stock or other equity interests representing 20% or more of the voting power of KLX or (v) any combination of the foregoing; provided that in no event shall the spin-off or any other proposal solely with respect to KLX Energy Services, the ESG Business or any of the assets or operations thereof constitute an acquisition proposal.
In this proxy statement, a "superior proposal" means a bona fide written acquisition proposal (with all references to "20%" in the definition of "acquisition proposal" deemed to be "a majority" for purposes of the definition of "superior proposal") that (i) would be reasonably likely to be consummated if accepted, and (ii) is more favorable to KLX and its stockholders, solely in their capacity as such, from a financial point of view, than the transactions contemplated by the merger agreement, taking into account (a) all financial considerations (including the form of consideration), (b) the identity of the third party making such acquisition proposal, (c) the anticipated timing, conditions (including any financing condition or the reliability of any debt or equity funding commitments) and prospects for completion of such acquisition proposal, (d) the legal and regulatory approvals, termination fee and expense reimbursement provisions reasonably deemed relevant by the KLX Board or any committee thereof and (e) any revisions to the terms of the merger agreement and the merger proposed by Boeing during the notice period set forth in the merger agreement; provided that, in no event will an acquisition proposal be deemed to be a superior proposal solely by excluding a condition to the consummation thereof relating to the ESG Business.
In this proxy statement, an "intervening event" means any material change, event, effect, occurrence, consequence or development relating to KLX that (a) is unknown and not reasonably foreseeable as of the date of the merger agreement, (b) does not relate to any acquisition proposal, any inquiry, indication of interest, proposal or offer that would reasonably be expected to lead to an acquisition proposal and (c) becomes known to the KLX Board prior to KLX stockholder approval of the merger proposal; provided that in no event shall the following constitute an intervening event: any change, event, effect, occurrence, consequence or development relating to (i) Boeing or Merger Sub or any of their affiliates or any competitor of KLX or (ii) the market price or trading volume of the equity securities of KLX, the ratings or the ratings outlook for KLX or any of its subsidiaries by any applicable rating agency or any analyst's recommendations or ratings with respect to KLX, except that the underlying reasons for such change, event, effect, occurrence, consequence or development may be considered in determining the existence of an intervening event to the extent not excluded by clause (i) of this proviso.
Efforts to Complete the Merger
Each of the parties to the merger agreement will use its reasonable best efforts to cooperate with each other and take, or cause to be taken, or do, or cause to be done, all things necessary, proper or advisable to satisfy, or cause to be satisfied, all conditions to the obligations of the parties under the merger agreement over which it has control or influence, to obtain all other necessary actions, waivers, consents, licenses, permits and registrations (or transfers of the foregoing) and approvals from governmental authorities or any other person (it being understood that such actions, waivers, consents, licenses, permits and registrations shall not be deemed to be a condition to any party's obligations to consummate the transactions contemplated by the merger agreement unless otherwise set forth in the merger agreement), and to cause the merger to be consummated as promptly as practicable in accordance with the terms of the merger agreement.
In addition, each of the parties to the merger agreement will use its reasonable best efforts to defend through litigation on the merits any claim asserted in court by any party in order to avoid entry of, or to have vacated or terminated, any order of any governmental authority (whether temporary, preliminary or permanent) that would prevent or materially delay the consummation of the closing.
KLX and Boeing agreed in the merger agreement that they will prepare and file any filing required under the HSR Act as promptly as practicable, but in any event no later than ten business days after the date of the merger agreement (and which has been filed), and Boeing agreed that it will prepare and file all other required antitrust notifications as soon as reasonably practicable after the date of the merger agreement. No party may request or otherwise seek early termination of any applicable waiting periods under applicable antitrust law without the other party's prior written consent.
Notwithstanding the foregoing, Boeing is not required to propose, negotiate, commit to or effect, by consent decree, hold separate orders or otherwise, (i) the sale, divestiture, license or disposition, in whole or in part, or suffer any restriction on the operation, of Boeing's or its subsidiaries' assets, properties or businesses or (ii) the sale, divestiture, license or disposition, in whole or part, of the assets, properties or businesses to be acquired by Boeing pursuant to the merger agreement.
To the extent permitted by applicable law, each party must promptly notify the other of any material communication (including oral communications) it or any of its affiliates receives from any governmental authority to the extent relating to the merger agreement and the transactions contemplated by the merger agreement and the agreements related to the spin-off (and any purchase agreement related to the sale of the ESG Business) and permit the other to review in advance any proposed material communication by such party to any governmental authority. None of the parties will participate in or agree to participate in any material meeting with any governmental authority in respect of any filings, investigation (including any settlement of any such investigation), litigation or other inquiry related to any required antitrust notification the parties have agreed are required in connection with the merger unless it consults with the other in advance and, to the extent permitted by such governmental authority, gives the other the opportunity to attend and participate at such meeting. To the extent permitted by applicable law, each party will coordinate and cooperate fully with each other in exchanging such information and providing such assistance as the other may reasonably request in connection with any such required antitrust notifications; provided that the disclosing party may, where appropriate, limit disclosure of any information to those individuals acting as outside counsel for the other parties, and such counsel will not disclose such information to such other parties without the knowledge and consent of Boeing or KLX, as applicable.
Notwithstanding anything to the contrary in the merger agreement, Boeing has the sole right to control and direct all antitrust filings and antitrust strategy in connection with review of the merger and other transactions contemplated by the merger agreement by any governmental authority, or any litigation by, or negotiations with, any antitrust authority or other person relating to the transaction under the HSR Act or any other antitrust law and will take the lead in all meetings, discussions and communications with any governmental authority relating to obtaining antitrust approval, provided that Boeing will consult with and consider in good faith the comments of KLX in connection with any filing, communication, defense, litigation, negotiation or strategy.
During the period beginning at the effective time and ending on December 31, 2019 (the "continuation period"), Boeing will, or will cause a subsidiary of Boeing to, provide to each employee who is actively employed by KLX or any of its subsidiaries immediately prior to the effective time (each, a "covered employee") for so long as such covered employee remains an employee of Boeing or any of its subsidiaries during the continuation period, compensation that is comparable in the aggregate (as determined by Boeing, including taking into consideration compensation that is accelerated under
the terms of the merger agreement) to the compensation provided to such covered employee by KLX and its subsidiaries immediately prior to the effective time. In addition, Boeing agreed in the merger agreement to cause KLX to pay outstanding annual incentive awards to covered employees for the fiscal year in which the effective time occurs (and any preceding fiscal year to the extent awards are earned but remain unpaid) in accordance with the terms and conditions of the applicable annual cash incentive plans under which such awards were granted as in effect as of the effective time, to the extent and as disclosed to Boeing.
In the event any covered employee first becomes eligible to participate under any Boeing employee benefit plan following the effective time, Boeing shall, or shall cause a subsidiary of Boeing to, for covered employees who become eligible during the calendar year including the effective time, use reasonable best efforts to (i) waive any preexisting condition exclusions and waiting periods with respect to participation and coverage requirements applicable to any covered employee under any Boeing employee benefit plan providing medical, dental or vision benefits to the same extent such limitation would have been waived or satisfied under any similar KLX benefit plan the covered employee participated in immediately prior to coverage under the Boeing employee benefit plan; and (ii) provide each covered employee with credit for any copayments and deductibles paid prior to the covered employee's coverage under any Boeing employee benefit plan during the plan year in which the effective time occurs, to the same extent such credit was given under any similar KLX benefit plan that such covered employee participated in immediately prior to coverage under the Boeing employee benefit plan, in satisfying any applicable deductible or out-of-pocket requirements under the Boeing employee benefit plan for the plan year in which the effective time occurs.
As of the effective time, Boeing will recognize, or will cause a subsidiary of Boeing to recognize, all service of each covered employee prior to the effective time, to KLX (or any predecessor entities of KLX or any of its subsidiaries) for vesting and eligibility purposes (but not for benefit accrual purposes under any defined benefit pension plan) and for purposes of determining future vacation accruals and severance amounts to the same extent as such covered employee received, immediately before the effective time, credit for such service under any similar KLX benefit plan in which such covered employee participated immediately prior to the effective time; provided that service of each covered employee prior to the effective time shall not be recognized to the extent that such service credit would result in a duplication of benefits for the same period of service.
Nothing set forth in the merger agreement will (i) confer upon any person any right to continue in the employ or service of Boeing, KLX (after giving effect to the spin-off) or any of their respective affiliates, or interfere with or restrict in any way the rights of Boeing, KLX (after giving effect to the spin-off) or any of their respective affiliates to discharge or terminate the services of any employee at any time for any reason whatsoever, with or without cause, or (ii) restrict the right of Boeing, KLX (after giving effect to the spin-off) or any of their respective affiliates to amend, modify or terminate any benefit or compensation plan, program, agreement, contract, policy or arrangement.
Furthermore, nothing set forth in the merger agreement will create any right in any other person, including employees, former employees, any participant or any beneficiary thereof, in any KLX benefit plan, or to continued employment with KLX, Boeing or their respective subsidiaries or affiliates, and nothing set forth in the merger agreement will be treated as an amendment or other modification of any KLX benefit plan or any other employee benefit plan of KLX, Boeing, or any of their respective subsidiaries or affiliates or shall prohibit Boeing or any of its subsidiaries or affiliates from amending or terminating any employee benefit plan.
Directors' and Officers' Indemnification and Insurance
Boeing and Merger Sub have agreed in the merger agreement that all rights to indemnification and exculpation from liabilities, including advancement of expenses, for acts or omissions occurring at or prior to the effective time now existing in favor of the D&O Indemnified Parties as provided in KLX's certificate of incorporation and bylaws (in each case, as in effect on the date of the merger agreement) shall survive the merger and shall continue in full force and effect. For a period of six years from the effective time, the surviving corporation shall, and Boeing shall cause the surviving corporation to, maintain in effect the exculpation, indemnification and advancement of expenses equivalent to the provisions of KLX's certificate of incorporation and bylaws as in effect immediately prior to the effective time with respect to acts or omissions occurring prior to the effective time and shall not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any D&O Indemnified Parties; provided, however, that all rights to indemnification in respect of any action pending or asserted or any claim made within such period shall continue until the disposition of such action or resolution of such claim.
Prior to the effective time, KLX will (or, if KLX is unable to, after the effective time, Boeing will cause the surviving corporation to) purchase a six-year prepaid "tail" policy with terms, conditions, retentions and limits of liability that are no less favorable than the coverage provided under KLX's existing policies of directors' and officers' liability insurance and fiduciary liability insurance, with respect to matters arising on or before the effective time (including in connection with the merger agreement and the transactions or actions contemplated by the merger agreement), and Boeing will cause such policy to be maintained in full force and effect, for its full term, and cause all obligations thereunder to be honored by the surviving corporation, and no other party shall have any further obligation to purchase or pay for insurance under the merger agreement; provided, however, (i) that KLX will not pay, and the surviving corporation will not be required to pay, in excess of 300% of the last annual premium paid by KLX prior to the date of the merger agreement in respect of such "tail" policy and (ii) the material terms of such prepaid policies (including coverage and amount) are no more favorable in the aggregate to such D&O Indemnified Parties than the insurance coverage otherwise required in the prior paragraph above. If KLX or the surviving corporation for any reason fails to obtain such "tail" insurance policies prior to, as of or after the effective time, Boeing shall, for a period of six years from the effective time, cause the surviving corporation to maintain in effect the current policies of directors' and officers' liability insurance and fiduciary liability insurance maintained by KLX with respect to matters arising on or before the effective time; provided further, however, that after the effective time, neither the surviving corporation nor Boeing shall be required to pay annual premiums in excess of 300% of the last annual premium paid by KLX prior to the date of the merger agreement in respect of the coverage required to be obtained pursuant to the merger agreement, but in such case shall purchase as much coverage as reasonably practicable for such amount.
The indemnification and insurance covenants described above are intended to be for the benefit of, and will be enforceable by, each of the D&O Indemnified Parties and their respective heirs only if the merger is consummated and will not be deemed exclusive of any other rights to which any such person is entitled, whether pursuant to applicable law, contract or otherwise.
Other Covenants and Agreements
The merger agreement contains other covenants and agreements relating to, among other things:
Consent Solicitation With Respect to and Satisfaction and Discharge of KLX Notes.
Under the merger agreement, KLX was required to use its reasonable best efforts to, as promptly as reasonably practicable, effect a consent solicitation seeking the consent of the holders of KLX's 5.875% Senior Notes due 2022 to amendments or waivers to the indenture governing the notes, which
would permit the consummation of the spin-off prior to the closing of the merger; provided that KLX agreed that it would not agree to a consent fee in connection with such consent without Boeing's prior written consent, which would not be unreasonably withheld, conditioned or delayed. Subsequent to the execution of the merger agreement, the consent of a majority of the noteholders was obtained. In addition, whether or not the noteholder consent was obtained, (i) on a date specified by Boeing, KLX will issue a conditional notice of redemption for all of the outstanding aggregate principal amount of the notes, (ii) Boeing will, upon the closing of the merger, be responsible for the payment of an amount sufficient to satisfy and discharge the indenture governing the notes, (iii) KLX will take such other reasonable actions that are necessary or customary to effect the satisfaction and discharge of the indenture and the redemption of the notes, and (iv) KLX will satisfy and discharge the indenture in accordance with the terms of the indenture and redeem the notes in accordance with the indenture.
Payoff Letter.
At least two business days prior to the closing of the merger, KLX will cause the agent under the Amended and Restated Credit Agreement, dated as of May 19, 2015 (the "existing credit agreement"), among KLX, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, to provide a copy of an executed payoff letter (the "payoff letter") with respect to the existing credit agreement, in customary form, which shall (i) indicate the total amount required to be paid to fully satisfy all principal, interest, prepayment premiums, penalties, breakage costs and any other monetary obligations then due and payable (and not contingent or unasserted) under the existing credit agreement as of the anticipated closing date of the merger (and the daily accrual thereafter) (the "payoff amount"), (ii) state that upon receipt of the payoff amount under the payoff letter, the existing credit agreement and all related loan documents shall be terminated, as applicable, and (iii) provide that all encumbrances and all guarantees (if any) in connection therewith relating to the assets and properties of KLX or any of its subsidiaries securing such obligations shall be released and terminated upon the payment of the payoff amount; provided that the effectiveness of such repayment, termination or release may be contingent upon the occurrence of the closing of the merger unless otherwise agreed by KLX.
Intercompany Arrangements.
Excluding certain agreements related to the spin-off, KLX will cause any intercompany contracts, arrangements, financing agreements or intercompany loans between KLX Energy Services, on the one hand, and KLX and any of its affiliates or subsidiaries (other than KLX Energy Services), on the other hand, to be terminated, effective no later than the closing.
Notification of Certain Matters.
Subject to applicable law, from and after the date of the merger agreement until the earlier of the effective time and the termination of the merger agreement in accordance with its terms, KLX and Boeing must notify each other of certain developments, including in respect of notices or communications received from any governmental authority, claims, investigations or proceedings commenced or threatened relating to the merger agreement, the merger or the spin-off or any sale of KLX Energy Services or inaccuracies or breaches of representations and warranties or covenants that would be reasonably expected to cause conditions to the closing not to be satisfied.
Conditions to the Closing of the Merger
The respective obligations of each party to consummate the merger are subject to the satisfaction or (to the extent permitted by applicable law) written waiver by KLX, Boeing and Merger Sub at or prior to the closing of the following conditions:
The obligations of Boeing and Merger Sub to effect the merger are subject to the satisfaction or (to the extent permitted by applicable law) written waiver by Boeing at or prior to the closing of the following additional conditions:
The obligation of KLX to effect the merger is subject to the satisfaction or (to the extent permitted by applicable law) written waiver by KLX at or prior to the closing of the following additional conditions:
Termination of the Merger Agreement
Notwithstanding anything contained in the merger agreement to the contrary, the merger agreement may be terminated at any time prior to the effective time by mutual written consent of each
of Boeing and KLX. In addition, the merger agreement may be terminated at any time prior to the effective time by either Boeing or KLX if:
KLX may also terminate the merger agreement if:
recommendation change and entered into a definitive agreement with respect to a superior proposal in compliance with the applicable provisions of the merger agreement; provided that KLX shall not have the right to terminate the merger agreement pursuant to this provision unless KLX has complied in all material respects with the provisions in the merger agreement related to non-solicitation, acquisition proposals and adverse recommendation changes.
Boeing may also terminate the merger agreement if:
We will be required to pay Boeing a termination fee equal to $70 million in cash in the following circumstances:
an acquisition proposal (provided that the reference to 20% in the definition of acquisition proposal is deemed to be 50% and in no case will a definitive agreement involving solely the sale of the ESG Business alone constitute an acquisition proposal).
We will be required to pay Boeing a termination fee equal to $105 million in cash in the following circumstances:
We will be required to pay Boeing a termination fee equal to $175 million in cash in the following circumstance: the merger agreement is terminated by Boeing at any time after 5:00 p.m. (New York time) on January 11, 2019, because the conditions related to the Form 10 and the spin-off (and the sale of the ESG Business) are the only conditions that remain unsatisfied or that have not been waived by the party then entitled to give such waiver (other than those conditions that by their terms are to be satisfied at the closing of the merger, but that are capable of being satisfied as of such time (assuming the closing of the merger were to occur as of such time)) (provided that Boeing cannot terminate the merger agreement on this basis if the inaccuracy of Boeing's representations or warranties or the failure of Boeing to perform or comply with any of its obligations under the merger agreement has been the proximate cause of the failure of the conditions related to the Form 10 and the spin-off (and the sale of the ESG Business)).
Boeing will be required to pay KLX a termination fee equal to $175 million in cash in the following circumstances:
otherwise prohibiting the merger or the spin-off and such order shall have become final and non-appealable.
Amendment and Waiver of the Merger Agreement
Subject to the provisions of applicable law, the merger agreement may be amended by the parties thereto in writing at any time before or after receipt of KLX stockholder approval of the merger proposal. However, after stockholder approval of the merger proposal is obtained, there can be no amendment that by applicable law or in accordance with the rules of any stock exchange requires further approval by the KLX stockholders without such further approval of such stockholders.
At any time prior to the effective time, subject to applicable law, any party may (a) extend the time for the performance of any obligation or other act of any other party, (b) waive any inaccuracy in the representations and warranties of the other party contained in the merger agreement or in any document delivered pursuant to the merger agreement and (c) waive compliance with any agreement or condition contained in the merger agreement. Such waivers are only valid if set forth in an instrument in writing signed on behalf of the party to be bound thereby.
On June 1, 2018, the parties amended the merger agreement to add South Korea to the list of antitrust approvals required as a condition to closing. See "Condition to Closing the Merger" beginning on page 111.112.
Assignment of the Merger Agreement
The merger agreement may not be assigned by operation of law or otherwise without the prior written consent of each of the other parties thereto, subject to Merger Sub's ability to assign its rights, interests and obligations under the merger agreement to other subsidiaries of Boeing provided that Boeing remains primarily liable for Merger Sub's obligations under the merger agreement.
The parties are entitled to seek injunction, specific performance and other equitable remedies to prevent breaches of the merger agreement and to enforce the terms thereof.
SPIN-OFF TRANSACTION AGREEMENTS
The merger agreement requiresrequired that, in connection with the spin-off, KLX and KLX Energy Services enter into the distribution agreement no later than July 14, 2018. On July 13, 2018, and, concurrently therewith, KLX and KLX Energy Services will enterentered into the distribution agreement, the employee matters agreement, the transition services agreement and the IP matters agreement.The summary of the material provisions of the distribution agreement, the employee matters agreement, the transition services agreement and the IP matters agreement, forms of each of which are attached to this proxy statement as Annex D, Annex E, Annex F and Annex G, respectively, and each of which is hereby incorporated by reference into this proxy statement, does not purport to be complete and may not contain all of the information about these agreements that is important to you. We encourage you to read carefully each of these agreements in its entirety
On July 13, 2018, KLX will enterentered into a distribution agreement with KLX Energy Services beforepursuant to which KLX Energy Services' common stock iswill be distributed to KLX stockholders. That agreement will setsets forth the principal actions to be taken in connection with the spin-off of the ESG Business from KLX. It will also setsets forth other agreements that govern certain aspects of KLX's relationship with KLX Energy Services following the spin-off. In connection with the spin-off contemplated by the distribution agreement, a Form 10 registration statement will be filed that will contain additional detail regarding the spin-off.
The Distribution. The distribution agreement will govern the rights and obligations of the parties regarding the proposed distribution and spin-off. KLX will cause its agent to distribute all of the shares of KLX Energy Services on a pro rata basis to KLX stockholders who hold shares of KLX common stock as of the record date for the spin-off.
Conditions. The distribution agreement will provideprovides that the distribution is subject to several conditions that must be satisfied, including, among others, the approval of the KLX Board, the effectiveness of the applicable Form 10, any necessary approvals of non-United States governmental authorities and no governmental authority with jurisdiction having issued or entered any order or enacted any applicable law after the date of the distribution agreement prohibiting consummation of the spin-off. The distribution agreement will provideprovides that the KLX Board will, in its sole discretion, determine the record date, the distribution date and the terms of the distribution and may, at any time prior to the completion of the distribution, decide to abandon or modify the distribution, subject to compliance with the terms of the merger agreement.
Termination. Unless the merger agreement has been terminated, Boeing's consent is required to terminate the distribution agreement.
Release of Claims. KLX and KLX Energy Services will each release the other and its wholly owned subsidiaries and affiliates, and their respective stockholders (other than the public stockholders of KLX), directors, officers, agents and employees (in their respective capacities as such) from any claims against any of them that arise out of or relate to events or actions occurring or failing to occur or any conditions existing at or prior to the distribution. These releases will be subject to certain exceptions set forth in the distribution agreement including, among others, obligations under the spin-off transaction agreements and the merger agreement.
Indemnification. KLX, on the one hand, and KLX Energy Services, on the other hand, will agree to indemnify each other against certain liabilities, among others, in connection with their respective businesses and breaches of any of the spin-off transaction agreements.
KLX Energy Services will indemnify KLX to the extent that KLX determines that it is required to account for any gain on the distribution for U.S. federal or corresponding state and local income tax
purposes, as calculated in the manner described in the distribution agreement. KLX Energy Services
will pay any such indemnity to KLX either, at KLX Energy Services' option, in cash, by issuing shares of its common stock (in respect of which KLX would have the benefit of two demand registrations as well as piggy-back registration rights) to KLX or a combination of cash and shares of its common stock. In the event that, prior to January 11, 2019, KLX Energy Services has not received any required consent or waiver from its lenders or bond holders to effect the spin-off only due to Boeing's failure to provide its consent to the related consent fee, KLX Energy Services' total indemnification obligation pursuant to this provision will not exceed $50 million.
KLX Energy Services will also indemnify KLX for certain other liabilities including, among others, in respect of any guarantees or obligations that are required to be removed as described in the "Credit and Support Obligations" section below, but which are not so removed.
The indemnification obligations under the distribution agreement will be subject to certain notice and control of defense provisions, as well as certain limitations and obligations regarding double recovery, payment, mitigation and amount of recovery.
Negative Free Cash Flow Reimbursement. The distribution agreement will provideprovides that KLX Energy Services will reimburse KLX for the amount of negative free cash flow of KLX Energy Services (defined as "FCF Net Amount" in the distribution agreement), if any, in the period from the date of execution of the merger agreement through the date of effectiveness of the spin-off. The distribution agreement will provideprovides that this amount will be calculated and, if applicable, paid over after consummation of the spin-off and subject to KLX's review of and, if necessary, upon resolution of any related dispute regarding KLX Energy Services' calculation of this amount.
KLX Energy Services Cash. Subject to any payments pursuant to the immediately preceding provision, KLX Energy Services will be entitled to all cash generated by the operation of the ESG Business from May 1, 2018 through the effective date of the spin-off.
Credit and Support Obligations. The distribution agreement will provideprovides that KLX Energy Services will use its commercially reasonable efforts to have KLX and its subsidiaries (other than KLX Energy Services) removed as guarantor of or obligor of any ESG Business liability, and to the extent this is not completed prior to the distribution, KLX Energy Services or one of its subsidiaries will provide certain guarantees or other obligations related to such unremoved obligations and guarantees.
Transaction Expenses. Subject to the consummation of the merger, KLX Energy Services will reimburse KLX for certain expenses in excess of $10 million incurred in connection with the spin-off. All other transaction costs and expenses will be borne by KLX.
Non-Compete. The distribution agreement will provideprovides for a worldwide 5-year non-compete obligation of KLX Energy Services pursuant to which KLX Energy Services may not, subject to certain carve-outs, provide services or otherwise participate in the ownership, management, operation or control of a business that engages in the sale of aerospace fasteners and other consumables directly to suppliers to commercial, business jet, military and defense airframe manufacturers, airlines, aircraft leasing companies, MRO providers, domestic military depots or general aviation and other distributors.
Certain Legal and Accounting Matters. The distribution agreement will also provideprovides for the control of certain shared legal matters, the use of pre-distribution privileged information and ownership of information, as well as the sharing of certain accounting and financial information and limited access rights related to the creation of certain financial statements.
Disputes. Any disputes under the distribution agreement (other than in respect of negative free cash flows, which will be addressed by a mutually agreeable accounting firm and other than in respect
of non-monetary or equitable relief) will, if not successfully resolved by the parties, be referred to an arbitration panel.
At the same time as entering into the distribution agreement,On July 13, 2018, KLX will enterentered into an employee matters agreement with KLX Energy Services that will set forth KLX's agreement with KLX Energy Services on the allocation of employees to KLX Energy Services and obligations and responsibilities regarding compensation, benefits and labor matters.
Assignment of Employees. Under the employee matters agreement, KLX will allocate all employees of KLX and its affiliates whose duties relate to the KLX Energy Services business, on or prior to the distribution date, to KLX Energy Services. Notwithstanding the foregoing, certain employees of KLX and its affiliates whose employment duties relate to the KLX Energy Services business will remain employed by KLX after the distribution date and will provide certain shared services to KLX and KLX Energy Services. Such employees will transfer to KLX Energy Services on or prior to completion of the merger. Except with respect to certain employees, the transfer of employment will not be deemed a severance of employment for purposes of any plan or arrangement of KLX, KLX Energy Services, or their respective subsidiaries and affiliates.
Equity Awards. The employee matters agreement will provideprovides that the outstanding KLX equity awards held by employees moving to KLX Energy Services in connection with the spin-off will be permitted to remain outstanding under the LTIP and continue vesting and be satisfied at the relevant time following the distribution date in accordance with the LTIP's rules and relevant award agreements, with continued service at KLX Energy Services considered to be continued service at KLX for the purposes of vesting of such awards. Outstanding KLX Restricted Stock Awards, KLX PSU Awards and KLX RSU Awards held by employees moving to KLX Energy Services that remain in the LTIP as well as similar awards held by employees remaining with KLX after the spin-off will be equitably adjusted to preserve the aggregate fair market value (and thus the aggregate intrinsic value) of the award immediately before the distribution by multiplying the number of shares of KLX common stock subject to each such KLX Restricted Stock Award or KLX PSU Awards and KLX RSU Awards immediately prior to the distribution by a fraction, the numerator of which is the closing price per share of KLX common stock trading regular way on the Nasdaq Global Select Market on the distribution date, and the denominator of which is the opening price per share of KLX common stock on the first trading day following the distribution date on the Nasdaq Global Select Market. Such outstanding equity awards otherwise will not participate in the spin-off.
Welfare Benefit Plans. The employee matters agreement also addresses the treatment, with regard to welfare benefits, of employees remaining with KLX and employees transferring to KLX Energy Services in connection with the spin-off. In connection with the spin-off, KLX Energy Services will establish its own welfare benefit programs that are comparable to the welfare benefit programs maintained by KLX prior to the spin-off. Employees transferring to KLX Energy Services who participate in the KLX health and welfare plans will cease participation in such plans and will commence participation in the KLX Energy Services health and welfare plans. KLX will generally be responsible for all liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by KLX Energy Services participants under the KLX health and welfare plans prior to such transfer, and KLX Energy Services shall be so responsible for liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by KLX Energy Services participants under the KLX Energy Services health and welfare plans after such transfer.
Non-Qualified Deferred Compensation Plans. The employee matters agreement will provideprovides that, in connection with the spin-off, KLX Energy Services will establish deferred compensation plans for eligible KLX Energy Services employees and directors similar to those maintained by KLX. Prior to
and following the distribution, KLX will retain all liability and responsibility in accordance with and pursuant to the KLX Inc. 2014 Deferred Compensation Plan, as amended.
Defined Contribution Plan. The employee matters agreement will provideprovides that, prior to the distribution date, KLX Energy Services will establish a tax qualified defined contribution plan that is comparable to the KLX tax qualified defined contribution plan, and KLX and KLX Energy Services will cause the accounts under the KLX plan of each KLX employee that is moving to KLX Energy Services to be transferred to the KLX Energy Services plan.
Annual Incentive Plans. The employee matters agreement will provideprovides that KLX Energy Services will assume all obligations to pay eligible KLX employees that are moving to KLX Energy Services their annual cash bonuses for the fiscal year ending January 31, 2019, in accordance with the terms and conditions of the KLX annual incentive plan. KLX Energy Services is expected to implement its own annual incentive plans for the fiscal year ending January 31, 2020 and beyond.
No Third Party Beneficiaries. Nothing set forth in the employee matters agreement will create any right in any other person, including employees, former employees, any participant or any beneficiary thereof, in any benefit plan, or to continued employment with KLX or KLX Energy Services, or their respective subsidiaries or affiliates and nothing set forth in the employee matters agreement will be treated as an amendment or other modification of any benefit plan or shall prohibit KLX or KLX Energy Services or any of its subsidiaries or affiliates from amending or terminating any employee benefit plan.
At the same time as entering into the distribution agreement,On July 13, 2018, KLX will enterentered into a transition services agreement with KLX Energy Services, under which KLX, certain of its subsidiaries or certain third party service providers contracted by KLX will provide KLX Energy Services with certain services for a limited time following the spin-off to help ensure an orderly transition following the distribution.
The services to be provided by KLX include treasury (including payroll), internal audit, tax, accounting, human resources/benefits, legal, IT services and other administrative services.
The transition services agreement provides for a term of not more than six months from the date of the closing of the merger.
In connection with any breach of the transition services agreement or otherwise with respect to the transition services, KLX's and its subsidiaries' maximum liability under the transition services agreement (and the sole remedy from KLX to KLX Energy Services with respect thereto) is a refund of the total fees paid for the applicable transition services. KLX Energy Services is generally required to indemnify KLX for any losses arising out of or in connection with the transition services, including KLX Energy Services' breach of the transition services agreement or exercise of its rights under such agreement.
KLX Energy Services will have the right to terminate each service prior to the end of the term of the transition services agreement, and each party is entitled to terminate if the other party materially breaches any of its obligations under the agreement after notice and an opportunity to cure.
At the same time as entering into the distribution agreement,On July 13, 2018, KLX will enterentered into an IP matters agreement with KLX Energy Services, which will govern (1) the transfer of certain KLX trademarks from KLX to KLX Energy Services, which is to occur upon the consummation of the merger, and (2) the rights and obligations of each of KLX and KLX Energy Services with respect to the assigned KLX trademarks prior to and after the consummation of the merger.
Co-existence. Following the spin-off but prior to the closing of the merger, KLX will grant KLX Energy Services an interim limited license to use such KLX trademarks in the form of "KLX Energy
Services" in connection with the ESG Business. If the merger agreement is terminated after the distribution has been consummated, KLX and KLX Energy Services agree to enter into a long-term brand co-existence agreement with respect to the KLX trademarks.
Assignment. Upon the closing of the merger, (1) KLX will assign such KLX trademarks and related rights to KLX Energy Services, and (2) KLX Energy Services agrees that it will not use such KLX trademarks within the fields of use in which the ASG Business operates.
Rebranding. Following the closing of the merger, as soon as reasonably practicable, KLX shall (1) no later than 180 days after the closing of the merger, remove "KLX" from the names of any ASG Business entities containing "KLX", (2) no later than 180 days after the closing of the merger, cease using "KLX" on any real physical properties, equipment, and websites, and (3) no later than 365 days thereafter, remove "KLX" from all ASG Business products and marketing materials. For the 365 day period following the closing of the merger, KLX Energy Services will grant KLX a non-exclusive, irrevocable, royalty-free, non-transferable, non-sublicensable license to such KLX trademarks to enable the ASG Business to rebrand and transition off usage of such KLX trademarks.
ADVISORY VOTE ON NAMED EXECUTIVE OFFICER
MERGER-RELATED COMPENSATION PROPOSAL
(PROPOSAL 2)
As required by Item 402(t) of Regulation S-K and Section 14A of the Exchange Act, KLX is providing its stockholders with the opportunity to cast a non-binding advisory vote on the named executive officer merger-related compensation that may become payable to its named executive officers in connection with the completion of the merger, as disclosed pursuant to Item 402(t) of Regulation S-K in the section captioned "The Merger Proposal (Proposal 1)—Interests of KLX's Executive Officers and Directors in the Merger—Summary of Potential Transaction Payments to Executive Officers and Directors of KLX" beginning on page 81 of this proxy statement. As required by Section 14A of the Exchange Act, KLX is asking its stockholders to vote on the adoption of the below resolution.
Vote Required and Board Recommendation
Under KLX's bylaws, approval of the named executive officer merger-related compensation proposal requires the affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote thereon at the special meeting, provided a quorum is present.
KLX believes that the information regarding named executive officer merger-related compensation that may become payable to its named executive officers in connection with the completion of the merger is reasonable and demonstrates that KLX's executive compensation program was designed appropriately and structured to ensure the retention of talented executives and a strong alignment with the long-term interests of KLX's stockholders. This vote is not intended to address any specific item of compensation, but rather the overall compensation that may become payable to KLX's named executive officers in connection with the completion of the merger. In addition, this vote is separate and independent from the vote of stockholders to approve the completion of the merger. KLX asks that its stockholders vote"FOR" the following resolution:
"RESOLVED, that the named executive officer merger-related compensation, as disclosed pursuant to Item 402(t) of Regulation S-K in the section captioned "The Merger Proposal (Proposal 1)—Interests of KLX's Executive Officers and Directors in the Merger—Summary of Potential Transaction Payments to Executive Officers and Directors of KLX" beginning on page 81 of this proxy statement, is hereby APPROVED."
This vote is advisory, and therefore, it will not be binding on KLX, nor will it overrule any prior decision or require the KLX Board (or any committee thereof) to take any action. However, the KLX Board values the opinions of KLX stockholders, and to the extent that there is any significant vote against the named executive officer compensation as disclosed in this proxy statement, the KLX Board will consider stockholders' concerns and will evaluate whether any actions are necessary to address those concerns. The KLX Board will consider the approval of the foregoing resolution as advisory approval of the compensation that may become payable to KLX's named executive officers in connection with the completion of the merger.
The KLX Board unanimously recommends that you vote "FOR" the named executive officer merger-related compensation proposal.
ADJOURNMENT PROPOSAL
(PROPOSAL 3)
KLX stockholders are being asked to approve a proposal that will give us authority from the stockholders to adjourn the special meeting for the purpose of soliciting additional proxies in favor of the merger proposal if there are not sufficient votes at the time of the special meeting to approve the merger proposal. If a quorum is not present, the chairman of the special meeting or the stockholders, by the affirmative vote of a majority of the shares of KLX common stock present at the special meeting, in person or by proxy, may adjourn the special meeting to another place, date or time.
In addition, the KLX Board could postpone the special meeting before it commences. If the special meeting is adjourned or postponed for the purpose of soliciting additional proxies, stockholders who have already submitted their proxies will be able to revoke them at any time prior to the final vote on the proposals. If you sign and return a proxy and do not indicate how you wish to vote on any proposal, your shares will be voted in favor of the adjournment proposal. KLX does not intend to call a vote on this proposal if the merger proposal has been approved at the special meeting.
Approval of the adjournment proposal requires the affirmative vote of the holders of a majority of the shares of KLX common stock present in person or by proxy at the special meeting, provided that a quorum is present. If no quorum is present at the special meeting, the chairman of the special meeting or the stockholders, by the affirmative vote of the holders of a majority of the shares of KLX common stock present or represented by proxy at the special meeting, may adjourn the special meeting. Abstentions will count for the purpose of determining whether a quorum is present. Assuming a quorum is present at the special meeting, abstentions will have the same effect as a vote against the adjournment proposal, but the failure to provide brokers with voting instructions or to vote will have no effect on the outcome of the adjournment proposal.
The KLX Board unanimously recommends that KLX stockholders vote "FOR" the adjournment proposal.
MARKET PRICES OF KLX COMMON STOCK
KLX common stock trades on Nasdaq under the symbol "KLXI." The following table shows the intraday high and low sales price of KLX common stock for each of our fiscal quarters in 2017 and 2016, for the first quarter of 2018 and for the second quarter of 2018 (through May 25,July 24, 2018).
Fiscal Year | High | Low | High | Low | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2016 | ||||||||||||||
First Quarter | $ | 34.29 | $ | 25.33 | $ | 34.29 | $ | 25.33 | ||||||
Second Quarter | $ | 35.25 | $ | 28.65 | $ | 35.25 | $ | 28.65 | ||||||
Third Quarter | $ | 39.00 | $ | 30.97 | $ | 39.00 | $ | 30.97 | ||||||
Fourth Quarter | $ | 50.33 | $ | 33.17 | $ | 50.33 | $ | 33.17 | ||||||
2017 | ||||||||||||||
First Quarter | $ | 52.40 | $ | 42.45 | $ | 52.40 | $ | 42.45 | ||||||
Second Quarter | $ | 53.13 | $ | 46.01 | $ | 53.13 | $ | 46.01 | ||||||
Third Quarter | $ | 55.76 | $ | 45.73 | $ | 55.76 | $ | 45.73 | ||||||
Fourth Quarter | $ | 72.53 | $ | 52.82 | $ | 72.53 | $ | 52.82 | ||||||
2018 | ||||||||||||||
First Quarter | $ | 82.50 | $ | 62.77 | $ | 82.50 | $ | 62.77 | ||||||
Second Quarter (through May 25, 2018) | $ | 75.23 | $ | 69.61 | ||||||||||
Second Quarter (through July 24, 2018) | $ | 75.23 | $ | 69.61 |
The closing sales price of KLX common stock on Nasdaq on May 25,July 24, 2018, the latest practicable date before the printing of this proxy statement, was $72.30$72.85 per share. The closing sales price of KLX common stock on Nasdaq on April 30, 2018, the last trading day prior to the public announcement of the proposed merger, was $78.23 per share. You are urged to obtain current market quotations for KLX common stock when considering whether to approve the merger proposal. The merger consideration, consisting of $63.00 in cash per share, without interest, is in addition to the shares of KLX Energy Services that our stockholders as of the record date of the spin-off will receive in the spin-off.
As of May 25,July 24, 2018, there were 1,4211,405 record holders of KLX common stock.
In 2017, 2016 and 2015, KLX did not pay any stockholder dividends. Under the merger agreement, described in "The Merger Agreement—Conduct of Business Pending the Merger" on page 97,98, we are prohibited from declaring, setting aside, making or paying any dividend or other distribution on our common stock (other than any dividends or distributions to a subsidiary of KLX and other than as contemplated by the spin-off) prior to the completion of the merger.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below shows how much of our common stock was beneficially owned as of May 1,July 24, 2018 (unless another date is indicated) by (i) each person known by KLX to beneficially own more than 5% of our common stock, (ii) each director (who was serving as a director as of that date) and nominee for director, (iii) each named executive officer and (iv) all current directors and executive officers as a group.
| Common Stock Beneficially Owned | Common Stock Beneficially Owned | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of Beneficial Owner | Number of Shares(1) | Percentage of Outstanding Shares | Number of Shares(1) | Percentage of Outstanding Shares | ||||||||||
Beneficial Owners of More than 5%: | ||||||||||||||
BlackRock, Inc.(2) | 6,758,972 | 13.7 | % | 6,758,972 | 13.7 | % | ||||||||
55 East 52nd Street | ||||||||||||||
New York, NY 10055 | ||||||||||||||
The Vanguard Group(3) | 4,421,574 | 8.77 | % | 4,421,574 | 8.77 | % | ||||||||
100 Vanguard Blvd. | ||||||||||||||
Malvern, PA 19355 | ||||||||||||||
Dimensional Fund Advisors LP(4) | 3,640,409 | 7.23 | % | 3,640,409 | 7.23 | % | ||||||||
Building One | ||||||||||||||
6300 Bee Cave Road | ||||||||||||||
Austin, TX 78746 | ||||||||||||||
Directors and Executive Officers: | ||||||||||||||
Amin J. Khoury+*(5) | 338,917 | ** | 338,917 | ** | ||||||||||
John T. Collins*(6) | 10,779 | ** | 10,779 | ** | ||||||||||
Peter V. Del Presto*(7) | 11,253 | ** | 11,253 | ** | ||||||||||
Richard G. Hamermesh*(8) | 11,010 | ** | 11,010 | ** | ||||||||||
Benjamin A. Hardesty*(9) | 5,199 | ** | 5,199 | ** | ||||||||||
Stephen M. Ward, Jr.*(10) | 10,173 | ** | 10,173 | ** | ||||||||||
Theodore L. Weise*(11) | 5,199 | ** | 5,199 | ** | ||||||||||
John T. Whates, Esq.*(12) | 5,656 | ** | 5,656 | ** | ||||||||||
Thomas P. McCaffrey+(13) | 233,208 | ** | 229,246 | ** | ||||||||||
Michael F. Senft+(14) | 21,147 | ** | 21,147 | ** | ||||||||||
John Cuomo+(15) | 28,617 | ** | 28,790 | ** | ||||||||||
Roger Franks+(16) | 8,429 | ** | 8,602 | ** | ||||||||||
All directors and executive officers as a group (fifteen persons)(17) | 708,778 | ** | 707,550 | ** |
+ Named executive officer * Director of the Company ** Less than 1 percent
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER
The following is a summary of the material U.S. federal income tax consequences of the merger to "U.S. holders" and "Non-U.S. holders" (in each case, as defined below). It addresses U.S. holders and non-U.S. holders of KLX common stock whose shares will be converted into the right to receive cash in the merger. This summary deals only with U.S. holders or Non-U.S. holders that use the U.S. dollar as their functional currency and hold their KLX common stock as a capital asset.
This summary does not address tax considerations applicable to investors subject to special rules, such as persons owning (either actually or constructively) 10% or more of KLX or KLX Energy's common stock, certain financial institutions, dealers or traders, insurance companies, tax exempt entities, persons holding their shares as part of a hedge, straddle, conversion, constructive sale or other integrated transaction, expatriates, or holders who acquired KLX common stock pursuant to the exercise of an employee stock option or other right or otherwise as compensation. Also, this summary does not address U.S. federal income tax considerations applicable to holders of options or other rights to purchase KLX common stock. It also does not discuss the tax considerations relevant to U.S. holders or Non-U.S. holders exercising their appraisal rights under Section 262 of the DGCL. It also does not address any U.S. state and local tax, or non-U.S. tax considerations.
As used here, "U.S. holder" means a beneficial owner of KLX common stock that is, for U.S. federal income tax purposes, (i) a citizen or individual resident of the United States, (ii) a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia, (iii) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (iv) an estate the income of which is subject to U.S. federal income tax without regard to its source. For purposes of this discussion, a "Non-U.S. holder" is a beneficial owner of KLX or KLX Energy Services common stock (as applicable) that is, for U.S. federal income tax purposes, an individual, a corporation, a trust or an estate that is not a U.S. holder.
The tax consequences to a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) exchanging its KLX common stock for the right to receive cash in the merger generally will depend on the status of the partnership and the activities of its partners. Partnerships holding KLX common stock should consult their own tax advisors about the U.S. federal income tax consequences to their partners from participating in the merger.
This discussion assumes that KLX is not considered a United States real property holding company. This discussion also assumes that the merger will be completed as planned.
U.S. Holders
For U.S. federal income tax purposes, the exchange of KLX common stock for cash by U.S. holders will be treated as a taxable sale. Such U.S. holders will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of cash received and the U.S. holder's adjusted tax basis in such shares. A U.S. holder's adjusted tax basis generally will equal the price the U.S. holder paid for such shares, reduced by the value of ESG common shares distributed in the spin-off to the extent such distribution is not treated as a dividend because the distribution exceeds KLX's current and accumulated earnings and profits.
Such gain or loss will be capital gain or loss and generally will be treated as long-term capital gain or loss if the U.S. holder has held the shares of KLX common stock for more than one year at the time of the effective time of the merger. Long-term capital gains of non-corporate U.S. holders (including individuals) are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
Special rules would apply to treat capital loss that otherwise would be short-term as long-term or to reduce adjusted basis in KLX common stock in the case of a U.S. holder treated as having received an extraordinary dividend upon the receipt of the KLX Energy Services common stock in the spin-off. U.S. holders receiving KLX Energy Services common stock in the spin-off should consult the information statement to be filed as an exhibit to the Form 10 that will be filed by KLX Energy Services with the SEC with respect to the spin-off and their own tax advisors regarding the possibility of receiving an extraordinary dividend and potential consequences thereof.
U.S. holders receiving cash in lieu of a fractional share of KLX Energy Services common stock will recognize gain or loss between their adjusted tax basis in such share (as described above) and the amount of cash received in respect of such fractional share, as if such fractional share had actually been received and subsequently sold. Such gain or loss will be capital gain or loss and generally will be treated as short-term capital gain or loss.
Capital gains earned by non-corporate U.S. holders may be subject to the 3.8% Medicare tax on net investment income.
Non-U.S. Holders
Subject to the discussions under "Material U.S. Federal Income Tax Consequences of the Merger—Information Reporting and Backup Withholding" a Non-U.S. holder will generally not be subject to any U.S. federal income tax or withholding tax on any gain realized upon such holder's disposition of KLX common stock in the merger. Any gain on disposing of KLX common stock may be subject to U.S. net income tax (and in respect of corporate Non-U.S. Holders, branch profits tax) if the gain is effectively connected with a trade or business of the Non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base of the Non-US Holder within the United States). Additionally, a Non-U.S. holder that is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and meets certain other requirements, generally will be subject to a flat 30% tax on the amount by which gain derived from the sale, together with certain other U.S. source capital gains realized during such year, exceeds certain U.S. source capital losses realized during such year.
Information Reporting and Backup Withholding.
In general, information reporting requirements may apply to merger consideration paid to U.S. holders and Non-U.S. holders, unless an exemption applies. Backup withholding tax may apply to amounts subject to reporting if the holder fails to provide an accurate taxpayer identification number or fails to report all interest and dividends required to be shown on its U.S. federal income tax returns. A U.S. holder or Non-U.S. holder generally can claim a credit against its U.S. federal income tax liability if any, for the amount of any backup withholding tax and a refund of any excess, provided that all required information is timely provided to the IRS. U.S. holders and Non-U.S. holders should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for establishing an exemption.
THE DISCUSSION ABOVE IS A GENERAL SUMMARY. IT DOES NOT COVER ALL TAX MATTERS THAT MAY BE OF IMPORTANCE TO A PARTICULAR HOLDER. EACH HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR ABOUT THE TAX CONSEQUENCES TO IT OF THE MERGER IN LIGHT OF THE INVESTOR'S OWN CIRCUMSTANCES.
FUTURE KLX STOCKHOLDER PROPOSALS
KLX has not determined whether it will hold its 2018 annual meeting of stockholders due to the merger proposal. If the merger is not completed, KLX stockholders will continue to be entitled to attend and participate in KLX annual meetings of stockholders. If KLX holds its 2018 annual meeting of stockholders, any stockholder proposal intended for inclusion in the proxy materials for the 2018 annual meeting must have been received by our Secretary at our headquarters no later than May 26, 2018. Where a stockholder does not seek inclusion of the proposal in the proxy material and submits a proposal outside of the process described in Rule 14a-8 of the Exchange Act, the proposal must still comply with the procedural requirements in KLX's bylaws. Accordingly, if the date of the annual meeting is within 30 days before or 70 days after the anniversary of the prior meeting, then written notice must be sent to the Secretary of KLX not less than 90 nor more than 120 calendar days before the first anniversary of the prior year's annual meeting.
This means that for the 2018 annual meeting, written notice must have been delivered between the close of business on April 26, 2018 and the close of business on May 26, 2018. If the date of the annual meeting, however, is not within 30 days before or 70 days after the anniversary of the prior year's meeting date, a stockholder proposal must be submitted by the close of business on the 10th day following the public announcement of the date of such meeting. A copy of the full text of the bylaw provisions discussed above may be obtained by writing to: Secretary, KLX Inc., 1300 Corporate Center Way, Wellington, Florida 33414, or by telephone at (561) 383-5100. Any stockholder suggestions for director nominations must be submitted by the dates by which other stockholder proposals are required to be submitted as set forth above.
The summaries set forth above are qualified in their entirety by our bylaws and the process for submitting a stockholder proposal as described in Rule 14a-8 of the Exchange Act.
MULTIPLE STOCKHOLDERS SHARING ONE ADDRESS
The SEC has adopted rules that permit companies and intermediaries, such as brokers and banks, to satisfy the delivery requirements for proxy statements with respect to two or more stockholders sharing an address by delivering a single proxy statement, as applicable, addressed to those stockholders, unless contrary instructions have been received. This procedure, which is commonly referred to as "householding," reduces the amount of duplicate information that stockholders receive and lowers printing and mailing costs for companies.
Certain brokerage firms may have instituted householding for beneficial owners of our common stock held through brokerage firms. If your family has multiple accounts holding our common stock, you may have already received a householding notification from your broker. You may decide at any time to revoke your decision to household, and thereby receive multiple copies of proxy materials. If you wish to opt out of this procedure and receive a separate set of proxy materials in the future, or if you are receiving multiple copies and would like to receive only one, you should contact your broker, trustee or other nominee or KLX at the address and telephone number below.
WHERE YOU CAN FIND MORE INFORMATION
Investors will be able to obtain free of charge this proxy statement and other documents filed with the SEC at the SEC's website at www.sec.gov. In addition, this proxy statement and our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of the Exchange Act are available free of charge through our website at www.klx.com as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information located on, or hyperlinked or otherwise connected to, KLX's website referenced anywhere in this proxy statement is not, and shall not be deemed to be, a part of this proxy statement or incorporated into any other filings that we make with the SEC. Additional information regarding the spin-off will be contained in the Form 10 to be filed by KLX Energy Services with the SEC with respect to the spin-off.
The SEC allows us to "incorporate by reference" documents we file with the SEC into this proxy statement, which means that we can disclose important information to you by referring you to other documents filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy statement, except that information that we file later with the SEC will automatically update and supersede this information. This proxy statement incorporates by reference the documents listed below that have been previously filed with the SEC (other than, in each case, documents or information deemed to have been furnished and not filed in accordance with SEC rules):
We also incorporate by reference into this proxy statement additional documents that KLX may file with the SEC under Section 13(a), 13(c), 14, or 15(d) of the Exchange Act, from the date of this proxy statement until the date of the special meeting; provided, however, that we are not incorporating by reference any additional documents or information furnished and not filed with the SEC. A copy of the materials that are incorporated by reference will be promptly delivered to any stockholder upon written request to: Secretary, KLX Inc., 1300 Corporate Center Way, Wellington, Florida 33414.
KLX, its directors and certain of its executive officers may be considered participants in the solicitation of proxies in connection with the proposed transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in such solicitation in connection with the proposed merger is set forth in the proxy statement filed with the SEC. Information about the directors and executive officers of KLX is set forth in its Annual Report on Form 10-K for the fiscal year ended January 31, 2018, which was filed with the SEC on March 19, 2018, as amended by Amendment No. 1 thereto on Form 10-K/A, filed with the SEC on May 22, 2018.
These documents can be obtained free of charge from the sources indicated above. Additional information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in the proxy statement and other relevant materials filed with the SEC.
KLX Inc.
1300 Corporate Center Way
Wellington, Florida 33414
Tel. (561) 383-5100
www.klx.com
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT.
THIS PROXY STATEMENT IS DATED [ · ],JULY 25, 2018. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.
April 30, 2018
THE BOEING COMPANY
KELLY MERGER SUB, INC.
and
KLX INC.
AGREEMENT AND PLAN OF MERGER
CLAUSE | | PAGE | | ||||||
---|---|---|---|---|---|---|---|---|---|
Article I Definitions | | A-2 | | ||||||
| | A-12 | | ||||||
2.01 | | The Merger | | A-12 | | ||||
2.02 | | The Closing | | A-13 | | ||||
2.03 | | Effective Time | | A-13 | | ||||
2.04 | | Certificate of Incorporation; Bylaws | | A-13 | | ||||
2.05 | | Board of Directors; Officers | | A-13 | | ||||
2.06 | | ESG Sale Election | | A-13 | | ||||
| | A-14 | | ||||||
3.01 | | Effect on Securities | | A-14 | | ||||
3.02 | | Exchange of Certificates | | A-15 | | ||||
3.03 | | Company Equity Awards | | A-17 | | ||||
3.04 | | Lost Certificates | | A-18 | | ||||
3.05 | | Dissenting Shares | | A-19 | | ||||
3.06 | | Transfers; No Further Ownership Rights | | A-19 | | ||||
| | A-19 | | ||||||
4.01 | | Organization; Qualification | | A-20 | | ||||
4.02 | | Capitalization; Subsidiaries | | A-20 | | ||||
4.03 | | Authority Relative to Agreement | | A-22 | | ||||
4.04 | | No Conflict; Required Filings and Consents | | A-23 | | ||||
4.05 | | Company SEC Reports; Financial Statements | | A-23 | | ||||
4.06 | | Absence of Certain Changes or Events | | A-25 | | ||||
4.07 | | No Undisclosed Liabilities | | A-25 | | ||||
4.08 | | Litigation | | A-26 | | ||||
4.09 | | Permits; Compliance with Applicable Laws | | A-26 | | ||||
4.10 | | Information Supplied | | A-26 | | ||||
4.11 | | Employee Benefit Plans; Labor | | A-27 | | ||||
4.12 | | Taxes | | A-30 | | ||||
4.13 | | Material Contracts | | A-32 | | ||||
4.14 | | Trademarks, Patents and Copyrights | | A-34 | | ||||
4.15 | | Real Property; Personal Property; Sufficiency of Assets | | A-35 | | ||||
4.16 | | Environmental Matters | | A-36 | | ||||
4.17 | | Government Contracts | | A-36 | | ||||
4.18 | | Insurance | | A-37 | | ||||
4.19 | | Takeover Statutes | | A-37 | | ||||
4.20 | | Brokers | | A-37 | | ||||
4.21 | | Opinion of Financial Advisor | | A-38 | | ||||
4.22 | | Relations with Governments | | A-38 | | ||||
4.23 | | Customers and Suppliers | | A-39 | | ||||
4.24 | | Affiliate Transactions | | A-39 | | ||||
4.25 | | No Other Representations or Warranties | | A-39 | | ||||
| | A-39 | | ||||||
5.01 | | Organization; Qualification | | A-40 | | ||||
5.02 | | Authority Relative to Agreement | | A-40 | | ||||
5.03 | | No Conflict; Required Filings and Consents | | A-40 | | ||||
5.04 | | Information Supplied | | A-41 | |
A-i
CLAUSE | | PAGE | | ||||||
---|---|---|---|---|---|---|---|---|---|
5.05 | | Brokers | | A-41 | | ||||
5.06 | | Sufficient Funds | | A-41 | | ||||
5.07 | | Share Ownership | | A-42 | | ||||
5.08 | | No Other Representations or Warranties | | A-42 | | ||||
| | A-42 | | ||||||
6.01 | | Conduct of Business by the Company Pending the Merger | | A-42 | | ||||
6.02 | | Preparation of Proxy Statement; Company Stockholder Meeting; ESG Registration Statement | | A-47 | | ||||
6.03 | | Regulatory Authorizations and Consents; Efforts | | A-49 | | ||||
6.04 | | Access to Information; Confidentiality | | A-50 | | ||||
6.05 | | No Solicitation by the Company | | A-51 | | ||||
6.06 | | Directors' and Officers' Indemnification and Insurance | | A-54 | | ||||
6.07 | | Notification of Certain Matters | | A-55 | | ||||
6.08 | | Public Disclosure | | A-55 | | ||||
6.09 | | Employee Benefits; Labor | | A-56 | | ||||
6.10 | | Merger Sub | | A-57 | | ||||
6.11 | | Rule 16b-3 Matters | | A-57 | | ||||
6.12 | | State Takeover Laws | | A-57 | | ||||
6.13 | | Stockholder Litigation | | A-58 | | ||||
6.14 | | Company Notes | | A-58 | | ||||
6.15 | | Payoff Letter | | A-59 | | ||||
6.16 | | Intercompany Arrangements | | A-59 | | ||||
6.17 | | IT Monitoring | | A-59 | | ||||
6.18 | | Post-Signing Date Tax Letter | | A-60 | | ||||
| | A-60 | | ||||||
7.01 | | Conditions to the Obligations of Each Party to Effect the Merger | | A-60 | | ||||
7.02 | | Conditions to Obligations of Parent and Merger Sub to Effect the Merger | | A-60 | | ||||
7.03 | | Conditions to Obligation of the Company to Effect the Merger | | A-61 | | ||||
7.04 | | Frustration of Closing Conditions | | A-62 | | ||||
| | A-62 | | ||||||
8.01 | | Termination | | A-62 | | ||||
8.02 | | Effect of Termination | | A-64 | | ||||
8.03 | | Termination Fees | | A-64 | | ||||
8.04 | | Amendment | | A-66 | | ||||
8.05 | | Extension; Waiver | | A-66 | | ||||
| | A-67 | | ||||||
9.01 | | Non-Survival of Representations and Warranties | | A-67 | | ||||
9.02 | | Expenses | | A-67 | | ||||
9.03 | | Notices | | A-67 | | ||||
9.04 | | Interpretation; Certain Definitions | | A-68 | | ||||
9.05 | | Severability | | A-69 | | ||||
9.06 | | Assignment | | A-69 | | ||||
9.07 | | Entire Agreement | | A-69 | | ||||
9.08 | | No Third-Party Beneficiaries | | A-69 | | ||||
9.09 | | Governing Law | | A-69 | | ||||
9.10 | | Specific Performance | | A-69 | | ||||
9.11 | | Consent to Jurisdiction | | A-70 | | ||||
9.12 | | Counterparts | | A-70 | | ||||
9.13 | | WAIVER OF JURY TRIAL | | A-70 | |
A-ii
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 30, 2018 (thisAgreement), is made by and among The Boeing Company, a Delaware corporation (Parent), Kelly Merger Sub, Inc., a Delaware corporation and a wholly owned Subsidiary of Parent (Merger Sub), and KLX Inc., a Delaware corporation (theCompany). Parent, Merger Sub and the Company are referred to herein individually as aParty and collectively as theParties.
WHEREAS, the respective boards of directors of the Company (theCompany Board), Parent (theParent Board) and Merger Sub have unanimously approved and declared advisable this Agreement and the transactions contemplated by this Agreement, including the merger of Merger Sub with and into the Company, with the Company surviving as a direct or indirect wholly owned Subsidiary of Parent (theMerger), upon the terms and subject to the conditions and limitations set forth in this Agreement and in accordance with the General Corporation Law of the State of Delaware (theDGCL).
WHEREAS, the Company Board has unanimously resolved to recommend that the Company's stockholders approve the adoption of this Agreement.
WHEREAS, in connection with the transactions contemplated hereby, the Parties wish to effect the separation of the ASG Business (as hereinafter defined) and the ESG Business (as hereinafter defined) through either (i) a taxable spin-off of the ESG Business prior to the Effective Time into a separate, publicly traded company, or (ii) a sale of the entities comprising the ESG Business, in each case, in accordance with this Agreement and the ESG Documents.
WHEREAS, each of Parent, Merger Sub and the Company desires to make certain representations, warranties, covenants and agreements in connection with the Merger and also to prescribe various conditions to the Merger.
WHEREAS, as a condition and inducement to Parent's and Merger Sub's willingness to enter into this Agreement and consummate the transactions contemplated hereby, certain members of Company management have accepted in writing an offer of employment from Parent and have not revoked such acceptance.
NOW,THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual terms, conditions and other agreements set forth herein, and intending to be legally bound hereby, the Parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings:
Affiliate means, with respect to any Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meaning, the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise.
Agreed Form Spin-Off Agreements means the Distribution Agreement, Transition Services Agreement, IP Matters Agreement and Employee Matters Agreement, in each case, in the form attached hereto.
Agreement has the meaning set forth in thePreamble.
Alternative Acquisition Agreement has the meaning set forth inSection 6.05(c).
Ancillary Spin-Off Agreements has the meaning set forth in the definition of Spin-Off Agreements.
Antitrust Laws means any federal, state or foreign antitrust, competition or trade regulatory Applicable Law, including the Sherman Act; the Clayton Act; the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; and the Federal Trade Commission Act.
Applicable Law means any supra-national, federal, national, state, municipal or local statute, law, ordinance, regulation, rule, code, order (whether executive, legislative, judicial or otherwise), judgment, injunction, notice, decree or other requirement or rule of law or legal process (including common law), or any other Order of, or agreement issued, promulgated or entered into by, any Governmental Authority.
ASG Business means all businesses of the Company and its Subsidiaries, other than the ESG Business.
Bank Consent means the consent or waiver of the lenders under the Existing Credit Agreement in order to permit the consummation of the Spin-Off.
B/E Aerospace means B/E Aerospace, Inc., a Delaware corporation.
B/E Tax Agreement means the Tax Sharing and Indemnification Agreement between B/E Aerospace, Inc. and the Company, dated as of December 15, 2014.
Book-Entry Shares has the meaning set forth inSection 3.01(a)(ii).
Business Day means a day, other than a Saturday or Sunday or other day on which commercial banks are authorized or required by Applicable Law to close in New York City, New York.
Bylaws has the meaning set forth inSection 4.01.
Canceled Shares has the meaning set forth inSection 3.01(a)(i).
Capitalization Date has the meaning set forth inSection 4.02(a).
Certificate of Incorporation has the meaning set forth inSection 4.01.
Certificate of Merger has the meaning set forth inSection 2.03.
Certificates has the meaning set forth inSection 3.01(a)(ii).
Closing has the meaning set forth inSection 2.02.
Closing Date has the meaning set forth inSection 2.02.
Code means the U.S. Internal Revenue Code of 1986, as amended.
Company has the meaning set forth in thePreamble.
Company Acquisition Proposal means any inquiry, indication of interest, proposal or offer from any Person (other than Parent, Merger Sub, or their Subsidiaries), relating to, or that would reasonably be expected to lead to, any (i) merger, consolidation, share exchange, business combination, recapitalization (including a leveraged recapitalization or extraordinary dividend), reorganization, equity investment, business combination, joint venture or similar transaction involving the Company or any of its Subsidiaries, pursuant to which any such Person would own or control, directly or indirectly, twenty percent (20%) or more of the voting power of the Company or any of its Subsidiaries, (ii) sale, lease, license, dissolution, liquidation or other disposition, directly or indirectly, of assets of the Company or any Subsidiary of the Company (excluding the sale of inventory held for sale in the ordinary course of business) representing twenty percent (20%) or more of the consolidated assets, revenues or net income of the Company and its Subsidiaries taken as a whole, or to which twenty percent (20%) or more of the Company's revenues, earnings or assets on a consolidated basis are attributable, taken as a whole, (iii) issuance or sale or other disposition of capital stock or other equity interests representing twenty percent (20%) or more of the voting power of the Company, (iv) tender offer (including self-tender), exchange offer or any other transaction or series of transactions in which any Person will acquire, directly or indirectly, beneficial ownership or the right to acquire beneficial ownership of capital stock or other equity interests representing twenty percent (20%) or more of the voting power of the Company or (v) any combination of the foregoing;provided that in no event shall the Distribution or any other proposal solely with respect to KLX Energy, the ESG Business or any of the assets or operations thereof constitute a Company Acquisition Proposal.
Company Adverse Recommendation Change has the meaning set forth inSection 6.05(c).
Company Alternative Termination Fee means $175,000,000.
Company Benefit Plan has the meaning set forth inSection 4.11(a).
Company Board has the meaning set forth in theRecitals.
Company Common Stock has the meaning set forth inSection 3.01(a)(i).
Company Data means all data and information (including sensitive and confidential information and other personally identifiable information) accessed, collected, used, processed, stored, shared, distributed, transferred or disclosed by the Ex-ESG Company.
Company Disclosure Schedule means the disclosure schedule delivered by the Company to Parent simultaneously with the execution of this Agreement.
Company Equity Awards means the Company Restricted Stock Awards, Company RSU Awards and Company PSU Awards.
Company Equity Plan means the KLX Inc. Long-Term Incentive Plan, as amended from time to time, and any other equity or equity-based plan, program, or arrangement of the Company or any of its Subsidiaries or any predecessor thereof, other than the Company ESPP.
Company ERISA Affiliate means any Person under common control with the Company within the meaning of Section 414(b), Section 414(c), Section 414(m) or Section 414(o) of the Code, and the regulations issued thereunder.
Company ESPP means the KLX Inc. Employee Stock Purchase Plan, effective as of January 1, 2015, as amended from time to time.
Company Government Bid means any offer, bid, quotation or proposal to sell products made or services provided by the Company or any Company Subsidiary that, if accepted or awarded, would lead to a Company Government Contract and for which an award has not been issued as of the date of this Agreement.
Company Government Contracts means (i) any Contract, including an individual task order, delivery order, purchase order, basic ordering agreement, letter contract or blanket purchase agreement between the Company and any Governmental Authority, or (ii) any subcontract or other Contract by which the Company has agreed to provide goods or services through a prime contractor directly to a Governmental Authority that is expressly identified in such subcontract or other Contract as the ultimate consumer of such goods or services. For purposes hereof, a task, purchase, delivery, change or work order under a Company Government Contract will not constitute a separate Company Government Contract but will be part of the Company Government Contract to which it relates.
Company Leased Real Property has the meaning set forth inSection 4.15(b).
Company Material Adverse Effect means any event, change, circumstance, state of fact, condition, occurrence or effect that, individually or in the aggregate, (i) has or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, liabilities or results of operations of the Ex-ESG Company, taken as a whole or (ii) prevents or materially (x) interferes with, (y) hinders or (z) delays the consummation of the Transactions;provided,however, that none of the following, either alone or in combination, will constitute, or be considered in determining whether there has been, a Company Material Adverse Effect: any event, change, circumstance, state of fact, condition, occurrence or effect resulting from or related to (a) any acts of God, earthquakes, floods, hurricanes, tropical storms or other natural disasters, (b) any outbreak or escalation of war or major hostilities or any act of terrorism, (c) changes after the date hereof in Applicable Law or GAAP or the interpretation thereof, (d) changes that generally affect the industries and markets in which the Ex-ESG Company operates, (e) changes in general economic conditions or political or regulatory conditions in general, (f) changes in the credit, debt, financial or capital markets or in interest or exchange rates, in each case, in the United States or elsewhere in the world; (g) any failure, in and of itself, of the Company to meet any published or internally prepared projections, budgets, plans or forecasts of revenues, earnings predictions or other financial performance measures (it being agreed that the facts and circumstances giving rise to such failure that are not otherwise excluded by this proviso may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur), (h) any change in the price or trading volume of the Company's securities or other financial instruments or change in the Company's credit rating (it being agreed that the facts and circumstances giving rise to such change that are not otherwise excluded by this proviso may be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur); (i) any action specifically required to be taken pursuant to this Agreement or the ESG Documents, (j) any specific action taken or failed to be taken at the express written direction of, or with the express written consent of, Parent or Merger Sub, or (k) the Distribution, the public announcement or other disclosure with respect to the Transactions or the identity of Parent or Merger Sub or any of their Affiliates (including the impact of any of the foregoing on relationships with any customer, supplier, lender, or employee);provided,however, that any event, change, circumstance, state of fact, condition, occurrence, effect or other matter referred to in clauses (a), (b), (c), (d), (e) or (f) immediately above will be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur to the extent that such event, change, circumstance, effect, state of fact, condition, occurrence or other matter has a disproportionate impact on the Ex-ESG Company taken as a whole, as compared to other participants in the industries and markets in which the Ex-ESG Company operates.
Company Material Bid has the meaning set forth inSection 4.17(a).
Company Material Contracts has the meaning set forth inSection 4.13(a).
Company Material Government Contracts has the meaning set forth inSection 4.17(a).
Company Notes means the Company's 5.875% Senior Notes due 2022 governed by the Indenture.
Company Owned Real Property has the meaning set forth inSection 4.15(a).
Company Permits has the meaning set forth inSection 4.09(a).
Company Proxy Statement means the proxy statement to be sent to the Company's stockholders (together with all amendments and supplements thereto) relating to the Merger and this Agreement.
Company PSU Award has the meaning set forth inSection 3.03(b).
Company Recommendation means the recommendation of the Company Board that the stockholders of the Company adopt this Agreement and approve the Merger and the other transactions contemplated hereby.
Company Restricted Stock Award has the meaning set forth inSection 3.03(a).
Company RSU Award has the meaning set forth inSection 3.03(b).
Company SEC Reports means the forms, documents, proxy or information statements and reports, schedules and registration statements filed with or furnished to the SEC prior to the date hereof by the Company since January 1, 2015 and publically available (as such reports and statements may have been amended since the date of their filing), together with all information incorporated therein by reference in accordance with applicable SEC regulations.
Company Stockholder Approval means the adoption of this Agreement and the approval of the Merger by the holders of a majority of the outstanding shares of the Company Common Stock entitled to vote thereon at a stockholders meeting duly called and held for such purposes.
Company Stockholder Meeting has the meaning set forth inSection 6.02(d).
Company Systems means all of the following: computers, computer systems, servers, hardware, software, firmware, middleware, websites, databases, networks, servers, workstations, routers, hubs, switches, data communication equipment and lines, in each case solely to the extent owned or licensed to the Ex-ESG Company.
Company Tail Fee means $70,000,000.
Company Termination Fee means $105,000,000.
Confidentiality Agreement means the confidentiality agreement, dated December 19, 2017, between Parent and the Company.
Consent has the meaning set forth inSection 4.04(b).
Continuation Period has the meaning set forth inSection 6.09(a).
Contract means any written or oral arrangement, contract, agreement, instrument, lease, license, sublicense, sale or purchase order or commitment that, in each case, is binding on the Ex-ESG Company (and/or any of its Subsidiaries).
Covered Employees has the meaning set forth inSection 6.09(a).
D&O Indemnified Parties has the meaning set forth inSection 6.06(a).
Delaware Secretary of State means the Secretary of State of the State of Delaware.
DGCL has the meaning set forth in theRecitals.
Dissenting Shares has the meaning set forth inSection 3.05.
Distribution means either (i) the ESG Spin Distribution or (ii) the distribution of the ESG Sale Proceeds following the consummation of the transactions contemplated by an ESG Purchase Agreement.
Distribution Agreement means that Distribution Agreement by and between ESG Spin Co. and the Company, in the form attached asExhibit A hereto.
Effective Time has the meaning set forth inSection 2.03.
Election Date has the meaning set forth inSection 2.06.
Employee Matters Agreement means that Employee Matters Agreement by and between ESG Spin Co. and the Company, in the form attached asExhibit B hereto.
Encumbrance means any security interest, pledge, hypothecation, mortgage, lien, right of first refusal, right of way, license, encroachment, claim, charge, mortgage or encumbrance of any kind.
Environmental Laws means all Applicable Laws governing Environmental Matters.
Environmental Matters means any matters arising out of or relating to pollution or protection of the environment or worker safety, including any of the foregoing relating to the use, generation, transport, treatment, storage, release, or disposal of any material defined as a "hazardous substance" or "hazardous waste" under any applicable Environmental Law.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
ESG Business means the business of providing technical services and related rental equipment to oil and gas exploration and production companies in remote oil and gas producing regions solely as conducted by KLX Energy and ESG Spin Co., as applicable, but does not include any other business operated or conducted by the Company or any of its other Subsidiaries.
ESG Cash means an amount in cash equal to $50,000,000.
ESG Documents means (i) the Spin-Off Agreements or, (ii) if the Company makes an ESG Sale Election in accordance withSection 2.06, the ESG Purchase Agreement.
ESG Purchase Agreement means, collectively, all written Contracts entered into with respect to an ESG Sale and all other material instruments and documents delivered in connection therewith;provided that such Contracts, instruments and documents shall not constitute an "ESG Purchase Agreement" if (i) any of the terms contained in such Contracts, instruments or documents are or would reasonably be expected to be more adverse to Parent, the Surviving Corporation or any of their respective Subsidiaries in comparison to the most closely comparable corresponding terms individually, or in comparison to all terms taken as a whole, contained in the Agreed Form Spin-Off Agreements or (ii) any transactions contemplated thereby would (A) require any amendment, supplement or modification to the Company Proxy Statement or any Other Required Company Filing other than de minimis or solely ministerial amendments, supplements or modifications or (B) require a Company Stockholder Approval other than the Company Stockholder Approval first received in accordance withSection 6.05(d).
ESG Registration Statement means the registration statement on Form 10 filed by KLX Energy or ESG Spin Co., as applicable, with the SEC relating to the Spin-Off, as amended or supplemented from time to time.
ESG Sale means a transaction or series of related transactions in which the ESG Business is sold or transferred, directly or indirectly, whether structured as a sale of equity interests in KLX Energy, a merger, sale of assets or otherwise;provided that such transaction or transactions shall not constitute an "ESG Sale" if (i) any of the terms of such transaction or transactions are or would reasonably be
expected to be more adverse to Parent, the Surviving Corporation or any of their respective Subsidiaries in comparison to the most closely comparable corresponding terms individually, or in comparison to all terms taken as a whole, of the transactions contemplated by the Agreed Form Spin-Off Agreements, or (ii) any transactions contemplated thereby would (A) require any amendment, supplement or modification to the Company Proxy Statement or any Other Required Company Filing other than de minimis or solely ministerial amendments, supplements or modifications or (B) require a Company Stockholder Approval other than the Company Stockholder Approval first received in accordance withSection 6.05(d).
ESG Sale Election has the meaning set forth inSection 2.06.
ESG Sale Proceeds means (i) any cash proceeds received by the Company or any of its Affiliates for the sale of the ESG Business under the ESG Purchase Agreementplus (ii) an amount in cash equal to (A) the ESG Cashless (B) any cash on the balance sheet of KLX Energy as of the closing of the ESG Sale to the extent such cash was taken into account in determining the amount of net cash proceeds classified in clause (i) hereof.
ESG Spin Co. means either KLX Energy, following conversion into a Delaware corporation, or a newly formed Delaware corporation into which the membership interests of KLX Energy are contributed.
ESG Spin Co. Common Stock means the common stock of ESG Spin Co.
ESG Spin Distribution means the distribution to the Company's stockholders of all of the issued and outstanding shares of ESG Spin Co. Common Stock, and the related treatment of Company Restricted Stock Awards, Company PSU Awards and Company RSU Awards, each in accordance with the Spin-Off Agreements.
ESG Termination Date means January 11, 2019.
Ex-ESG Company means the Company and its Subsidiaries, as of any given time prior to the Effective Time, assuming and having given effect to the consummation of the Distribution, whether or not the Distribution has actually occurred.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Existing Credit Agreement has the meaning set forth inSection 6.15.
Export Control Laws means the Arms Export Control Act (22 U.S.C. 2778), the International Traffic in Arms Regulations (22 C.F.R. §120, et. seq.), the Export Administration Regulations (15 C.F.R. §730, et. seq.) and all Applicable Laws implemented by the Office of Foreign Assets Controls of the U.S. Department of the Treasury.
FCF Net Amount has the meaning set forth in the Distribution Agreement.
Final Termination Date has the meaning set forth inSection 8.01(b)(i).
Foreign Plan means Company Benefit Plans that are subject to any Applicable Law other than U.S., federal, state or local law.
GAAP means the United States generally accepted accounting principles.
Government Contract Laws means the United States False Claims Act, the Program Fraud Civil Remedies Act, the United States Procurement Integrity Act, the Federal Property and Administrative Services Act, the Armed Services Procurement Act or the United States Truth in Negotiations Act, the Federal Acquisition Regulation (and supplement thereto) and the cost principles and the Cost Accounting Standards thereunder and any other United States federal Applicable Law implementing regulations applicable to Company Government Contracts.
Governmental Authority means any (a) nation, region, state, county, city, town, village, district or other jurisdiction, (b) federal, state, local, municipal, foreign or other government, (c) governmental or quasi-governmental authority of any nature (including any governmental, agency, branch, department or other entity and any court, arbitrator, arbitration panel or other tribunal), (d) multinational or supra-national organization exercising judicial, legislative or regulatory power or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, fiscal, legislative, police, regulatory or taxing power of any nature of any federal, state, local, municipal, foreign or other government, in each case, anywhere throughout the world.
HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Indebtedness means, with respect to a Person, all liabilities of such Person (i) for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money; (ii) to repay any amounts owed as evidenced by notes, debentures, bonds or other similar instruments reflecting indebtedness; (iii) under any conditional sale, title retention or similar arrangement, or with respect to any deferred purchase price of any assets or services, contingent or otherwise (including "earn-outs", indemnities, post-closing true-ups and "seller notes" payable with respect to the acquisition of any business, assets or securities, but excluding trade accounts payable arising in the ordinary course of business consistent with past practice); (iv) on any letter of credit or similar credit transaction securing obligations of any Person (to the extent drawn or outstanding); (v) to pay rent or other amounts under any lease of real or personal property, or other similar Contract, that is required to be classified or accounted for as a capital lease in accordance with GAAP; (vi) constituting a guarantee of any liabilities of any other Persons; (vii) for deferred rent or royalties under any lease, license, concession or other similar arrangement and (viii) secured by an Encumbrance (other than Permitted Encumbrances) on any of such Person's assets, including as may be applicable in connection with any of the forgoing clauses (i) through (viii) any unpaid principal, premium, accrued and unpaid interest, prepayment penalties, commitments and other fees payable in connection with the payoff or termination thereof, and (ix) any cash advances made by such Person to any of its customers or suppliers.
Indenture means that certain Indenture, dated as of December 8, 2014, between the Company and the Indenture Trustee, as supplemented by the First Supplemental Indenture thereto, dated as of December 16, 2014, by and among the Company, the guarantors party thereto and the Indenture Trustee, as supplemented by the Second Supplemental Indenture thereto, dated as of August 2, 2016, by and among the Company, the additional guarantors party thereto and the Indenture Trustee, as such Indenture may be amended or supplemented subsequent to the date hereof in compliance with the terms of this Agreement.
Indenture Trustee means Wilmington Trust, National Association, as Trustee.
Initial Termination Date has the meaning set forth inSection 8.01(b)(i).
Intellectual Property means all patents and patent applications; registered trademarks and trademark applications; design rights, trade names and service marks; trade dress; Internet domain names; copyrights; rights in inventions; trade secrets and know-how and any other proprietary or intellectual property right, subsisting now or in the future, having equivalent or similar effect to the rights referred to above; in each case, anywhere in the world.
Intervening Event means any material change, event, effect, occurrence, consequence or development relating to the Company that (a) is unknown and not reasonably foreseeable as of the date of this Agreement, (b) does not relate to any Company Acquisition Proposal, any inquiry, indication of interest, proposal or offer that would reasonably be expected to lead to a Company Acquisition Proposal and (c) becomes known to the Company Board prior to the Stockholder Approval;provided that that in no event shall the following constitute an Intervening Event: any change, event, effect, occurrence, consequence or development relating to (i) Parent or Merger Sub or
any of their Affiliates or any competitor of the Company or (ii) the market price or trading volume of the equity securities of the Company, the ratings or the ratings outlook for the Company or any of its Subsidiaries by any applicable rating agency or any analyst's recommendations or ratings with respect to the Company, except that the underlying reasons for such change, event, effect, occurrence, consequence or development may be considered in determining the existence of an Intervening Event to the extent not excluded byclause (i) of this proviso.
IP Matters Agreement means that IP Matters Agreement by and between ESG Spin Co. and the Company, in the form attached asExhibit C hereto.
IRS means the United States Internal Revenue Service.
KLX Energy means KLX Energy Services, LLC.
Knowledge means the knowledge of any of the officers and employees of the Company or Parent, as applicable, set forth onSection 1.1(a) of the Company Disclosure Schedule, after reasonable inquiry by each such individual.
Labor Agreement has the meaning set forth inSection 4.11(j).
Liability orliability means any liability, debt, obligation, duty, deficiency, interest, Tax, penalty, fine, demand, judgment, cause of action or other damage or loss (including loss of benefit), cost or expense of any kind or nature whatsoever, whether asserted or unasserted, absolute or contingent, known or unknown, accrued or unaccrued, liquidated or unliquidated, whether or not foreseeable, and whether due or to become due and regardless of when asserted.
Merger has the meaning set forth in theRecitals.
Merger Consideration has the meaning set forth inSection 3.01(a)(ii).
Merger Sub has the meaning set forth in thePreamble.
NASDAQ means The NASDAQ Stock Market.
Order means any decree, order, judgment, injunction, temporary restraining order, writ, determination, ruling, settlement or stipulation or other order in any Proceeding or similar requirement by or with any Governmental Authority.
Other ESG Required Company Filing has the meaning set forth inSection 6.02(b).
Other Required Company Filing has the meaning set forth inSection 6.02(a).
Owned Intellectual Property means all Intellectual Property owned by the Ex-ESG Company.
Parent has the meaning set forth in thePreamble.
Parent Board has the meaning set forth in theRecitals.
Parent Disclosure Schedule means the disclosure schedule delivered by Parent to the Company simultaneously with the execution of this Agreement.
Parent Organizational Documents means the certificate of incorporation and bylaws, each as amended as of the date of this Agreement, of each of Parent and Merger Sub.
Parent Termination Fee means an amount equal to $175,000,000.
Party has the meaning set forth in thePreamble.
Paying Agent has the meaning set forth inSection 3.02(a).
Payment Fund has the meaning set forth inSection 3.02(a).
Payoff Amount has the meaning set forth inSection 6.15.
Payoff Letter has the meaning set forth inSection 6.15.
Permitted Encumbrance means: (i) Encumbrances for Taxes, assessments and charges or levies of any Governmental Authority not yet due and payable or that are being contested in good faith by appropriate Proceedings and for which adequate accruals or reserves have been established in accordance with GAAP; (ii) Encumbrances imposed by Applicable Law that relate to materialmen's, mechanics', carriers', workmen's and repairmen's liens or other similar Encumbrances that, in the aggregate, do not materially interfere with the use or value of the properties or assets related thereto, (iii) Encumbrances which are listed onSection 1.1(b) of the Company Disclosure Schedule; (iv) pledges or deposits to secure obligations under Applicable Law relating to workers' compensation, unemployment insurance, pension programs and similar obligations; (v) liens, title retention arrangements or deposits to secure the performance of bids, trade contracts (other than for borrowed money), conditional sales contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (vi) in respect of real property: (A) easements, licenses, covenants, rights of way and other similar restrictions; (B) any conditions which may be shown by survey, title report or physical inspection of any such real property; (C) zoning, building and other similar restrictions with which the ASG Business is currently operating in material compliance; and (D) environmental restrictions and regulations; (vii) in the case of Intellectual Property, non-exclusive licenses and other non-exclusive rights granted to or by third parties in the ordinary course of business; and (viii) transfer restrictions imposed by federal or state securities laws.
Person means any individual or any corporation, limited liability company, partnership, trust, association, joint venture, firm, Governmental Authority or other entity of any kind.
Post-Signing Date Tax Letter means an executed letter substantially in the form attached hereto asSchedule 1.1(b).
Proceedings means legal, administrative, arbitral, civil, criminal, investigative, appellate or other proceedings, suits, claims, charges, complaints, settlements, hearings, audits, examinations, or actions.
Redemption Amount means the amount of cash required pursuant to the terms of the Indenture to effect the satisfaction and discharge of the Indenture at Closing, and the redemption of the Company Notes on the Redemption Date, including all accrued and unpaid interest up to the Redemption Date.
Redemption Date means the date on which the Company Notes are to be redeemed as may be directed by Parent in accordance withSection 6.14. In no event may the Redemption Date be earlier than one (1) Business Day following the Closing Date.
Representatives means, with respect to a Person, the directors, managers, officers, employees, agents or advisors (including attorneys, accountants, consultants, bankers and financial advisors) of such Person.
Required Notifications has the meaning set forth inSection 6.03(a).
Sarbanes-Oxley Act means the Sarbanes-Oxley Act of 2002, as amended.
SEC means the United States Securities and Exchange Commission.
SEC Clearance Date has the meaning set forth inSection 6.02(d).
Securities Act means the Securities Act of 1933, as amended.
Security Clearances means all personnel and facility security clearances required for access to information classified pursuant to Executive Order 13526 or similar Order that is necessary for operation of a Person's business as presently conducted.
Signing Date Tax Letter means the signed, executed letter from the Company to the Parent dated as of the Signing Date titled "Signing Date Tax Letter."
Spin-Off means (i) the transactions contemplated by the Distribution Agreement and the ESG Registration Statement including the formation of, contribution of KLX Energy into, or conversion into, as applicable, ESG Spin Co. and (ii) the ESG Spin Distribution.
Spin-Off Agreements means (i) the Agreed Form Spin-Off Agreements and (ii) all other written Contracts with unaffiliated third parties entered into with respect to the Spin-Off and all other material instruments and documents with unaffiliated third parties delivered in connection therewith other than the ESG Registration Statement and any Other ESG Required Company Filing (theAncillary Spin-Off Agreements);provided that no Ancillary Spin-Off Agreement shall constitute a "Spin-Off Agreement" if (i) any of the terms contained in such Ancillary Spin-Off Agreements are or would reasonably be expected to be more adverse to Parent, the Surviving Corporation or any of their respective Subsidiaries in comparison to the most closely comparable corresponding terms individually, or in comparison to all terms taken as a whole, contained in the Agreed Form Spin-Off Agreements unless such Contracts, instruments or documents provide for no obligations of, or other effect on, the Surviving Corporation and its Subsidiaries, or (ii) any transactions contemplated thereby would (A) require any amendment, supplement or modification to the Company Proxy Statement or any Other Required Company Filing other than de minimis or solely ministerial amendments, supplements or modifications or (B) require a Company Stockholder Approval other than the Company Stockholder Approval first received in accordance withSection 6.05(d).
Subsidiary of a Person means any other Person with respect to which the first Person (i) has the right to elect a majority of the board of directors or other Persons performing similar functions or (ii) beneficially owns more than fifty percent (50%) of the voting stock (or of any other form of voting or controlling equity interest in the case of a Person that is not a corporation), in each case, directly or indirectly through one or more other Persons.
Superior Proposal means a bona fide written Company Acquisition Proposal (with all references to "twenty" and "20%" in the definition thereof deemed to be "a majority" for purposes of this definition) that (i) would be reasonably likely to be consummated if accepted, and (ii) is more favorable to the Company and its stockholders, solely in their capacity as such, from a financial point of view, than the transactions contemplated by this Agreement, taking into account (a) all financial considerations (including the form of consideration), (b) the identity of the third party making such Company Acquisition Proposal, (c) the anticipated timing, conditions (including any financing condition or the reliability of any debt or equity funding commitments) and prospects for completion of such Company Acquisition Proposal, (d) the legal and regulatory approvals, termination fee and expense reimbursement provisions reasonably deemed relevant by the Company Board or any committee thereof, and (e) any revisions to the terms of this Agreement and the Merger proposed by the Parent during the notice period set forth inSection 6.05(e);provided that, in no event will a Company Acquisition Proposal be deemed to be a Superior Proposal solely by excluding a condition to the consummation thereof relating to the ESG Business.
Surviving Corporation has the meaning set forth inSection 2.01.
Tax orTaxes means any and all national, federal, state, local municipal and foreign income, capital gains, profits, margin franchise, gross receipts, margin, capital, net worth, sales, use, withholding, payroll, estimated, goods and services, value added, ad valorem, alternative or add-on, registration, environmental, custom, general business, employment, social security (or similar), disability, workmen's compensation, business, occupation, unemployment, premium, real property, personal property (tangible and intangible), capital stock, stamp, customs, transfer (including real property transfer or gains), conveyance, severance, production, excise, environmental (including Code section 59A), windfall profits and other taxes, governmental fees, withholdings, duties, charges, fees, levies, imposts, license
and registration fees and other similar charges and assessments in lieu of, or in the nature of, a tax (including any and all fines, penalties, assessments, and additions attributable to or otherwise imposed on or with respect to any such taxes, fees, levies, duties, tariffs, imposts, and other similar charges or assessments (together with any and all interest, penalties and additions to tax)) computed on a separate or consolidated, unitary or combined basis, imposed by or on behalf of any Taxing Authority and (ii) any liability for payment of amounts described in clause (i) whether as a result of transferee liability, joint and several liability, or for being a member of an affiliated, consolidated, combined, unitary or other group (defined within the meaning of Section 1504(a) of the Code or any similar provision of foreign, state or local Applicable Law) for any period, or payable by reason of contract assumption, operation of Applicable Law, or otherwise, and (iii) any liability for the payment of amounts described in clause (i) or (ii) as a result of any Tax sharing, Tax indemnity or Tax allocation agreement or any other express agreement to pay or indemnify any other Person whether by contract or otherwise.
Tax Returns means, with respect to any Tax, any information return for such Tax, and any return, report, statement, estimate, declaration, claim for refund, amended return, or other filing or document, including any schedule or attachment thereto, with respect to Taxes required to be submitted, filed or required to be filed with the IRS or any other Governmental Authority or Taxing Authority.
Taxing Authority means any Governmental Authority having jurisdiction over the assessment, determination, collection or other imposition of any Tax.
Termination Date means the Initial Termination Date or, if extended pursuant to the final proviso inSection 8.01(b)(i), the Final Termination Date.
Top Customer has the meaning set forth inSection 4.23.
Top Supplier has the meaning set forth inSection 4.23.
Trading Day means any day on which the NASDAQ is open for trading;provided that a "Trading Day" only includes those days that have a scheduled closing time of 4:00 p.m. New York City time.
Transactions means collectively, the transactions contemplated by this Agreement and by the ESG Documents.
Transition Services Agreement means that transition services agreement by and between ESG Spin Co. and the Company, substantially in the form attached hereto asExhibit D.
Treasury Regulations means regulations promulgated by the IRS under the Code.
WARN Act means the Worker Adjustment and Retraining Notification Act of 1988.
Willful Breach means an action or failure to act by one of the Parties that constitutes a breach of this Agreement, and such action was taken or such failure occurred with such Party's actual knowledge or intention that such action or failure to act would, or could be expected to, constitute a breach of this Agreement.
ARTICLE II
THE MERGER
Upon the terms and subject to the conditions of this Agreement, and in accordance with the DGCL, at the Effective Time, Merger Sub shall be merged with and into the Company, whereupon the separate existence of Merger Sub shall cease, and the Company shall continue as the surviving corporation of the Merger and a direct or indirect, wholly owned Subsidiary of Parent (theSurviving Corporation).
Upon the terms and subject to the conditions set forth herein, the closing of the Merger (theClosing) and the consummation of the Distribution shall take place concurrently (unless the ESG Spin Distribution has been completed as of an earlier date) at 10:00 a.m. (local time) on a date to be specified by the Parties, but no later than the third (3rd) Business Day after the satisfaction or waiver of the conditions set forth inArticle VII (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions at the Closing), unless another time, date or place is agreed to in writing by the Parties (such date being theClosing Date). The Closing shall take place at the offices of Freshfields Bruckhaus Deringer US LLP, 601 Lexington Avenue, 31st Floor, New York, NY 10022.
Concurrently with the Closing, but in any event following the Distribution, the Company shall cause a certificate of merger with respect to the Merger substantially in the form attached hereto asExhibit E (theCertificate of Merger) to be executed and filed with the Delaware Secretary of State as provided under the DGCL. The Merger shall become effective at the time the Certificate of Merger has been duly filed with the Delaware Secretary of State or at such other date and time as is agreed between Parent and the Company and specified in the Certificate of Merger (such date and time being hereinafter referred to as theEffective Time). The Merger shall have the effects set forth in this Agreement and the applicable provisions of the DGCL.
The members of the board of directors of Merger Sub immediately prior to the Effective Time shall, from and after the Effective Time, be the members of the board of directors of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time (or as otherwise designated by Parent) shall, from and after the Effective Time, be the officers of the Surviving Corporation, in each case to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation until the earlier of their death, resignation or removal or until their respective successors are duly elected, designated or qualified.
Within thirty (30) days after the date hereof (theElection Date), the Company may notify Parent in writing of its election to enter into an ESG Purchase Agreement on or prior to the Election Date (such election, anESG Sale Election). In the event the Company delivers an ESG Sale Election, from and after such delivery the Company shall (a) use its reasonable best efforts to satisfy on a timely basis all conditions precedent to the transactions contemplated by the ESG Purchase Agreement, (b) keep Parent informed on a reasonably prompt basis and in reasonable detail of material developments in connection with the transactions contemplated by the ESG Purchase Agreement, including by
(i) furnishing Parent with complete, correct and executed copies of the ESG Purchase Agreement and any and all amendments thereto, (ii) giving Parent prompt written notice of any material default or material breach (or any event that, with or without notice, lapse of time or both, would give rise to any material default or material breach) under the ESG Purchase Agreement of which the Company becomes aware that would reasonably be expected to result in termination of the ESG Purchase Agreement or a material liability or other material obligation of the Ex-ESG Company, and (iii) responding to Parent's reasonable requests for, and discussing, updates on the status of the transactions contemplated by the ESG Purchase Agreement, and (c) notwithstanding anything to the contrary contained in this Agreement, the Company shall not, and shall cause its Subsidiaries not to, without the prior written consent of Parent, take any actions with respect to the Spin-Off or the ESG Spin Distribution. If an ESG Sale Election is made in accordance with the first sentence of thisSection 2.06, the Company shall be permitted to consummate a Spin-Off (in lieu of an ESG Sale) only with the prior written consent of Parent. If an ESG Sale Election is not made in accordance with the first sentence of thisSection 2.06, then (x) the Company shall have elected to conduct the Spin-Off and may not thereafter enter into an ESG Purchase Agreement without the prior written consent of Parent, and (y) each of the Company and KLX Energy shall execute and enter into the Distribution Agreement within 75 days after the date hereof.
ARTICLE III
EFFECT OF THE MERGER ON CAPITAL STOCK
Prior to the Closing, Parent shall enter into a customary paying agent agreement with a nationally recognized financial institution reasonably acceptable to the Company and Parent (thePaying Agent) for the payment of the Merger Consideration as provided inSection 3.01(a)(ii). At or prior to the Effective Time, Parent shall deposit or cause to be deposited with the Paying Agent, for payment in accordance with thisArticle III through the Paying Agent, cash in an aggregate amount necessary to pay the Merger Consideration (it being understood, for the avoidance of doubt, that such aggregate amount shall not include any amounts payable in respect of Company Restricted Stock Awards, Company RSU Awards or Company PSU Awards or any shares of Company Common Stock issuable pursuant thereto, which amounts Parent shall cause to be paid pursuant toSections 3.03(a) and3.03(b), as applicable) (thePayment Fund). In the event the Payment Fund shall at any time be insufficient for any reason (including losses) to make the payments contemplated bySection 3.01(a)(ii), Parent shall promptly deposit, or shall take all steps necessary to cause to be deposited, additional cash with the Paying Agent in an amount which is equal to the deficiency in the amount required to make all payments under this Agreement. The Payment Fund shall not be used for any purpose not contemplated by the terms of this Agreement. The Surviving Corporation shall pay all charges and expenses, including those of the Paying Agent, in connection with the payment of the Merger Consideration for shares of the Company Common Stock.
shall be entitled to receive in exchange therefor, and Parent shall direct the Paying Agent to pay and deliver in exchange therefor as promptly as reasonably practicable, cash in an amount equal to the Merger Considerationmultiplied by the number of shares of Company Common Stock previously represented by such Certificate or Book-Entry Shares. The Paying Agent shall accept such Certificates (or affidavits of loss in lieu thereof) or Book-Entry Shares upon compliance with such reasonable terms and conditions as the Paying Agent may impose. Subject toSection 3.02(f) andSection 3.05, without prejudice to any rights in respect of the Distribution, after the Effective Time and until so surrendered, each Certificate and Book-Entry Share shall represent only the right to receive the Merger Consideration payable in respect of the Company Common Stock represented thereby.
In the event of a transfer of ownership of Company Common Stock that is not registered in the transfer records of the Company, payment of the appropriate amount of Merger Consideration may be made to a Person other than the Person in whose name the Certificate or Book-Entry Share so surrendered is registered, if such Certificate shall be properly endorsed or otherwise be in proper form for transfer (and accompanied by all documents reasonably required by the Paying Agent) or such Book-Entry Share shall be properly transferred and the Person requesting such payment shall pay any transfer or other Taxes required by reason of the payment to a Person other than the registered holder of such Certificate or Book-Entry Share or establish to the satisfaction of Parent that such Tax has been paid or is not applicable.
Any portion of the Payment Fund which remains undistributed to the holders of the Certificates or Book-Entry Shares for six (6) months after the Effective Time shall be delivered to Parent or its designee upon demand, and any such holders who have not theretofore complied with thisArticle III shall thereafter look only to Parent or the Surviving Corporation (subject to abandoned property, escheat or similar Applicable Law) as general creditor thereof for payment of their claims for Merger Consideration.
None of Parent, Merger Sub, the Company or the Paying Agent shall be liable to any Person in respect of any cash held in the Payment Fund delivered to a Governmental Authority pursuant to any applicable abandoned property, escheat or similar Applicable Law. If any Certificate or Book-Entry Share shall not have been surrendered immediately prior to the date on which any Merger Consideration in respect of such Certificate or Book-Entry Share would otherwise escheat to or become the property of any Governmental Authority, any such Merger Consideration in respect of such Certificate or Book-Entry Share shall, to the extent permitted by Applicable Law, become the property of Parent free and clear of all claims or interest of any Person previously entitled thereto.
The Paying Agent shall invest any cash included in the Payment Fund as directed by Parent;provided that no such investment shall relieve Parent or the Paying Agent from making the payments required by thisArticle III, and following any losses resulting from such investment Parent shall promptly provide additional funds to the Paying Agent for the benefit of the holders of Company Common Stock in the amount of such losses. Any interest or income produced by such investments will be payable to Parent or its designee as directed by Parent.
Notwithstanding anything herein to the contrary, each of Parent, the Company, the Surviving Corporation and the Paying Agent shall be entitled to, without duplication, (i) deduct and withhold from the Merger Consideration and any other amounts otherwise payable or distributable in cash or in kind (including, for the avoidance of doubt, as a result of the ESG Spin Distribution) pursuant to this Agreement such amounts as Parent, the Company, the Surviving Corporation or the Paying Agent are required to deduct and withhold with respect to the making of such payments under the Code or any provision of Applicable Tax Law and (ii) collect any forms required by Applicable Law to comply with withholding obligations with respect to payments made pursuant to clause (i). Any amounts so withheld shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction and withholding was made by Parent, the Company, the Surviving Corporation or the Paying Agent, as the case may be.
Parent shall not assume any award of Company Common Stock subject to time-based, performance or other vesting or lapse restrictions (each, aCompany Restricted Stock Award). Without prejudice to any rights in respect of the Distribution, as of the Effective Time, (i) each Company Restricted Stock Award that is outstanding immediately prior to the Effective Time, shall, to the extent not vested, become fully vested;provided that to the extent that such award is subject to performance conditions, any performance conditions shall be deemed to have been satisfied at the maximum level and (ii) each Company Restricted Stock Award shall be canceled without any action on the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the Surviving Company's general payroll practices, a lump sum cash payment with respect thereto equal to the product of (A) the Merger Consideration, and (B) the number of shares of Company Common Stock represented by such Company Restricted Stock Award, less any applicable withholding or other Taxes or other amounts required by Applicable Law to be withheld, without interest.
Parent shall not assume any performance stock unit awards, including any performance stock unit awards deferred under any of the Company's deferred compensation plans or otherwise (each aCompany PSU Award) or any restricted stock unit awards, including any stock unit awards deferred under any of the Company's deferred compensation plans or otherwise (each aCompany RSU Award). Without prejudice to any rights in respect of the Distribution, as of the Effective Time, each Company PSU Award and Company RSU Award, in each case, subject to time-based, performance or other vesting restrictions that is outstanding immediately prior to the Effective Time, shall, to the extent not vested, become fully vested;provided that to the extent that such award is subject to performance conditions, any performance conditions shall be deemed to have been satisfied at the maximum level and (ii) each Company PSU Award and Company RSU Award, in each case, whether payable in cash or shares of Company Common Stock, shall be canceled without any action of the part of any holder or beneficiary thereof in consideration for the right to receive, in accordance with the Surviving Company's general payroll practices, a lump sum cash payment with respect thereto equal to the product of (A) the Merger Consideration, and (B) the number of shares of Company Common Stock represented by such Company PSU Award or Company RSU Award, less any applicable withholding or other Taxes or other amounts required by Applicable Law to be withheld, without interest;provided, further, that notwithstanding anything to the contrary contained in this Agreement, any payment in respect of any Company PSU Award and Company RSU Award, in each case, which immediately prior to such cancellation
was treated as "deferred compensation" subject to Section 409A of the Code shall be converted to the Merger Consideration and paid on the applicable settlement date for such Company RSU Award or Company PSU Award if required in order to comply with Section 409A of the Code.
As soon as practicable following the date of this Agreement, the Company Board (or, if applicable, any committee thereof administering the Company ESPP) shall adopt such resolutions and take all such other necessary actions such that (i) with respect to any Option Period(s) (as such term is defined in the Company ESPP) outstanding as of the date of this Agreement under the Company ESPP, such Option Period(s) shall terminate and each Option (as such term is defined in the Company ESPP) shall be deemed to have been exercised in accordance with the terms of the Company ESPP upon the earlier to occur of (A) the day that is four (4) complete Trading Days prior to the Effective Time or (B) the date on which such Option Period(s) would otherwise end, and no additional Option Period(s) shall commence under such Company ESPP after the date of this Agreement; (ii) no individual participating in the Company ESPP shall be permitted to (A) increase the amount of his, her or its rate of payroll contributions thereunder from the rate in effect as of the date of this Agreement, or (B) except to the extent required by Applicable Law, make separate non-payroll contributions to the Company ESPP on or following the date of this Agreement; (iii) no individual who is not participating in the Company ESPP as of the date of this Agreement may commence participation in the Company ESPP following the date of this Agreement; (iv) no new offerings will commence, nor will any existing offerings be extended, following the date hereof; and (v) subject to the consummation of the Merger, the Company ESPP shall terminate, effective immediately prior to the Effective Time.
Prior to the Effective Time, the Company shall provide such notice, if any, to the extent required under the terms of the Company Equity Plan or the Company ESPP, obtain any necessary consents, adopt applicable resolutions, amend the terms of the Company Equity Plan, the Company ESPP or any outstanding awards, and take all other appropriate actions to (i) give effect to the Transactions; (ii) terminate the Company Equity Plan and the Company ESPP as of the Effective Time; (iii) ensure that after the Effective Time, no holder of a Company Equity Award, Option (as such term is defined in the Company ESPP), any beneficiary thereof or any other participant in the Company Equity Plan or the Company ESPP shall have any right thereunder to acquire any securities of the Company or to receive any payment or benefit with respect to any award previously granted under the Company Equity Plan or the Company ESPP, except as provided in thisSection 3.03; and (iv) without prejudice to any rights in respect of the Distribution, ensure that as of the Effective Time, all or any portion of incentive or deferred compensation arrangements that (A) is payable following the Effective Time and (B) immediately prior to the Effective Time, was deemed invested or otherwise measured by a share of Company Stock, will be converted to an amount equal to the product of (1) the Merger Consideration and (2) the number of whole or partial shares of Company Stock by which such compensation arrangement is measured or deemed invested. The Company shall provide Parent with documentation evidencing the completion of the foregoing actions not later than the Business Day preceding the Effective Time.
If any Certificate shall have been lost, stolen or destroyed, then upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by Parent or the Paying Agent, the posting by such Person of a bond, in such reasonable amount as Parent or the Paying Agent may determine is reasonably necessary, as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration to which the holder thereof is entitled pursuant to thisArticle III.
Notwithstanding anything in this Agreement to the contrary, to the extent that holders of Company Common Stock are entitled to appraisal rights under Section 262 of the DGCL, shares of Company Common Stock issued and outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the adoption of this Agreement or consented thereto in writing, has properly exercised and perfected his, her or its demand for appraisal rights under Section 262 of the DGCL and has not effectively withdrawn or lost such holder's rights to appraisal (theDissenting Shares), shall not be converted into the right to receive the Merger Consideration, but the holders of such Dissenting Shares shall be entitled to receive such consideration as shall be determined pursuant to Section 262 of the DGCL (it being understood and acknowledged that at the Effective Time, such Dissenting Shares shall no longer be outstanding, shall automatically be canceled and shall cease to exist, and such holder shall cease to have any rights with respect thereto other than the right to receive the "fair value" of such Dissenting Shares as determined in accordance with Section 262 of the DGCL);provided, however, that if any such holder shall have failed to perfect or shall have effectively withdrawn or lost his, her or its right to appraisal and payment under the DGCL (whether occurring before, at or after the Effective Time), such holder's shares of Company Common Stock shall thereupon be deemed to have been converted as of the Effective Time into the right to receive the Merger Consideration, without any interest thereon and less any withholding Taxes, and such shares shall not be deemed to be Dissenting Shares. The Company shall give prompt written notice to Parent of (and in any event within three (3) Business Days after receiving) any demands for appraisal of any shares of Company Common Stock, withdrawals of such demands and any other instruments served pursuant to the DGCL and received by the Company relating to appraisal demands, and Parent shall have the right to control and direct all negotiations and Proceedings with respect to such demands after the Effective Time,provided that, prior to the Effective Time, the Company will consult with Parent and consider in good faith Parent's advice with respect to such negotiations and Proceedings, and Parent will have the right to participate in such negotiations and Proceedings at its sole cost and expense prior to the Effective Time;provided further that, prior to the Effective Time, the Company will not settle, or agree to settle, any such appraisal demands that would require payment of any amounts or would impose obligations on Parent or the Surviving Corporation without Parent's prior written consent. Prior to the Effective Time, the Company shall not, without the prior written consent of Parent, make any payment with respect to or settle or compromise or offer to settle or compromise any such demand or Proceeding, or agree to do any of the foregoing.
At the Effective Time, the stock transfer books of the Company shall be closed with respect to all shares of Company Common Stock outstanding immediately prior to the Effective Time, and there shall be no registration of transfers on the stock transfer books of the Company of shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If Certificates or Book-Entry Shares are presented to the Surviving Corporation, Parent or the Paying Agent for transfer following the Effective Time, they shall be canceled against delivery of the Merger Consideration, as provided for inSection 3.01(a)(ii), for each share of Company Common Stock formerly represented by such Certificates or Book-Entry Shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except (i) as set forth in the Company SEC Reports (excluding any information set forth in (a) risk factor disclosures contained under the heading "Risk Factors" or any disclosure of risks including in any "forward-looking statements" disclaimers in such Company SEC Reports or any other statements in the Company SEC Reports to the extent that such statements are cautionary, predictive
or forward-looking in nature or (b) any exhibits or other documents appended thereto), it being acknowledged that nothing disclosed in the Company SEC Reports shall be deemed to be a qualification of, or modification to, the representations and warranties set forth inSections 4.01,4.02(a),4.03,4.04, or4.10, or (ii) as set forth in the Company Disclosure Schedule (it being understood and agreed that any information set forth in one section or subsection of the Company Disclosure Schedule also shall be deemed to apply to each other section and subsection of this Agreement to which its applicability is reasonably apparent on its face), the Company hereby represents and warrants to Parent and Merger Sub as follows:
Each of the Company and its Subsidiaries is duly organized and validly existing under the laws of the jurisdiction of its incorporation, formation or organization, as applicable, and has the requisite corporate or similar power and authority to conduct its business as it is now being conducted and to own, lease and operate its properties and assets in the manner in which its properties and assets are currently operated, except with respect to the Subsidiaries of the Company, only where the failure to be so organized or existing, or to have such power and authority would not have a Company Material Adverse Effect. Each of the Company and its Subsidiaries is duly qualified or licensed to do business and, to the extent applicable, is in good standing in each jurisdiction in which the character or location of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing would not have a Company Material Adverse Effect. The Company's Amended and Restated Certificate of Incorporation (theCertificate of Incorporation) and Amended and Restated Bylaws (theBylaws), each as amended as of the date of this Agreement, have been made available to Parent and are in full force and effect, and the Company is not in material violation of any of the provisions thereof.
arrangement under Applicable Law, the organizational documents of such Subsidiary or any Contract to which such Subsidiary is a party or otherwise bound. Except as would not reasonably be expected to be material to the Company, (i) each such Subsidiary's certificate of incorporation, certificate of formation, bylaws, limited liability company agreement, operating agreement or similar document, each as amended as of the date of this Agreement, has been made available to Parent and are in full force and effect, and (ii) no Subsidiary of the Company is in material violation of any of the provisions thereof. Except as set forth in the Spin-Off Agreements, all assets, properties and operations of KLX Energy relate, and have always related, solely to the ESG Business, and neither KLX Energy, nor any of its assets, operations or properties, is used or has ever been used in the ASG Business.
specific performance, injunctive relief and other equitable remedies. As of the date hereof, there are no Contracts to which the Company or any of its Subsidiaries is a party relating to the Spin-Off. There are no conditions precedent or other contingencies between the Company or any of its Subsidiary, on the one hand, and any other party to the ESG Documents or any of their respective Affiliates, on the other hand, related to the Spin-Off or the transactions contemplated by the ESG Purchase Agreement, other than as expressly set forth in the ESG Documents.
stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Each Company SEC Report that is a registration statement, as amended or supplemented, if applicable, filed pursuant to the Securities Act, as of the date such registration statement or amendment became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. No Subsidiary of the Company is subject to the periodic reporting requirements of the Exchange Act or is required to file or furnish any report, statement, schedule, form or other document with the SEC.
Since January 31, 2018 through the date of this Agreement, there has not been any Company Material Adverse Effect. Since January 31, 2018 except for matters in connection with the Transactions, the businesses of the Ex-ESG Company have been conducted in the ordinary course of business consistent with past practice in all material respects, and there has not been any action or event of a type that would require the consent of Parent pursuant toSection 6.01(a)(y) if such action or event occurred after the date hereof prior to the Closing.
Except for Liabilities (a) as reflected, disclosed or reserved against in the consolidated balance sheet of the Company and its Subsidiaries as of January 31, 2018 (or the notes thereto) included in the Company's annual report on Form 10-K for the fiscal year ended January 31, 2018, (b) incurred in the ordinary course of business consistent with past practice since January 31, 2018, (c) arising out of this Agreement or the ESG Documents or (d) that are not expected to be material to the Ex-ESG Company, the Ex-ESG Company does not have any liabilities of any nature, whether or not accrued, contingent, absolute or otherwise.
Since January 31, 2015, (a) there are and have been no Proceedings pending or, to the Knowledge of the Company, threatened against the Company or any of its Subsidiaries or any present or former director, manager or employee of the Company or any of its Subsidiaries (in such individual's capacity as such and for which they are or have been entitled to indemnification by the Company or its Subsidiaries) or any asset or property of the Ex-ESG Company that involves an amount in excess of $5,000,000, and (b) there are and have been no Orders outstanding against, or involving, the Company or any of its Subsidiaries or any present or former director, manager or employee of the Ex-ESG Company (in such individual's capacity as such and for which they are or have been entitled to indemnification by the Company or its Subsidiaries) or any asset or property of the Ex-ESG Company that involves an amount in excess of $5,000,000. As of the date of this Agreement, there is no pending Proceeding or outstanding Order that challenges the validity or propriety, or seeks to prevent, materially impair or materially delay, or would reasonably be expected to have the effect of preventing, impairing or materially delaying the consummation of the Merger.
Company Proxy Statement will comply in all material respects with the requirements of the Exchange Act.
the Company, any third party, has engaged in any non-exempt "prohibited transaction" (within the meaning of Section 4975 of the Code or Section 406 of ERISA) with respect to any Company Benefit Plan that would result in the imposition of any liability to the Ex-ESG Company.
aggregate or which otherwise includes any covenants that impact the operation of the business of the Ex-ESG Company;
The Contracts disclosed or required to be disclosed atSection 4.13(a) of the Company Disclosure Schedule are referred to as theCompany Material Contracts.
To the Knowledge of the Company, as of the date of this Agreement,
except in each of the foregoing clauses (a), (b), (c) and (d) as would not reasonably be expected to have a Company Material Adverse Effect. ThisSection 4.16 provides the sole and exclusive representations and warranties of the Company in respect of Environmental Matters, including any and all matters arising under Environmental Laws.
The Company and each of its Subsidiaries currently maintains policies of insurance with reputable insurance carriers of the types and in the amounts that is adequate and necessary to protect the business, properties and assets of the Ex-ESG Company (taking into account the costs and availability of such insurance) against all risks of a character as are usually insured against by similarly situated companies in similar businesses and as required to comply with Applicable Law. All insurance policies maintained by the Ex-ESG Company are in full force and effect and all premiums due and payable thereon have been paid and neither the Company nor any of its Subsidiaries is in breach of or default under any of such insurance policies, except as would not be material to the Ex-ESG Company. Since January 1, 2018, the neither the Company nor any of its Subsidiaries has received any notice of termination or cancelation or denial of coverage with respect to any insurance policy. There is no material claim by the Ex-ESG Company pending under any such policies that has been denied or disputed by the insurer except for denials or disputes which would not, individually or in the aggregate, be reasonably expected to have a Company Material Adverse Effect.
The Company Board has taken such actions and votes as are necessary to, and no action by the by the stockholders of the Company is required to, render the provisions of Section 203 of the DGCL inapplicable to this Agreement, the Merger or any other Transaction.
No investment banker, broker or finder other than Goldman, Sachs & Co., the fees and expenses of each of which will be paid by the Company and a copy of whose engagement Contract (and all indemnification and other Contracts related to such engagement) has been made available to Parent, is entitled to any investment banking, brokerage, finder's or similar fee or commission in connection with this Agreement or the Transactions.
The Company has received the written opinion of Goldman, Sachs & Co., dated as of the date of this Agreement, to the effect that, as of the date of this Agreement, and based upon and subject to the various qualifications, limitations, assumptions and other matters set forth in such opinion, the Merger Consideration to be paid to the holders of shares of Company Common Stock (other than Parent and its Affiliates) pursuant to this Agreement is fair from a financial point of view to such holders. A true, correct and complete copy of such opinion will be delivered to Parent for informational purposes after delivery thereof to the Company.
Section 4.23 of the Company Disclosure Schedule lists the 20 largest customers of the Ex-ESG Company (determined on the basis of gross revenues recognized by the Company and its Subsidiaries for the fiscal year 2017) (each, aTop Customer) and the 20 largest suppliers of the Ex-ESG Company (determined on the basis of gross spend by the Company and its Subsidiaries for the fiscal year 2017) (each, aTop Supplier). Since January 31, 2018, there has not been (i) any material adverse change in the business relationship of the Company and any Top Customer or Top Supplier, or (ii) any material adverse change in any material term of the agreements or related arrangements with any Top Customer or Top Supplier. To the Knowledge of the Company, neither the Company nor any of its Subsidiaries has received any notice, whether written or otherwise communicated to a director or executive officer, from any Top Customer or Top Supplier that such Top Customer or Top Supplier intends to terminate or not renew, its relationship with the Company or any of its Subsidiaries.
Except as set forth onSection 4.24 of the Company Disclosure Schedule, no director or Employee of the Ex-ESG Company, to the Knowledge of the Company, (a) owns or holds any enforceable interest in, directly or indirectly, in whole or in part, any asset that is associated with the Ex-ESG Company or that is used or held for use in connection with business of the Ex-ESG Company or necessary for the conduct of the business of the Ex-ESG Company; (b) has filed any application with respect to any Intellectual Property that arises out of or relates to the business of the Ex-ESG Company and its Subsidiaries; (c) has any right to use any of the Owned Intellectual Property or any of the Intellectual Property used in the operation of the business of the Ex-ESG Company; (d) is a party to any transaction or Contract to which the Ex-ESG Company is a party or any of its assets are bound providing for any loans or advances by or to, or the lease of assets from or to, any such Person; or (e) is an officer or employee of, or owns, directly or indirectly, any material, non-passive interest in, any competitor, franchisee, vendor, supplier or customer of the Ex-ESG Company.
Except for the representations and warranties contained in thisArticle IV, any certificate provided hereunder or any Contract entered into in connection with the transactions contemplated hereby, neither the Company nor any other Person on behalf of the Company makes any express or implied representation or warranty with respect to the Company or any of its Subsidiaries or any other information provided to Parent or Merger Sub in connection with the transactions contemplated by this Agreement, including information conveyed at management presentations, in virtual data rooms or in due diligence sessions, and without limiting the foregoing, including any estimates, projections, predictions or other forward-looking information. The Company acknowledges and agrees that, except as explicitly set forth inArticle V, any certificate provided hereunder or any Contract entered into in connection with the transactions contemplated hereby, neither the Parent nor Merger Sub (or any of their respective officers, directors, employees or agents) make or have made any other representation or warranty, express or implied, at law or in equity with respect to the Parent or Merger Sub.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth in the Parent Disclosure Schedule (it being understood and agreed that any information set forth in one section or subsection of the Parent Disclosure Schedule also shall be deemed to apply to each other section and subsection of this Agreement to which its applicability is reasonably apparent on its face), Parent and Merger Sub hereby, jointly and severally, represent and warrant to the Company as follows:
Each of Parent and Merger Sub is a corporation duly organized and validly existing under the laws of Delaware and has the requisite corporate power and authority to conduct its business as it is now being conducted and to own, lease and operate its properties and assets in the manner in which its properties and assets are currently operated. Each of Parent and Merger Sub is duly qualified or licensed to do business and, to the extent applicable, is in good standing in each jurisdiction in which the character or location of the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where the failure to be so duly qualified or licensed and in good standing has not had, and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Parent's and Merger Sub's ability to consummate the transactions contemplated hereby, taken as a whole. The Parent Organizational Documents have been made available to the Company and are in full force and effect, and neither Parent nor Merger Sub, as applicable, is in violation of any of the provisions thereof, except where such failure or violation has not had, and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Parent's and Merger Sub's ability to consummate the transactions contemplated hereby.
rise to any right of termination, acceleration or cancellation of or require the Consent of, notice to or filing with any third party pursuant to any of the terms or provisions of any Contract to which Parent or Merger Sub is a party or to or by which any property or asset of Parent or Merger Sub is bound or affected, or result in the creation of an Encumbrance upon any of the property or assets of Parent or Merger Sub, other than, in the case of clause (iii), any such conflict, violation, breach, default, termination, acceleration, cancellation or Encumbrance that would not reasonably be expected to, individually or in the aggregate, have a material adverse effect on Parent's or Merger Sub's ability to consummate the transactions contemplated by this Agreement.
None of the information supplied or to be supplied by or on behalf of Parent or Merger Sub for inclusion or incorporation by reference in the Proxy Statement will, on the date the Proxy Statement (or any amendment or supplement thereto) is first mailed to stockholders of the Company or at the time of the Company Stockholder Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except, in each case, that no representation or warranty is made by Parent or Merger Sub with respect to statements made or incorporated by reference therein based on information supplied by or on behalf of the Company for inclusion or incorporation by reference therein.
No investment banker, broker or finder other than Citigroup Global Markets Inc., the fees and expenses of which will be paid or caused to be paid by Parent, is entitled to any investment banking, brokerage, finder's or similar fee or commission in connection with this Agreement or the transactions contemplated by this Agreement.
Parent has, and as of the Closing, will have sufficient funds to consummate the Merger, to pay the aggregate Merger Consideration and all fees and expenses related to the transactions contemplated by this Agreement and to pay all costs, fees and expenses related to the refinancing of any indebtedness of the Ex-ESG Company. The obligations of Parent and Merger Sub hereunder are not subject to any condition regarding Parent's, Merger Sub's or any other Person's ability to obtain financing for the Merger, the aggregate Merger Consideration or the other transactions contemplated by this Agreement.
None of Parent, Merger Sub or any of their Affiliates has been, at any time during the three (3) years preceding the date of this Agreement, an "interested stockholder" of the Company, as defined in Section 203 of the DGCL. As of the date of this Agreement, none of Parent, Merger Sub or their respective Affiliates owns (directly or indirectly, beneficially or of record) any Company Common Stock and none of Parent, Merger Sub or any of their respective Affiliates holds any rights to acquire any Company Common Stock except pursuant to this Agreement.
Except for the representations and warranties contained in thisArticle V, any certificate provided hereunder or any Contract entered into in connection with the transactions contemplated hereby, neither the Parent nor any Merger Sub nor any other Person on behalf of the Parent or any Merger Sub makes any express or implied representation or warranty with respect to the Parent or any of its Subsidiaries or any other information provided to the Company in connection with the transactions contemplated by this Agreement, including information conveyed at management presentations, in virtual data rooms or in due diligence sessions, and without limiting the foregoing, including any estimates, projections, predictions or other forward-looking information. The Parent acknowledges and agrees that, except as explicitly set forth inArticle IV, any certificate provided hereunder or any Contract entered into in connection with the transactions contemplated hereby, neither the Company nor its Subsidiaries (or any of their respective officers, directors, employees or agents) make or have made any other representation or warranty, express or implied, at law or in equity with respect to the Company or its Subsidiaries.
ARTICLE VI
COVENANTS AND AGREEMENTS
assets, business, properties or rights of the Company or any of its Subsidiaries, except (A) sales of inventory in the ordinary course of business and consistent with past practice, (B) transfers among the Company and its Subsidiaries (other than non-cash transfers to KLX Energy, ESG Spin Co. or any of their respective Subsidiaries) or (C) disposition of obsolete assets or expired inventory in the ordinary course of business and consistent with past practice;
of state, local or non-U.S. Law) with respect to any material Tax; or (G) surrender any right to claim a material Tax refund;
amendment, modification or waiver is not more adverse to KLX Energy, ESG Spin Co., the Surviving Corporation or any of their respective Subsidiaries in comparison to the most closely comparable corresponding terms individually, or in comparison to all terms taken as a whole, contained in the Agreed Form Spin-Off Agreements, and (ii) no transactions contemplated thereby would (A) require any amendment, supplement or modification to the Company Proxy Statement or any Other Required Company Filing other than de minimis or solely ministerial amendments, supplements or modifications or other than amendments to cure any ambiguity, omission, mistake, defect or inconsistency or (B) require a Company Stockholder Approval other than the Company Stockholder Approval first received in accordance withSection 6.05(d).
(i) to comply as to form and substance in all material respects with the requirements of the Exchange Act and, the rules and regulations promulgated thereunder and the rules of the SEC and NASDAQ and (ii) not to contain any untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company shall use its reasonable best efforts to resolve all SEC comments with respect to the ESG Registration Statement and any Other ESG Required Company Filing and to cause the ESG Registration Statement and any Other ESG Required Company Filing in definitive form to be cleared by the SEC, in each case as promptly as reasonably practicable. Notwithstanding anything to the contrary in this Agreement, the Company has the sole right to control and direct all filings with the SEC relating to the Spin-Off (including the ESG Registration Statement) and all strategy, communications and correspondence in connection with the review by the SEC of the ESG Registration Statement and the Other ESG Required Company Filings.
solicitation results as and when requested by Parent or Merger Sub. Once the Company Stockholder Meeting has been called and noticed, the Company shall not postpone or adjourn the Company Stockholder Meeting without the written consent of Parent (other than: (A) in order to obtain a quorum of its stockholders, (B) to allow reasonable additional time after the filing and mailing of any supplemental or amended disclosures to the Company Proxy Statement, or (C) for compliance with Applicable Law or an Order from the SEC), and in no event more than twice (without the written consent of Parent, which shall not be unreasonably withheld, delayed or conditioned). In the event that the Company Stockholder Meeting as originally called is for any reason adjourned or postponed or otherwise delayed, the Company agrees that unless Parent shall have otherwise approved in writing, it shall implement such postponement or adjournment or other delay in such a way that the Company does not establish a new record date for the Company Stockholder Meeting, as so adjourned, postponed or delayed, except as required by Applicable Law. If the Company Board makes a Company Adverse Recommendation Change as expressly permitted pursuant toSection 6.05, it will not alter the obligation of the Company to submit the Company Stockholder Approval to Company's stockholders at the Company Stockholder Meeting to consider and vote upon, unless this Agreement shall have been terminated in accordance with its terms prior to the Company Stockholder Meeting.
(ii) the sale, divestiture, license, or disposition, in whole or part of the assets, properties or businesses to be acquired by Parent pursuant hereto.
Until the Closing and upon reasonable advance written notice from Parent, the Company will allow Parent and its Representatives reasonable access, at Parent's expense, during normal business hours, under the supervision of personnel of the Company, its Affiliates or their respective Representatives and in such a manner as not to unreasonably interfere with the normal operations of the business of the Company to (a) such materials and information (including Contracts, properties, books, Tax Returns, work papers and records) about the Ex-ESG Company as Parent may reasonably request and (b) specified members of management of the business of the Ex-ESG Company as the Parties may reasonably agree, and which shall in any event include the individuals set forth onSchedule 6.04;provided, however, that except as required by Applicable Law, Parent shall not initiate any one-on-one discussion with any employee of the Company or its Subsidiaries regarding such employees potential compensation following the Closing without the prior written consent of the Company (not to be unreasonably withheld, conditioned or delayed). Notwithstanding the foregoing, the Company will not be required to disclose any information to Parent or its Representatives if such disclosure would be reasonably likely, after consultation with counsel, to: (i) result in the loss of any attorney-client or other legal privilege (it being agreed that the Company will notify Parent of the fact that it is withholding such information on such basis and will provide a description of such information,
and shall use reasonable best efforts to allow disclosure of such information in a manner that does not result in the loss of any such privilege, including entering into a joint defense agreement or other agreements or arrangements) or (ii) contravene any Applicable Law (including Antitrust Laws). In no event shall Parent be permitted to conduct any invasive testing of the Company Owned Real Property or the Company Leased Real Property or the building, or improvements thereon, including sampling of soil, sediment, groundwater, surface water or building material. Parent will, and will cause its Representatives to, hold all information so obtained in accordance with the terms of the Confidentiality Agreement. No investigation or access permitted pursuant to thisSection 6.04 shall affect or be deemed to modify or cure any breach of, or inaccuracy in, any representation or warranty made by the Company hereunder.
twenty-four (24) hours) provide Parent notice of the receipt of any Company Acquisition Proposal and any confidentiality agreement entered into with any third party, and shall disclose the identity of the third party (or parties) and the terms of such Company Acquisition Proposal (including, in the case of written terms, copies of any Alternative Acquisition Agreement and materials containing the material terms of such Alternative Acquisition Agreement and, in the case of oral terms, a reasonable description of the material terms thereof), (B) shall promptly (and in any case within twenty-four (24) hours) make available to Parent copies of all information of the Company and the same access provided by the Company to such third party but not previously made available to Parent, and (C) shall keep Parent informed on a reasonably prompt (and at Parent's request, which shall not be more frequently than daily) basis of the status and material details of (including amendments and proposed amendments to and the negotiations or discussion of) any such Company Acquisition Proposal, or such other inquiry, offer or proposal. Notwithstanding the foregoing, the Company shall not, shall cause its Subsidiaries not to and shall instruct and cause its officers, directors and other Representatives not to, provide any commercially sensitive non-public information to any competitor of the Company in connection with the actions permitted by thisSection 6.05, except in a manner consistent with the Company's past practices in dealing with the disclosure of such information in the context of considering Company Acquisition Proposals prior to the date of this Agreement.
discussed and negotiated in good faith and made the Company's Representatives available to discuss and negotiate in good faith (in each case to the extent Parent desires to negotiate) with Parent's Representatives any proposed modifications to the terms and conditions of this Agreement or the transactions contemplated by this Agreement so that the failure to take such action would no longer be inconsistent with the Company Board's fiduciary duties under Applicable Law (it being understood and agreed that any amendment to any material term or condition of any Superior Proposal shall require a new notice and a new negotiation period that shall expire on the later to occur of (1) three (3) Business Days following delivery of such new notice from the Company to Parent and (2) the expiration of the original four (4) Business Day period described in this clause (C); and (D) no earlier than the end of such negotiation period, the Company Board shall have determined in good faith, after considering the terms of any proposed amendment or modification to this Agreement, that the Company Acquisition Proposal that is the subject of the notice described in clause (B) above still constitutes a Superior Proposal.
respect thereto) that addresses or relates to the approval, recommendation or declaration of advisability by the Company Board with respect to this Agreement or a Company Acquisition Proposal shall be deemed to be a Company Adverse Recommendation Change.
such D&O Indemnified Parties than the insurance coverage otherwise required underSection 6.06(a). If the Company or the Surviving Corporation for any reason fails to obtain such "tail" insurance policies prior to, as of or after the Effective Time, Parent shall, for a period of six (6) years from the Effective Time, cause the Surviving Corporation to maintain in effect the current policies of directors' and officers' liability insurance and fiduciary liability insurance maintained by the Company with respect to matters arising on or before the Effective Time;provided further, however, that after the Effective Time, neither the Surviving Corporation nor Parent shall be required to pay annual premiums in excess of 300% of the last annual premium paid by the Company prior to the date of this Agreement in respect of the coverage required to be obtained pursuant hereto, but in such case shall purchase as much coverage as reasonably practicable for such amount.
Subject to Applicable Law, from and after the date hereof until the earlier to occur of the Effective Time and the termination of this Agreement pursuant toSection 8.01, the Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company (and each will subsequently keep the other informed, on a reasonably current basis, of any material developments related to such notice), of (i) any notice or other communication received by such Party or its Subsidiaries from any Governmental Authority in connection with this Agreement, the Merger or the other Transactions, or from any Person alleging that the consent of such Person is or may be required in connection with the Merger or the other Transactions (ii) any claims, investigations or Proceedings commenced, threatened in writing or, to such Party's Knowledge, threatened orally against, relating to or involving or otherwise affecting such Party or any of its Subsidiaries that relate to this Agreement, the Merger or the other Transactions, (iii) any inaccuracy in or breach of any representation or warranty or breach of covenant or agreement contained in this Agreement that would reasonably be expected to cause, in the case of the Company, any of the conditions set forth inSections 7.01 or7.02 not to be satisfied or any conditions of the Company, its Subsidiaries, or, in the case of Parent or Merger Sub, any of the conditions set forth inSections 7.01 or7.03 not to be satisfied. Notwithstanding anything in this Agreement to the contrary, no such notification shall cure any breach of, or inaccuracy in the representations, warranties, covenants or agreements of the Parties or cure any failure of the conditions to the obligations of the Parties or otherwise limit or affect the remedies available hereunder to the Party receiving such notice.
So long as this Agreement is in effect, Parent and Merger Sub and their respective Affiliates, on the one hand, and the Company and its Affiliates, on the other hand, shall consult with each other before making, and give each other a reasonable opportunity to review and comment upon, any press release or other public statements with respect to this Agreement, the Merger and the other Transactions, and shall not issue any such press release or make any such public statement prior to obtaining the other Party's prior consent (which shall not be unreasonably withheld, conditioned or
delayed) except (a) as may be required by Applicable Law or the rules of a national securities exchange or (b) that Parent may, without such consultation, make such statements as are not inconsistent with the disclosure in the joint press release announcing the execution of this Agreement and the ESG Purchase Agreement or as may be required by Applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchange. The text of the joint press release announcing the execution of this Agreement and the Spin-Off will be as previously agreed to by the Parties. Notwithstanding any other provision of this Agreement, the requirements of thisSection 6.08 shall not apply to (i) any such press release or public announcement if the Company Board has effected any Company Adverse Recommendation Change and (ii) any statements, filings and other communications with respect to the ESG Business, the Spin-Off, the ESG Sale or the Distribution, including participation in meetings, investor calls and presentations, due diligence sessions, drafting sessions and "roadshow" presentations and ratings agency meetings;provided that the Company will not be permitted to make any statements to the extent relating to the Transactions (and not the business or operations of ESG Spin Co.) without first providing Parent with a reasonable opportunity to review and comment upon such statements, except to the extent such statement (A) is included in the Company's SEC reports, (B) is not inconsistent with or does not contain more substantive information than statements filed by the Parties with the SEC as required, or (C) is contained in communications approved by the Parties pursuant to thisSection 6.08.
Parent will take all actions necessary to (a) cause Merger Sub to perform its obligations under this Agreement and to consummate the Merger on the terms and subject to the conditions set forth in this Agreement and (b) ensure that Merger Sub prior to the Effective Time shall not conduct any business, incur or guarantee any indebtedness or make any investments, other than as specifically contemplated by this Agreement.
Prior to the Effective Time, the Company shall take all such steps as may be reasonably necessary or advisable (to the extent permitted under Applicable Law and no-action letters issued by the SEC) to cause any dispositions of Company Common Stock (including derivative securities with respect to Company Common Stock) resulting from the transactions contemplated by this Agreement by each individual who is subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to the Company, to be exempt under Rule 16b-3 promulgated under the Exchange Act, to the extent permitted by Applicable Law.
If any state takeover statute or other similar Applicable Law becomes or is deemed to become applicable to the Company or the Merger or the other Transactions, then the Company Board shall
take any and all reasonable actions necessary and sufficient to render such statutes inapplicable to the foregoing.
The Company shall, as promptly as practicable (and in any event within two (2) Business Days), notify Parent in writing of, and give Parent the opportunity, at Parent's sole cost and expense, to review and comment on all filings and responses to be made by the Company in connection with (which comments will be considered in good faith by the Company) and to participate and consult in the defense or settlement of any stockholder litigation against the Company and/or its directors or executive officers relating to the Merger and the other Transactions, whether commenced prior to or after the execution and delivery of this Agreement. The Company agrees that it shall not settle or enter into any other arrangement to mitigate or resolve or offer to settle or enter into any other arrangement to mitigate or resolve any litigation commenced prior to or after the date of this Agreement against the Company or any of its directors or executive officers by any stockholder of the Company relating to this Agreement, the Merger, any other transaction contemplated by this Agreement or otherwise, without the prior written consent of Parent.
issue or cause to be issued the Conditional Redemption Notice, the Company shall issue a conditional notice of redemption of the Company Notes in accordance with the Indenture and in a form reasonably acceptable to the Company and Parent (such notice, theConditional Redemption Notice) for all of the outstanding aggregate principal amount of the Company Notes pursuant to the Indenture, (ii) Parent shall, upon the Closing, be responsible for the payment of the Redemption Amount, (iii) the Company shall (A) deliver to the Indenture Trustee such "Officer's Certificates," "Opinions of Counsel," and other documents and certificates in form and substance reasonably satisfactory to the Indenture Trustee and Parent and (B) take such other reasonable actions that are necessary or customary to, in each case, effect the satisfaction and discharge of the Indenture and the redemption of the Company Notes on the Redemption Date pursuant to the applicable provisions of the Indenture, (iv) the Company shall provide Parent with a reasonable opportunity to review and comment on drafts of the documents to be delivered in connection with the satisfaction and discharge of the Indenture and the redemption of the Company Notes, and (v) the Company shall satisfy and discharge the Indenture in accordance with the Indenture and redeem the Company Notes in accordance with the Indenture on the Redemption Date;provided, that prior to the Closing Date, within six (6) Business Days of receiving written notice from Parent instructing the Company to delay the Redemption Date to a subsequent redemption date, the Company shall amend the Conditional Redemption Notice setting forth such new subsequent redemption date.
At least two (2) Business Days prior to the Closing Date, the Company shall cause the agent under the Amended and Restated Credit Agreement, dated as of May 19, 2015 (theExisting Credit Agreement), among the Company, the lenders party thereto, JPMorgan Chase Bank, N.A., as administrative agent, to provide a copy of an executed payoff letter (thePayoff Letter) with respect to the Existing Credit Agreement, in customary form, which shall (a) indicate the total amount required to be paid to fully satisfy all principal, interest, prepayment premiums, penalties, breakage costs and any other monetary obligations then due and payable (and not contingent or unasserted) under the Existing Credit Agreement as of the anticipated Closing Date (and the daily accrual thereafter) (thePayoff Amount), (b) state that upon receipt of Payoff Amount under the Payoff Letter, the Existing Credit Agreement and all related loan documents shall be terminated, as applicable and (c) provide that all Encumbrances and all guarantees (if any) in connection therewith relating to the assets and properties of the Company or any of its Subsidiaries securing such obligations shall be released and terminated upon the payment of the Payoff Amount; provided that the effectiveness of such repayment, termination or release may be contingent upon the occurrence of the Closing unless otherwise agreed by the Company.
Except as set forth onSchedule 6.16, the Company will cause any intercompany Contracts, arrangements, financing agreements or intercompany loans between KLX Energy or ESG Spin Co., as applicable, on the one hand, and the Company and any of its Affiliates or Subsidiaries (other than KLX Energy), on the other hand, to be terminated, effective no later than Closing.
Beginning as of the date hereof and until the Effective Time, the Company shall: (a) maintain the monitoring, alerting, and auditing of log files on the Company Systems; (b) implement, maintain, and comply with an end user communication protocol and procedure regarding targeted phishing and threats relating to viruses, worms, Trojan horses, or similar disabling code or programs; (c) provide to Parent evidence of compliance with the foregoing prior to the Effective Time and (d) for any malicious
or suspicious activity detected by monitoring, provide evidence that a response occurred in a reasonable time and that steps were taken to identify root cause and close within a reasonable time (suggested evidence would include a record of date and time for detection, initial response, closure along with steps taken and root cause).
6.18 Post-Signing Date Tax Letter
Within five (5) Business Days after the date that is thirty (30) days after the date hereof, the Company will deliver to Parent the Post-Signing Date Tax Letter.
ARTICLE VII
CONDITIONS TO THE MERGER
The respective obligations of each Party to consummate the Merger are subject to the satisfaction or (to the extent permitted by Applicable Law) written waiver by the Company, Parent and Merger Sub at or prior to the Closing of the following conditions:
7.02 Conditions to Obligations of Parent and Merger Sub to Effect the Merger
The obligations of Parent and Merger Sub to effect the Merger are subject to the satisfaction or (to the extent permitted by Applicable Law) written waiver by Parent at or prior to the Closing of the following additional conditions:
as of the Closing Date (except to the extent such representations and warranties are expressly made as of a specific date, in which case such representations and warranties shall be so true and correct as of such specific date only);
7.03 Conditions to Obligation of the Company to Effect the Merger
The obligation of the Company to effect the Merger is subject to the satisfaction or (to the extent permitted by Applicable Law) written waiver by the Company at or prior to the Closing of the following additional conditions:
and correct would not, individually or in the aggregate, prevent, materially delay or materially impair Parent's or Merger Sub's ability to consummate the transactions contemplated by this Agreement.
7.04 Frustration of Closing Conditions
Neither Parent nor Merger Sub may rely on the failure of any condition set forth inSection 7.01 orSection 7.02 to be satisfied if such failure was proximately caused by the failure of Parent or Merger Sub to perform any of their respective material obligations under this Agreement. The Company may not rely on the failure of any condition set forth inSection 7.01 orSection 7.03 to be satisfied if such failure was proximately caused by its failure to perform any of its material obligations under this Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Notwithstanding anything contained in this Agreement to the contrary, this Agreement may be terminated at any time prior to the Effective Time as follows:
a Party if the issuance of such Order was proximately caused by the failure of such Party, and in the case of Parent, including the failure of Merger Sub, to perform or comply with any of its obligations under this Agreement (includingSection 6.03); or
Closing, but that are capable of being satisfied as of such time (assuming the Closing were to occur as of such time));provided that the right to terminate this Agreement pursuant to thisSection 8.01(d)(iv) shall not be available to Parent if the inaccuracy of Parent's representations or warranties or the failure of Parent to perform or comply with any of its obligations under this Agreement is the proximate cause of the failure of the conditions set forth inSections 7.01(b),7.02(f) and7.02(g), as applicable.
In the event that this Agreement is terminated and the Merger and the other transactions contemplated hereby are abandoned pursuant toSection 8.01, written notice thereof shall be given by the terminating Party to the other Party, specifying the provisions hereof pursuant to which such termination is made, and this Agreement shall forthwith become null and void and of no effect, without liability on the part of any Party, and all rights and obligations of any Party shall cease;provided,however, that no such termination shall relieve any Party of any liability or damages resulting from (a) fraud, or (b) except as provided inSection 8.03, any Willful Breach prior to such termination, and in each such case, the aggrieved Party shall be entitled to all remedies available at law or in equity; andprovided,further, that the Confidentiality Agreement, thisSection 8.02,Section 8.03, andArticle IX shall survive any termination of this Agreement pursuant toSection 8.01.
then, in the case of a termination pursuant to (A) Section 8.03(a)(i), the Company shall pay, or cause to be paid, to Parent the Company Tail Fee or (B) eitherSection 8.03(a)(ii) orSection 8.03(a)(iii), the Company shall pay, or cause to be paid, to Parent the Company Termination Fee.
Section 7.01(c) or the condition set forth inSection 7.01(d) (to the extent such Order or Applicable Law is issued, enacted or promulgated under applicable Antitrust Laws) or (ii) pursuant toSection 8.01(b)(ii), in the event such Order or Applicable Law prevents the satisfaction of the condition set forth inSection 7.01(c) or the condition set forth inSection 7.01(d) (to the extent such Order or Applicable Law is issued, enacted or promulgated under applicable Antitrust Laws), then, in each of the foregoing clauses (i) and (ii), the Parent shall pay, or caused to be paid, to the Company the Parent Termination Fee.
This Agreement may be amended by mutual agreement of the Parties in writing at any time before or after receipt of the Company Stockholder Approval;provided,however, that after the Company Stockholder Approval has been obtained, there shall not be any amendment that by Applicable Law or in accordance with the applicable rules of any stock exchange requires further approval by the stockholders of the Company without such further approval of such stockholders nor any amendment or change not permitted under Applicable Law.
At any time prior to the Effective Time, subject to Applicable Law, any Party may (a) extend the time for the performance of any obligation or other act of any other Party, (b) waive any inaccuracy in the representations and warranties of the other Party contained herein or in any document delivered pursuant hereto and (c) waive compliance with any agreement or condition contained herein. Any such extension or waiver shall only be valid if set forth in an instrument in writing signed by the Party or Parties to be bound thereby. Notwithstanding the foregoing, no failure or delay by the Company, Parent or Merger Sub in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right hereunder. Any agreement on the part of a Party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party.
ARTICLE IX
GENERAL PROVISIONS
The representations and warranties in this Agreement and any certificate delivered pursuant hereto by any Person shall terminate at the Effective Time.
Except as expressly set forth herein, all expenses incurred in connection with this Agreement and the Transactions shall be paid by the Party incurring such expenses, whether or not the Merger is consummated;provided, however, Parent, on the one hand, and the Company, on the other hand, shall share equally (i) filing and other fees and expenses in connection with the Required Notifications and (ii) all SEC filing fees.
All notices, consents, and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt), (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent by e-mail or facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, or (d) on the third (3rd) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with thisSection 9.03):
if to Parent or Merger Sub:
The Boeing Company
100 N. Riverside Plaza
Chicago, IL 60606
Phone: (312) 544 2820
Fax: (312) 544 2829
Email: Edward.J.Neveril@boeing.com
Attention: Edward J. Neveril, Chief Counsel of Mergers and Acquisitions
with a copy (which shall not constitute notice) to:
Kirkland & Ellis LLP
300 North LaSalle
Chicago, IL 60654
Phone: (312) 862-2000
Fax: (312) 862 2200
Email: scott.falk@kirkland.com
michael.weed@kirkland.com
joydeep.dasmunshi@kirkland.com
Attention: R. Scott Falk, P.C.
Michael H. Weed, P.C.
Joydeep Dasmunshi
if to the Company:
KLX Inc.
1300 Corporate Center Way
Wellington, FL 33414
Phone: (561) 383-5100
Fax: (561) 791-5479
Email: Roger.Franks@klx.com
Attention: General Counsel
with a copy (which shall not constitute notice) to:
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Merger be consummated as originally contemplated to the fullest extent possible.
Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties (whether by operation of Applicable Law or otherwise) without the prior written consent of the other Parties, except that any Merger Sub may assign any or all of its rights, interests and obligations hereunder to one or more direct or indirect wholly owned Subsidiaries of Parent, or a combination thereof so long as such assignment would not materially delay, impair or prevent consummation of the Merger and so long as Parent remains primarily liable for Merger Sub's obligations hereunder. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective permitted successors and assigns. Any attempted assignment in violation of thisSection 9.06 shall be null and void.
This Agreement (including the exhibits, annexes and appendices hereto and any other agreement entered into among Parent and/or Merger Sub, on the one hand, and the Company, on the other hand, in connection herewith) constitutes, together with the Confidentiality Agreement, the Company Disclosure Schedule and the Parent Disclosure Schedule, the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, among the Parties, or any of them, with respect to the subject matter hereof.
This Agreement is not intended to and shall not confer upon any Person other than the Parties any rights or remedies hereunder;provided,however, that it is specifically intended that the D&O Indemnified Parties (with respect toSection 6.06 and thisSection 9.08 from and after the Effective Time) are intended third-party beneficiaries of such provisions.
This Agreement and all Proceedings (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of Parent, Merger Sub or the Company in the negotiation, administration, performance and enforcement thereof, shall be governed by, and construed in accordance with, the Applicable Laws of the State of Delaware, without giving effect to any choice or conflict of laws provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Applicable Laws of any jurisdiction other than the State of Delaware.
Each Party agrees that that irreparable damage for which monetary damages, even if available, would not be an adequate remedy, would occur in the event that any Party does not perform the provisions of this Agreement (including failing to take such actions as are required of it hereunder to
consummate the Transactions) in accordance with its specified terms or otherwise breach such provisions. Accordingly, the Parties acknowledge and agree that, prior to any termination of this Agreement in accordance withSection 8.01, the Parties shall be entitled to an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which they are entitled at law or in equity. Each of the Parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that any other Party has an adequate remedy at law or that any award of specific performance is not an appropriate remedy for any reason at law or in equity. Any Party seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement shall not be required to provide any bond or other security in connection with any such order or injunction.
This Agreement may be executed in multiple counterparts, all of which shall together be considered one and the same agreement. Delivery of an executed signature page to this Agreement by electronic transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
�� EACH OF PARENT, MERGER SUB AND THE COMPANY HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) BETWEEN ANY OF THEM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, MERGER SUB OR THE COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
[Remainder of page intentionally left blank; signature page follows.]
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
THE BOEING COMPANY | ||||
By: | /s/ ANTHONY K. FISHER | |||
Name: | Anthony K. Fisher | |||
Title: | Vice President, Corporate Development | |||
KELLY MERGER SUB, INC. | ||||
By: | /s/ DENISE MCKINNEY | |||
Name: | Denise McKinney | |||
Title: | Vice President | |||
KLX INC. | ||||
By: | /s/ AMIN J. KHOURY | |||
Name: | Amin J. Khoury | |||
Title: | Chief Executive Officer |
[Signature Page—Agreement and Plan of Merger]
April 30, 2018
Board of Directors
KLX Inc.
1300 Corporate Center Way
Wellington, FL 33414
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view to the holders (other than The Boeing Company ("Boeing") and its affiliates) of the outstanding shares of common stock, par value $0.01 per share (the "Shares"), of KLX Inc. (the "Company") of the $63.00 in cash per Share to be paid to such holders pursuant to the Agreement and Plan of Merger, dated as of April 30, 2018 (the "Merger Agreement"), by and among Boeing, Kelly Merger Sub, Inc., a wholly owned subsidiary of Boeing ("Merger Sub"), and the Company, pursuant to which, among other things, Merger Sub will be merged with and into the Company (the "Merger"). Pursuant to the Merger Agreement, prior to (and as a condition to) the consummation of the Merger, the Company will (x) either convert KLX Energy Services, LLC ("KLX Energy Services"), a wholly owned subsidiary of the Company that conducts the ESG Business (as defined in the Merger Agreement), from a Delaware limited liability company into a Delaware corporation or contribute the membership interests in KLX Energy Services to a newly formed Delaware corporation (as so converted, or such entity into which such membership interests are contributed, "ESG Spin Co") and distribute (the "ESG Spin-Off") the outstanding common stock of ESG Spin Co to the equity holders of the Company in accordance with the terms of the Distribution Agreement attached to the Merger Agreement (the "Distribution Agreement") or (y) in the event an ESG Sale Election (as defined in the Merger Agreement) has been made, consummate the transaction contemplated by the ESG Purchase Agreement (as defined in the Merger Agreement) (an "ESG Sale") and distribute the ESG Sale Proceeds (as defined in the Merger Agreement) in respect thereof to the equity holders of the Company (the ESG Spin-Off or the ESG Sale and subsequent distribution of the ESG Sale Proceeds, as the case may be, the "ESG Distribution").
Goldman Sachs & Co. LLC and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs & Co. LLC and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, Boeing, any of their respective affiliates and third parties, or any currency or commodity that may be involved in the transactions contemplated by the Merger Agreement and the ESG Documents (as defined in the Merger Agreement) (which includes, among other things, the Merger and the ESG Distribution, the "Transactions"). We have acted as financial advisor to the Company in connection with, and have participated in certain of the negotiations leading to, the Transactions. We expect to receive fees for our services in connection with the Transactions, the principal portion of which is contingent upon consummation of the Merger, and
the Company has agreed to reimburse certain of our expenses arising, and indemnify us against certain liabilities that may arise, out of our engagement. We have provided certain financial advisory and/or underwriting services to Boeing and/or its affiliates from time to time for which our Investment Banking Division has received, and may receive, compensation, including having acted as joint bookrunner in connection with the issuance of Boeing's 3.375% Global Notes due 2046 (aggregate principal amount of $400 million), 2.250% Global Notes due 2026 (aggregate principal amount of $400 million) and 1.875% Global Notes due 2023 (aggregate principal amount of $400 million) in May 2016; as joint bookrunner in connection with the issuance of Boeing's 3.650% Global Notes due 2047 (aggregate principal amount of $300 million), 2.800% Global Notes due 2027 (aggregate principal amount of $300 million) and 2.125% Global Notes due 2022 (aggregate principal amount of $300 million) in February 2017 and as joint bookrunner in connection with the issuance of Boeing's 3.625% Global Notes due 2048 (aggregate principal amount of $350 million), 3.550% Global Notes due 2038 (aggregate principal amount of $350 million), 3.250% Global Notes due 2028 (aggregate principal amount of $350 million) and 2.800% Global Notes due 2023 (aggregate principal amount of $350 million) in February 2018. We may also in the future provide financial advisory and/or underwriting services to the Company, Boeing and their respective affiliates for which our Investment Banking Division may receive compensation.
In connection with this opinion, we have reviewed, among other things, the Merger Agreement (including the attachments thereto); the Company's registration statement on Form 10 dated August 29, 2014 relating to the spin-off of the Company from B/E Aerospace, Inc.; annual reports to stockholders and Annual Reports on Form 10-K of the Company for the four fiscal years ended January 31, 2018; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company; certain other communications from the Company to its stockholders; certain publicly available research analyst reports for the Company; certain internal financial analyses and forecasts for the Company excluding the ESG Business prepared by its management, as approved for our use by the Company (the "Forecasts"); and certain internal analyses prepared by the management of the Company relating to the net operating losses of the Company, as approved for our use by the Company (the "Tax Analyses"). We have also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company; reviewed the reported price and trading activity for the Shares; compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the distribution industry and the aerospace and defense industries; and performed such other studies and analyses, and considered such other factors, as we deemed appropriate.
For purposes of rendering this opinion, we have, with your consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, us, without assuming any responsibility for independent verification thereof. In that regard, we have assumed with your consent that the Forecasts and the Tax Analyses have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. We have not made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries, including KLX Energy Services, and we have not been furnished with any such evaluation or appraisal. We have assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Transactions will be obtained without any adverse effect on the Company or on the expected benefits of the Transactions in any way meaningful to our analysis. We have assumed that the Transactions will be consummated on the terms set forth in the Merger Agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to our analysis.
Our opinion does not address the underlying business decision of the Company to engage in the Transactions, or the relative merits of the Transactions as compared to any strategic alternatives that may be available to the Company; nor does it address any legal, regulatory, tax or accounting matters. This opinion addresses only the fairness from a financial point of view to the holders (other than Boeing and its affiliates) of Shares, as of the date hereof, of the $63.00 in cash per Share to be paid to such holders pursuant to the Merger Agreement. We do not express any view on, and our opinion does not address, any other term or aspect of the Merger Agreement or Transactions (including the ESG Distribution) or any term or aspect of any other agreement or instrument contemplated by the Merger Agreement or entered into or amended in connection with the Transactions, including, the ESG Documents or any election made, or consideration payable, in connection therewith, the ESG Distribution, the fairness of the Transactions to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons, in connection with the Transactions, whether relative to the $63.00 in cash per Share to be paid to the holders (other than Boeing and its affiliates) of Shares pursuant to the Merger Agreement or otherwise. We are not expressing any opinion as to the prices at which the shares of ESG Spin Co will trade at any time or as to the impact of the Transactions on the solvency or viability of the Company, ESG Spin Co or Boeing or the ability of the Company, ESG Spin Co or Boeing to pay their respective obligations when they come due. Our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof and we assume no responsibility for updating, revising or reaffirming this opinion based on circumstances, developments or events occurring after the date hereof. Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of the Company in connection with its consideration of the Merger and such opinion does not constitute a recommendation as to how any holder of Shares should vote with respect to the Merger or any other matter. This opinion has been approved by a fairness committee of Goldman Sachs & Co. LLC.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the $63.00 in cash per Share to be paid to the holders (other than Boeing and its affiliates) of Shares pursuant to the Merger Agreement is fair from a financial point of view to such holders.
Very truly yours,
/s/ GOLDMAN SACHS & CO. LLC
(GOLDMAN, SACHS & CO. LLC)
SECTION 262 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in 1 or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title and, subject to paragraph (b)(3) of this section, § 251(h) of this title), § 252, § 254, § 255, § 256, § 257, § 258, § 263 or § 264 of this title:
(1) Provided, however, that, except as expressly provided in § 363(b) of this title, no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of the meeting of stockholders to act upon the agreement of merger or consolidation, were either: (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in § 251(f) of this title.
(2) Notwithstanding paragraph (b)(1) of this section, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 255, 256, 257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a. and b. of this section; or
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing paragraphs (b)(2)a., b. and c. of this section.
(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 251(h), § 253 or § 267 of this title is not owned by the parent immediately prior
to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
(4) In the event of an amendment to a corporation's certificate of incorporation contemplated by § 363(a) of this title, appraisal rights shall be available as contemplated by § 363(b) of this title, and the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as practicable, with the word "amendment" substituted for the words "merger or consolidation," and the word "corporation" substituted for the words "constituent corporation" and/or "surviving or resulting corporation."
(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the provisions of this section, including those set forth in subsections (d), (e), and (g) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for notice of such meeting (or such members who received notice in accordance with § 255(c) of this title) with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) of this section that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to § 228, § 251(h), § 253, or § 267 of this title, then either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section and, if 1 of the constituent corporations is a nonstock corporation, a copy of § 114 of this title. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice or, in the case of a merger approved pursuant to § 251(h) of this title, within the later of the consummation of the offer contemplated by § 251(h) of this title and 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice or, in the case of a merger approved pursuant to § 251(h) of this title, later than the later of the consummation of the offer contemplated by § 251(h) of this title and 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) of this section hereof and who is otherwise entitled to appraisal rights, may commence an appraisal proceeding by filing a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party shall have the right to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) of this section hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) of this section hereof, whichever is later. Notwithstanding subsection (a) of this section, a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such person's own name, file a petition or request from the corporation the statement described in this subsection.
(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein
stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder. If immediately before the merger or consolidation the shares of the class or series of stock of the constituent corporation as to which appraisal rights are available were listed on a national securities exchange, the Court shall dismiss the proceedings as to all holders of such shares who are otherwise entitled to appraisal rights unless (1) the total number of shares entitled to appraisal exceeds 1% of the outstanding shares of the class or series eligible for appraisal, (2) the value of the consideration provided in the merger or consolidation for such total number of shares exceeds $1 million, or (3) the merger was approved pursuant to § 253 or § 267 of this title.
(h) After the Court determines the stockholders entitled to an appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Court of Chancery, including any rules specifically governing appraisal proceedings. Through such proceeding the Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. Unless the Court in its discretion determines otherwise for good cause shown, and except as provided in this subsection, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter as provided herein only upon the sum of (1) the difference, if any, between the amount so paid and the fair value of the shares as determined by the Court, and (2) interest theretofore accrued, unless paid at that time. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, proceed to trial upon the appraisal prior to the final determination of the stockholders entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just; provided, however that this provision shall not affect the right of any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation within 60 days after the effective date of the merger or consolidation, as set forth in subsection (e) of this section.
(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
Table of ContentsAnnex D
,JULY 13, 2018
KLX INC.
KLX ENERGY SERVICES LLC
and
KLX ENERGY SERVICES HOLDINGS, INC.
DISTRIBUTION AGREEMENT
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ARTICLE | | | |||||
| | D-1 | | ||||
| | D-9 | | ||||
2.01 | | The Distribution | | D-9 | | ||
2.02 | | Fractional Shares | | | |||
2.03 | | Distribution Date | | D-10 | | ||
2.04 | | Conditions to the Distribution | | D-10 | | ||
| | D-11 | | ||||
3.01 | | ESG Funding Adjustment | | D-11 | | ||
3.02 | | Credit and Performance Support Obligations | | | |||
3.03 | | Certificate of Incorporation; Bylaws; Directors and Officers | | D-13 | | ||
3.04 | | Transfer of Business Assets and Liabilities after the Distribution Date | | | |||
3.05 | | Former Directors, Managers and Officers | | D-14 | | ||
3.06 | | Insurance Matters | | D-15 | | ||
3.07 | | Auditors and Audit; Annual Financial Statements and Accounting; Tax Cooperation | | D-15 | | ||
3.08 | | Further Assurances | | D-17 | | ||
3.09 | | Non-Competition | | D-18 | | ||
3.10 | | Transfer of Permits | | | |||
3.11 | | Pre-Spin Transaction | | D-19 | | ||
ARTICLE IV INDEMNIFICATION | | D-19 | | ||||
4.01 | | Release of Pre-Distribution Claims | | D-19 | | ||
4.02 | | Tax Matters | | D-20 | | ||
4.03 | | Indemnification by KLX | | D-20 | | ||
4.04 | | Indemnification by ESG SpinCo | | | |||
4.05 | | Distribution Gain Tax Indemnification | | D-21 | | ||
4.06 | | Tax Elections | | D-22 | | ||
4.07 | | Third Party Claims; Notice of Direct Claims | | | |||
4.08 | | Additional Matters | | D-24 | | ||
4.09 | | Survival | | D-25 | | ||
4.10 | | Registration Rights | | D-25 | | ||
| | D-26 | | ||||
5.01 | | Provision of Corporate Records | | D-26 | |||
|
| |
D-i
| | | | PAGE | | ||
---|---|---|---|---|---|---|---|
5.02 | | Access to Information | | D-27 | | ||
5.03 | | Disposition of Information | | D-28 | | ||
5.04 | | Witness Services | | | |||
5.05 | | Reimbursement | | D-28 | | ||
5.06 | | Confidentiality | | D-28 | | ||
5.07 | | Privileged Matters | | D-29 | | ||
5.08 | | Ownership of Information | | | |||
5.09 | | Control of Legal Matters | | D-31 | | ||
| | D-33 | | ||||
6.01 | | Termination | | D-33 | | ||
6.02 | | Effect of Termination | | D-33 | | ||
6.03 | | Amendment | | D-33 | | ||
6.04 | | Waiver | | D-33 | | ||
| | | |||||
7.01 | | Disputes | | | |||
7.02 | | Dispute Resolution | | | |||
| | D-35 | | ||||
8.01 | | Transition Services Agreements | | D-35 | | ||
8.02 | | Employee Matters | | D-35 | | ||
8.03 | | Intellectual Property Matters | | D-35 | | ||
8.04 | | No Representation and Warranties | | D-35 | | ||
8.05 | | Limitation of Liability | | | |||
8.06 | | Expenses | | | |||
8.07 | | Notices | | D-36 | | ||
8.08 | | Interpretation; Certain Definitions | | D-37 | | ||
8.09 | | Public Announcements | | D-37 | | ||
8.10 | | Severability | | | |||
8.11 | | Assignment | | | |||
8.12 | | Entire Agreement | | D-38 | | ||
8.13 | | No Third-Party Beneficiaries | | D-38 | | ||
8.14 | | Governing Law | | D-38 | | ||
8.15 | | Consent to Jurisdiction | | D-38 | | ||
8.16 | | Counterparts | | D-39 | | ||
8.17 | | Waiver of Jury Trial | | D-39 | |
D-ii
| ||||||
| ||||||
|
D-iii
THIS DISTRIBUTION AGREEMENT (thisAgreement), dated as of [ · ],July 13, 2018, is entered into by and betweenamong KLX Inc., a corporation formed under the laws of the State of Delaware (KLX), and KLX Energy Services Holdings, Inc., a corporation formed under the laws of the State of Delaware (ESG SpinCo) and KLX Energy Services LLC, a Delaware limited liability company and wholly-owned subsidiary of KLX (KLX Energy Services). KLX, and ESG SpinCo and KLX Energy Services are referred to herein individually as aParty and collectively as theParties.
WHEREAS, the KLX Group currently conducts the ASG Business, and, through the ESG Group, KLX also currently conducts the ESG Business;
WHEREAS, the board of directors of KLX (theBoard) has determined that it is appropriate, desirable and in the best interests of KLX and its shareholders to separate the ASG Business and the ESG Business through a taxable spin-off of the ESG Business into a separate publicly traded company (theSpin-Off);
WHEREAS, [ESG SpinCo has been converted into a Delaware corporation] / [the membership interests in KLX Energy Services LLC have been contributed into ESG SpinCo prior to the date hereof] (thePre-Spin Transaction) and KLX owns all of the issued and outstanding shares of common stock, par value $[ · ]$0.01 per share, of ESG SpinCo (theESG SpinCo Common Stock);
WHEREAS, KLX will contribute 100% of the membership interests in KLX Energy Services to ESG SpinCo on or prior to the Distribution Date (as defined below) (thePre-Spin Transaction);
WHEREAS, in order to effect the Spin-Off, KLX wishes to distribute all of the ESG SpinCo Common Stock to the holders of issued and outstanding shares of common stock, par value $0.01 per share, of KLX (KLX Common Stock) as of the Record Date (theDistribution) in accordance with this Agreement, and to provide for, among other things, the treatment of restricted stock, RSU and PSU awards of KLX (as defined in the ASG Merger Agreement) in connection with the Spin-Off in accordance with the Employee Matters Agreement;
WHEREAS, KLX and The Boeing CompanyCorporation (theASG Buyer) entered into an Agreement and Plan of Merger on April 30, 2018 (the(as amended from time to time, theASG Merger Agreement), pursuant to which a wholly owned subsidiarySubsidiary of the ASG Buyer (Merger Sub) will be merged with and into KLX, whereupon the separate existence of the Merger Sub shall cease, and KLX will continue as the surviving corporation and as a direct or indirect wholly owned subsidiary of the ASG Buyer (theASG Merger); and
WHEREAS, it is a condition to the consummation of the ASG Merger Agreement that the Distribution shall have occurred.
NOW,THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual terms, conditions and other agreements set forth herein, and intending to be legally bound hereby, the Parties agree as follows:
ARTICLE I
DEFINITIONSDEFINITIONS
As used herein, the following terms have the following meanings:
336 Election has the meaning set forth inSection 4.06(a).
Acceptable Letter of Credit has the meaning set forth inSection 3.02(b).
Affiliate means, with respect to any Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meaning, the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise.
Agent means the distribution agent appointed by KLX (who shall be a reputable, nationally recognized agent, reasonably acceptable to the ASG Buyer) to distribute to the Record Holders, pursuant to the Distribution, the shares of ESG SpinCo Common Stock held by KLX.
Affiliate means, with respect to any Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meaning, the terms "controlled by" and "under
common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise.
Agreement has the meaning set forth in the Preamble.
Agreement Disputes has the meaning set forth inSection 7.01.
Ancillary Agreements means the agreements entered into by the Parties and their Subsidiaries in connection with the Spin-Off and the Distribution (other than the ASG Merger Agreement), including the Transition Services Agreement, the IP Matters Agreement and the Employee Matters Agreement.
Appellate Rules has the meaning set forth inSection 7.02(b).
Applicable Law means any supra-national, federal, national, state, municipal or local statute, law, ordinance, regulation, rule, code, order (whether executive, legislative, judicial or otherwise), judgment, injunction, notice, decree or other requirement or rule of law or legal process (including common law), or any other Order of, or agreement issued, promulgated or entered into by, any Governmental Authority.
ASG Business means all businesses of KLX and its Subsidiaries, other than the ESG Business.
ASG Buyer has the meaning set forth in the Recitals.
ASG Merger has the meaning set forth in the Recitals.
ASG Merger Agreement has the meaning set forth in the Recitals.
Asset means, with respect to any Person, all assets, properties, claims and rights (including goodwill and rights pursuant to Contracts), wherever located (including in the possession of vendors or other Persons or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible or intangible, or accrued or contingent, in each case, whether or not recorded or reflected or required to be recorded or reflected on the Recordsrecords or financial statements of such Person.
Audit Firm means an internationally recognized accounting firm experienced in resolving disputes of a type contemplated bySection 3.01(b).
Audited Party has the meaning set forth inSection 3.07(b).
Board has the meaning set forth in the Recitals.
Business Day means a day, other than a Saturday or Sunday or other day on which commercial banks are authorized or required by Applicable Law to close in New York City, New York.
Carry-Over Basis Election has the meaning set forth inSection 4.06(a).
Closing Date has the meaning set forth in the ASG Merger Agreement.
Code means the U.S. Internal Revenue Code of 1986, as amended.
Confidential Information means confidential or proprietary information concerning a Party and/or any other member of such Party's Group which, prior to or following the Effective Time, has been disclosed by a Party or any other member of such Party's Group to another Party or any other member
of such Party's Group, in written, oral (including by recording), electronic, or visual form to, or otherwise has come into the possession of, the other Party or any other member of such Party's Group, including pursuant to any provision of this Agreement (except to the extent that such information can be shown to have been (i) in the public domain through no fault of such Party or any other member of such Party's Group, (ii) lawfully acquired from other sources (other than the other Group) by such Party or any other member of such Party's Group to which it was furnished or (iii) independently developed or generated without reference to or use of the respective proprietary or confidential information of the other Party or any of its subsidiaries;provided, however, in the case of clause (ii) that, to the knowledge of the Party or other member of such Party's Group to which such
information was furnished, such sources did not provide such information in breach of any confidentiality obligations).
Contract means any written or oral arrangement, contract, agreement, instrument, lease, license, sublicense, or commitment that, in each case, is binding on any member of the KLX Group or the ESG Group, as applicable.
Disclosure Documents means any registration statement (including any registration statement on Form 10) or other document filed with the SEC by or on behalf of any Party or any of its controlled Affiliates, and also includes any information statement, prospectus, offering memorandum, offering circular or similar disclosure document, whether or not filed with the SEC or any other Governmental Authority, in each case which offers for sale or registers the transfer or distribution of any security of such Party or any of its controlled Affiliates.
Disputed Items has the meaning set forth inSection 3.01(b).
Distribution has the meaning set forth in the Recitals.
Distribution Date means the date on which the Distribution occurs.
Distribution Gain has the meaning set forth inSection 4.05(a).
Effective Time means 11:59 pm Eastern Time on the Distribution Date.
Employee Matters Agreement has the meaning set forth inSection 8.02.
Encumbrance means any security interest, pledge, hypothecation, lien, right of first refusal, right of way, license, encroachment, claim, charge, mortgage or encumbrance of any kind.
Escalation Notice has the meaning set forth inSection 7.02(a).
ESG Assets means all Assets of the KLX Group or the ESG Group (other than any inter-Group Contracts or arrangements) that are (i) primarily used by a member of the ESG Group in support of the ESG Business, but excluding any Asset without which the ASG Business would not have all Assets necessary to operate in the same manner in which the ASG Business operated as of prior to the execution of the ASG Merger Agreement and (ii) set forth inExhibit A.
ESG Business means the business of providing technical services and related rental equipment to oil and gas exploration and production companies in remote oil and gas producing regions solely as conducted by the ESG Group but does not include any other business operated or conducted by any member of the KLX Group.
ESG Business Employee means (a) any employee of any member of the ESG Group and (b) those employees of the KLX Group set forth onSchedule I—Part A.
ESG SpinCo has the meaning set forth in the Recitals.
ESG SpinCo Common Stock has the meaning set forth in the Recitals.
ESG D&O Indemnified Parties has the meaning set forth inSection 3.05(a).
ESG D&O Release has the meaning set forth inSection 3.05(b).
ESG Group means ESG SpinCo, KLX Energy Services, KLX RE Holdings LLC and each Person that becomes a Subsidiary of ESG SpinCo after the Distribution, including in each case any Person that is merged or consolidated with and into ESG SpinCo or any Subsidiary of ESG SpinCo.
ESG Indemnitees means each member of the ESG Group and each of their respective Affiliates and their respective directors, officers, employees, managers and agents and each of the heirs, executors, successors and assigns of any of the foregoing, other than the KLX Indemnitees.
ESG Liability means any and all Liabilities to the extent relating to, arising out of or resulting from (whether or not such Liabilities arise under "successor liability," "piercing the corporate veil," or similar legal theories): (A) the operation or conduct of the ESG Business prior to, on or after the Effective Time; (B) the operation or conduct of any business conducted by any member of the ESG Group at any time after the Effective Time; (C) any ESG Assets, whether arising before, on or after the Effective Time; (D) any Indebtedness to the extent relating to or incurred by, in support of or in connection with the ESG Business or to the extent secured by any of the ESG Assets (including any Liabilities relating to, arising out of or resulting from a claim by a holder of any such Indebtedness, in its capacity as such); (E) any ESG Litigation Matter, Future ESG Litigation Matter and, and solely to the extent relating to the ESG Business or ESG Assets, any Future Joint Litigation Matter; and (F) activities of any member of the KLX Group or their Representatives acting on behalf of or in support of the ESG Business at any time prior to the Effective Time;provided that (i) in no event shall any Transaction Expenses be an ESG Liability (without prejudice to any reimbursement of Spin Costs pursuant toSection 3.01(c)) and (ii) for purposes of this definition of "ESG Liability", Indebtedness shall exclude (x) all amounts taken into in the calculation of the FCF Net Amount and (y) all Indebtedness set forth onSection 4.04(b) of the Company Disclosure Schedule to the ASG Merger Agreement.
ESG Litigation Matters means the Proceedings set forth inSchedule I- I—Part B and any other Proceedings to the extent related to ESG Assets or to ESG Liabilities.
ESG Names and Marks means, collectively, any Trademark included in ESG SpinCo's Intellectual Property, KLX Energy Services' Intellectual Property and/or ESG Assets, any variation or acronym thereof, or any Trademark or other identifier of source or goodwill containing, incorporating or associated with any such Trademark.
ESG SpinCo has the meaning set forth in the Preamble.
ESG SpinCo Common Stock has the meaning set forth in the Preamble.
Excess Losses has the meaning set forth inSection 4.07(d).
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
Expiration Time has the meaning set forth inSection 3.01(b).
FCF Net Amount means the amount of "Business Free Cash Flows, Net" of the ESG Group measured for the period beginning on May 1, 2018 through the Effective Time, calculated in accordance with the statement of cash flows of the ESG Group attached asSchedule I—Part C and consisting of the line items set forth thereon, in each case as derived from the books and records of the KLX Group and calculated in a manner consistent with the accounting practices and principles applied by KLX in the preparation of its financial statements filed with the SEC;provided, however, that (i) Transaction Expenses and (ii) the ESG Cash (as defined in the ASG Merger Agreement) contributed to ESG in connection with the Distribution, shall be excluded from the calculation of Business Free Cash Flows, Net.
Final FCF Net Amount has the meaning set forth inSection 3.01(b).
Final Funding Statement has the meaning set forth inSection 3.01(b).
Form 10 means the Registration Statement on Form 10, including the Information Statement, filed in connection with the Distribution, as amended from time to time, in the form in which it is declared effective by the SEC.
Funding Statement has the meaning set forth inSection 3.01(a).
Future ESG Litigation Matter has the meaning set forth inSection 5.09(b)(ii).
Future Joint Litigation Matter has the meaning set forth inSection 5.09(b)(iii).
Future KLX Litigation Matter has the meaning set forth inSection 5.09(b)(i).
GAAP shall mean United States generally accepted accounting principles.
Governing Documents means the charter, organizational and other documents by which any Person other than an individual establishes its legal existence or which govern its internal affairs, and shall include: (i) in respect of a corporation, its certificate or articles of incorporation or association and its bylaws; (ii) in respect of a partnership, its certificate of partnership and its partnership agreement; and
(iii) in respect of a limited liability company, its certificate of formation and operating or limited liability company agreement.
Governmental Authority means any (a) nation, region, state, county, city, town, village, district or other jurisdiction, (b) federal, state, local, municipal, foreign or other government, (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department or other entity and any court or other tribunal), (d) multinational or supra-national organization exercising judicial, legislative or regulatory power or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, fiscal, legislative, police, regulatory or taxing power of any nature of any federal, state, local, municipal, foreign or other government, in each case, anywhere throughout the world.
Group means the KLX Group or the ESG Group, as the context may require.
Indebtedness shall mean, with respect to a Person, all Liabilities of such Person (i) for borrowed money or issued in substitution for or exchange of indebtedness for borrowed money; (ii) to repay any amounts owed as evidenced by notes, debentures, bonds or other similar instruments reflecting indebtedness; (iii) under any conditional sale, title retention or similar arrangement, or with respect to any deferred purchase price of any assets or services, contingent or otherwise (including "earn-outs", indemnities, post-closing true-ups and "seller notes" payable with respect to the acquisition of any business, assets or securities, but excluding trade accounts payable arising in the ordinary course of business consistent with past practice); (iv) on any letter of credit or similar credit transaction securing obligations of any Person (to the extent drawn or outstanding); (v) to pay rent or other amounts under any lease of real or personal property, or other similar Contract, that is required to be classified or accounted for as a capital lease in accordance with GAAP; (vi) constituting a guarantee of any liabilities of any other Persons; (vii) for deferred rent or royalties under any lease, license, concession or other similar arrangement; and (viii) secured by an encumbrance on any of such Person's assets, including as may be applicable in connection with any of the forgoing clauses (i) through (viii) any unpaid principal, premium, accrued and unpaid interest, prepayment penalties, commitments and other fees payable in connection with the payoff or termination thereof, and (ix) any cash advances made by such Person to any of its customers or suppliers.
Indemnified Party has the meaning set forth inSection 4.07(a).
Indemnifying Party has the meaning set forth inSection 4.07(a).
Indemnitees means the KLX Indemnitees or the ESG Indemnitees, as the case may be.
Information Statement means the Information Statement attached as an exhibit to the Form 10 to be sent to the holders of KLX Common Stock in connection with the Distribution, as such Information Statement may be amended from time to time.
Intercompany Balances means all intercompany receivables, payables, loans and other accounts or transactions between any member of the KLX Group, on the one hand, and any member of the ESG Group, on the other hand, in existence as of the end of the Distribution Date.
Intellectual Property means all intellectual property rights of any type in any jurisdiction, including patents and patent applications; registered trademarks and trademark applications; design rights, trade names and service marks; trade dress; Internet domain names; copyrights; rights in computer software (including source code and object code) data, databases, and documentation thereof; rights in inventions; trade secrets and know-how; and any other intellectual property right having equivalent or similar effect to the rights referred to above; in each case, anywhere in the world.
Internal Control Audit has the meaning set forth inSection 3.07(a).
IP Matters Agreement has the meaning set forth inSection 8.03.
Table of ContentsKLX has the meaning set forth in the Preamble.
KLX Assets means all Assets of the KLX Group or the ESG Group (other than any inter-Group Contracts or arrangements) owned or leased by any member of the KLX Group or that is not an ESG Asset.
KLX Combined Income Tax Return means any consolidated, combined unitary or other similar Tax Return with respect to any profit and/or loss sharing group, group payment or similar group or fiscal unity that actually includes, by election or otherwise, one or more members of the KLX Group together with one or more members of the ESG Group.
KLX Common Stock has the meaning set forth in the Recitals.
KLX D&O Indemnified Parties has the meaning set forth inSection 3.05(c).
KLX D&O Release has the meaning set forth inSection 3.05(d).
KLX Energy Services has the meaning set forth in the Preamble.
KLX Group means KLX, each Person that will be a Subsidiary of KLX (other than the members of the ESG Group) immediately following the Distribution, and each Person that becomes a Subsidiary of KLX after the Distribution, including in each case any Person that is merged or consolidated with and into KLX or any Subsidiary of KLX after the Distribution.
KLX Indemnitees means each member of the KLX Group and each of their respective Affiliates and their respective directors, officers, employees, managers and agents and each of the heirs, executors, successors and assigns of any of the foregoing, other than the ESG Indemnitees.
KLX Liability means any and all Liabilities to the extent relating to, arising out of or resulting from (whether or not such Liabilities arise under "successor liability," "piercing the corporate veil," or similar legal theories): (A) the operation or conduct of the ASG Business prior to, on or after the Effective Time; (B) the operation or conduct of any business conducted by any member of the KLX Group at any time after the Effective Time; (C) any KLX Assets, whether arising before, on or after the Effective Time; (D) any Indebtedness other than Indebtedness that is an ESG Liability pursuant to clause (E) of the definition thereof; (F) any KLX Litigation Matter, Future KLX Litigation Matter and, to the extent relating to the ASG Business, any Future Joint Litigation Matter; (G) activities of any member of the ESG Group or their Representatives acting on behalf of or in support of the ASG Business at any time prior to the Effective Time; and (H) any Transaction Expenses (without prejudice to any reimbursement of Spin Costs pursuant toSection 3.01(c))).
KLX Litigation Matters means the Proceedings set forth inSchedule I—Part D, any Proceedings by any shareholders by or on behalf of shareholders of KLX in their capacity as such (including any derivative Proceeding) and any other Proceedings related to the KLX Assets or KLX Liabilities.
KLX Names and Marks means, collectively, any Trademark included in the KLX Intellectual Property and/or KLX assets, any variation or acronym thereof, or any Trademark or other identifier of source or goodwill containing, incorporating or associated with any such Trademark.
Liability means any liability, debt, obligation, duty, deficiency, interest, Tax, penalty, fine, demand, judgment, cause of action or other damage or loss (including loss of benefit), cost or expense of any kind or nature whatsoever, whether asserted or unasserted, absolute or contingent, known or unknown, accrued or unaccrued, liquidated or unliquidated, whether or not foreseeable, and whether due or to become due and regardless of when asserted.
Losses means any and all damages, losses, Liabilities, penalties, judgments, settlements, claims, payments, fines, interest, costs and expenses (including the costs and expenses of any and all Proceedings, assessments, judgments, settlements and compromises relating thereto and the reasonable costs and expenses of attorneys', accountants', consultants' and other professionals' fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder) and excluding Taxes.
Management Assessments has the meaning set forth inSection 3.07(a).
Merger Sub has the meaning set forth in the Recitals.
Order shall mean any decree, order, judgment, injunction, temporary restraining order, writ, determination, ruling, settlement or stipulation or other order in any Proceeding or similar requirement by or with any Governmental Authority.
Other Party's Auditors has the meaning set forth inSection 3.07(a).
Party orParties has the meaning set forth in the Preamble.
Party has the meaning set forth in the Preamble.
Person shall mean any individual or any corporation, limited liability company, partnership, trust, association or other entity of any kind.
Pre-Spin Transaction has the meaning set forth in the Recitals.
Proceeding shall mean legal, administrative, arbitral, civil, criminal, investigative, appellate or other proceedings, suits, claims, charges, complaints, settlements, hearings, audits, examinations, or actions.
Record Date means 11:59 pm Eastern Time on the date to be determined by the Board as the record date for determining the shares of KLX SharesCommon Stock in respect of which shares of ESG SpinCo Common Stock will be distributed pursuant to the Distribution.
Record Holders has the meaning set forth inSection 2.01(b)(i).
Registration Expenses has the meaning set forth inSection 4.10(e).
Representatives means, with respect to a Person, the directors, managers, officers, employees, agents or advisors (including attorneys, accountants, consultants, bankers and financial advisors) of such Person.
Restricted Business has the meaning set forth inSection 3.09.
Review Period has the meaning set forth inSection 3.01(b).
SEC means the United States Securities and Exchange Commission.
Securities Act means the United States Securities Act of 1933, as amended.
Spin Costs means all fees, expenses, and other amounts that have been incurred or are payable by any member of the KLX Group (or incurred or paid by the ESG Group prior to the Effective Time) to the extent payable or incurred in connection with the preparation, negotiation and execution of this
Agreement, the ESG Documents, the ESG Registration Statement and the Other ESG Required Filings (in each case, as defined in the ASG Merger Agreement), and the other transaction documents contemplated hereby and thereby and the evaluation, preparation for, review of, negotiation and consummation of the Spin-Off and the other transactions contemplated hereby and thereby, including the following: (a) the fees and disbursements of, or other similar amounts charged by, counsel to any such Persons, (b) the out of pocket expenses, if any, of any such Persons; and (c) the fees and expenses of, or other similar amounts charged by, any accountants, agents, financial advisors, consultants, and experts employed by any such Person;provided that in no event shall Spin Costs include (i) any of the foregoing incurred in connection with any dispute between the Parties hereto (or any member of their respective Groups) orSection 3.01 or (ii) any consent fees payable to bondholders, lenders or an agent on their behalf in connection with the Consent or the Bank Consent (each as defined in the ASG Merger Agreement) and any fees of JPMorgan Chase Bank associated therewith.
Spin Costs Cap means $10,000,000.
Spin-Off has the meaning set forth in the Recitals.
Subsidiary of a Person shall mean any other Person with respect to which the first Person (i) has the right to elect a majority of the board of directors or other Persons performing similar functions or
(ii) beneficially owns more than fifty percent (50%) of the voting stock (or of any other form of voting or controlling equity interest in the case of a Person that is not a corporation), in each case, directly or indirectly through one or more other Persons.
Tax means any and all national, federal, state, local municipal and foreign income, capital gains, profits, margin franchise, gross receipts, margin, capital, net worth, sales, use, withholding, payroll, estimated, goods and services, value added, ad valorem, alternative or add-on, registration, environmental, custom, general business, employment, social security (or similar), disability, workmen's compensation, business, occupation, unemployment, premium, real property, personal property (tangible and intangible), capital stock, stamp, customs, transfer (including real property transfer or gains), conveyance, severance, production, excise, environmental (including Code section 59A), windfall profits and other taxes, governmental fees, withholdings, duties, charges, fees, levies, imposts, license and registration fees and other similar charges and assessments in lieu of, or in the nature of, a tax (including any and all fines, penalties, assessments, and additions attributable to or otherwise imposed on or with respect to any such taxes, fees, levies, duties, tariffs, imposts, and other similar charges or assessments (together with any and all interest, penalties and additions to tax)) computed on a separate or consolidated, unitary or combined basis, imposed by or on behalf of any Taxing Authority and (ii) any liability for payment of amounts described in clause (i) whether as a result of transferee liability, joint and several liability, or for being a member of an affiliated, consolidated, combined, unitary or other group (defined within the meaning of Section 1504(a) of the Code or any similar provision of foreign, state or local Applicable Law) for any period, or payable by reason of contract assumption, operation of Law,law, or otherwise, and (iii) any liability for the payment of amounts described in clause (i) or (ii) as a result of any Tax sharing, Tax indemnity or Tax allocation agreement or any other express agreement to pay or indemnify any other Person whether by contract or otherwise.
Tax Contest means any audit, examination, investigation, dispute, claim or other administrative or judicial proceeding or review or other Proceeding by or with a Taxing Authority with respect to Taxes or Tax Returns.
Tax Elections has the meaning set forth inSection 4.06(a).
Tax Return means any return, declaration of estimated Tax, report, estimate, claim for refund, information return or statement, including any related or supporting information with respect to any of the foregoing, filed or to be filed with any Taxing Authority in connection with the determination, assessment, collection or administration of any Tax.
Taxing Authority means any Governmental Authority exercising Tax regulatory authority.
Third Party Claim has the meaning set forth inSection 4.07(a).
Trademarks means trademarks, slogans, logos, symbols, certification marks, collective marks, uniform resource locators (URL's), corporate names, service marks, trade dress and Internet domain names, trade names, whether statutory or common law, whether registered or unregistered, whether establisher or registered in the United States or any other country, and registrations and applications for registration thereof, together with the goodwill associated therewith and any and all (i) rights and privileges arising under Applicable Law and international treaties and conventions with respect to such use of any trademarks, (ii) reissues, continuations, extensions and renewals thereof and amendments thereto, (iii) income, fees, royalties, damages and payments now and hereafter due and/or payable thereunder and with respect thereto, including damages, claims and payments for past, present.
Transaction Expenses means all fees, expenses, and other amounts that have been incurred or are payable by any member of the KLX Group in connection with the preparation, negotiation, and execution of this Agreement, the ASG Merger Agreement, the Ancillary Agreements and the other transaction documents contemplated hereby and thereby and the evaluation, preparation for, review of, negotiation and consummation of the transactions contemplated hereby and thereby and of other
strategic alternatives, including the following: (a) the fees and disbursements of, or other similar amounts charged by, counsel to any such Persons, (b) the out of pocket expenses, if any, of any such Persons; (c) the fees and expenses of, or other similar amounts charged by, any accountants, agents, financial advisors, consultants, and experts employed by any such Person and (d) any and all consent fees payable to bondholders, lenders or an agent on their behalf in connection with the Consent or the Bank Consent (each, as defined in the ASG Merger Agreement) and any fees of JPMorgan Chase Bank associated therewith, but specifically excluding any Spin Costs in excess of the Spin Costs Cap and any fees, expenses, and other amounts incurred or payable by the ESG Group after the Effective Time;provided that in no event shall Transaction Expenses include any of the foregoing incurred in connection with any dispute between the Parties hereto (or any member of their respective Groups) orSection 3.01.
Transferred Permits has the meaning set forth inSection 3.10.
Transition Services Agreement has the meaning set forth inSection 8.01.
ARTICLE II
THE DISTRIBUTION
the issued and outstanding shares of ESG SpinCo Common Stock then owned by KLX and book-entry authorizations for such shares; and
Shareholders holding a number of shares of KLX Shares,Common Stock, on the Record Date, which would entitle such shareholders to receive less than one whole share of ESG SpinCo Common Stock in the Distribution will receive cash, without any interest thereon, in lieu of fractional shares. Fractional shares of ESG SpinCo Common Stock will not be distributed in the Distribution noror credited to
book-entry accounts. The Agent shall, as soon as practicable after the Distribution Date, (a) determine the number of whole shares and fractional shares of ESG SpinCo Common Stock allocable to each Record Holder, (b) aggregate (as completely as possible) all such fractional shares into whole shares and sell the whole shares obtained thereby in open market transactions, in each case, at then-prevailing trading prices on behalf of holders who would otherwise be entitled to fractional share interests and (c) distribute to each such holder, or for the benefit of each beneficial owner, such holder's or owner's ratable share of the net proceeds of such sale, based upon the average gross selling price per share of ESG SpinCo Common Stock after making appropriate deductions for any amount required to be withheld under Applicable Law and less any brokers' charges, commissions or transfer Taxes. ESG SpinCo shall bear the cost of brokerage fees incurred in connection with these sales of fractional shares, which sales shall occur as soon as practicable after the applicable Distribution Date as practicable and as determined by the Agent. None of KLX, ESG SpinCo or the Agent will guarantee any minimum sale price for the fractional shares of ESG SpinCo Common Stock. Neither KLX nor ESG SpinCo will pay any interest on the proceeds from the sale of fractional shares. The Agent will have the sole discretion to select the broker-dealers through which to sell the aggregated fractional shares and to determine when, how and at what price to sell such shares. Neither the Agent nor the broker-dealers through which the aggregated fractional shares are sold will be Affiliates of KLX or ESG SpinCo.
The consummation of the transactions provided for in thisARTICLE II shall only be effected after the Distribution has been declared by the Board and after all of the conditions set forth inSection 2.04 shall have been satisfied.
The consummation of the Distribution shall be subject to the satisfaction of the following conditions:
Common Stock to the holders of issued and outstanding KLX Shares;
Common Stock as of the Record Date;
Notwithstanding anything to the contrary in this Agreement, none of the Parties shall consummate the Distribution prior to obtaining the Consent and the Bank Consent (each, as defined in the ASG Merger Agreement) if the Distribution occurs other than substantially concurrently with the Closing, and no Party shall be obligated to consummate the Distribution prior to obtaining such Consent and such Bank Consent unless the Distribution occurs substantially concurrently with the Closing (as defined in the ASG Merger Agreement) and the ASG Buyer provides a sufficient amount of cash on the Closing Date in order to enable KLX to satisfy and discharge the Company Notes and to pay the Payoff Amount with respect to the Existing Credit Agreement (each, as defined in the ASG Merger Agreement).
ARTICLE III
COVENANTSCOVENANTS
Disputed Items, if any, or to prepare materials for presentation to the Audit Firm. If ESG SpinCo fails to give KLX written notice of any Disputed Items by 11:59 PM Eastern Time on the last day of the Review Period (theExpiration Time), then the Funding Statement shall become the Final Funding Statement for purposes hereof and shall be binding on the Parties. If ESG SpinCo disputes any items on the Funding Statement, ESG SpinCo shall deliver a written notice of such disputed items to KLX prior to the Expiration Time;provided that, such disputed items shall be based only on the existence of mathematical errors in the Funding Statement or on the failure of one or more components of the FCF Net Amount or the Spin Costs to be prepared in accordance with this Agreement (theDisputed Items) and on no other basis. The notice of Disputed Items shall specify in reasonable detail any adjustment to the FCF Net Amount proposed by ESG SpinCo and the basis therefor, including in each case the specific items and amounts proposed to be adjusted. If ESG SpinCo gives KLX written notice of any Disputed Items prior to the Expiration Time, KLX and ESG SpinCo shall attempt in good faith to agree on any adjustments that should be made to the Funding Statement. If KLX and ESG SpinCo fail to resolve any Disputed Item within forty (40) days after ESG SpinCo receives the Funding Statement, the Parties will promptly engage the Audit Firm to resolve any such Disputed Items in accordance with the terms of this Agreement, and, in connection with such engagement, KLX, ESG SpinCo and any other member of their respective Groups, shall execute any engagement, indemnity or other agreements as the Audit Firm may require as a condition to such engagement. The Audit Firm's engagement shall be limited to the resolution of Disputed Items that have been identified by ESG SpinCo, and no
other matter relating to the Final Funding Statement shall be subject to determination by the Audit Firm. KLX and ESG SpinCo shall reasonably cooperate with the Audit Firm in an effort to resolve any Disputed Item as soon as reasonably possible after the Audit Firm is engaged. The decision of the Audit Firm shall be made within thirty (30) days after being engaged, or as soon as possible thereafter. In any event, the Audit Firm's decision with respect to the Disputed Items shall be final and binding on the Parties. The Funding Statement shall be revised, if necessary, to reflect the final determination of the FCF Net Amount (theFinal FCF Net Amount)(the final form of the Funding Statement, including any revisions that are made thereto pursuant to thisSection 3.01, if any, is referred to herein as theFinal Funding Statement). The fees of the Audit Firm shall be borne equally by KLX and ESG SpinCo.
(or (or another member of the ESG Group, as applicable) would be reasonably unable to comply or (y) ESG SpinCo would not reasonably be able to avoid breaching. In the event a release is not procured on or prior to the Distribution Date as required pursuant to the first sentence of thisSection 3.02(b), then on the Distribution Date, ESG SpincoSpinCo or another member of the ESG Group shall provide KLX an Acceptable Letter of Credit in an amount equal to any obligation(s) for which a release was not procured. "AcceptableAcceptable Letter of Credit"Credit means an unconditional, irrevocable letter(s) of credit in form satisfactory to KLX, in favor of KLX, issued by a financial institution with a short term commercial paper rating from (i) S&P of at least A-1 or (ii) Moody's of at least P-1, or such other financial institution acceptable to KLX (in its sole discretion).
On or prior to the Distribution Date,
officers or directors of any member of the ESG Group in which they serve and (ii) ESG SpinCo shall direct its applicable employees and any employees of any member of the ESG Group to resign, effective as of the DistributionClosing Date, from all positions as officers or directors of any members of KLX Group.
transferred, to ESG SpinCo (or, as designated by ESG SpinCo, to one of its Subsidiaries) such Asset for no value. Pending such transfer, KLX shall or shall cause its Subsidiaries to operate or retain such Asset as may reasonably be instructed by ESG SpinCo and provide to ESG SpinCo all of the benefits and Liabilities associated with the ownership and operation thereof.
changes in Applicable Law or any changes which do not affect the application of such provisions to acts or omissions of such individuals prior to the Effective Time. Without limiting the generality of thisSection 3.05(c), the provisions of thisSection 3.05(c) are intended for the benefit of, and may be enforced by, each of the KLX D&O Indemnified Parties and their respective heirs only if the Distribution is consummated and will not be deemed exclusive of any other rights to which any such Person is entitled, whether pursuant to Applicable Law, Contract or otherwise.
Public Company Accounting Oversight Board's rules and auditing standards thereunder, if required (such assessments and audit being referred to as theInternal Control Audit andManagement Assessments). With respect to information required or requested by KLX, such information shall be provided in the form, time and manner reasonably requested by KLX, which shall not be materially different than the form, time and manner required by KLX prior to the Distribution Date pursuant to the KLX Year EndYear-End Financial Reporting Instructions in effect as of the Distribution Date. Without limiting the generality of the foregoing, each Party will provide all required financial and other information with respect to itself and its Subsidiaries to its auditors in a sufficient and reasonable time and in sufficient detail to permit its auditors to take all steps and perform all reviews necessary to provide sufficient assistance to the other Party's auditors (each such other Party's auditors, collectively, theOther Party's Auditors) with respect to information to be included or contained in such other Party's audited 2018 annual financial statements and to permit the Other Party's Auditors and management to complete the Internal Control Audit and Management Assessments, if required.
the Other Party's Auditors and (iii) unless required by generally accepted accounting principles or a reasonable interpretation thereof by either Party's auditors, Applicable Law or a Governmental Authority, neither Party shall make such determination or changes which would affect the other Party's previously reported financial results without prior written consent, which shall not be unreasonably withheld, conditioned or delayed. Further, each Party will give the other Party prompt notice of any amendments or restatements of accounting statements with respect to pre-Distribution Date periods and will provide the other Party with access as provided inSection 3.07(b) as promptly as possible such that the other Party will be able to satisfy its financial reporting requirements.
respect thereof, provide the other Party with a copy of any comment or notice of such review or investigation and shall, to the extent not prohibited by Applicable Law, the SEC or such other Governmental Authority, give the other Party a reasonable opportunity to be involved in responding to such comment, review, audit or investigation, and such other Party shall reasonably cooperate with such Party in connection with responding to such comment, review, audit or investigation.
directly or indirectly through another member of its respective Group) that relate to a business, Asset or Liability of the other Party (including members of the other Group) shall be held by such Party in trust for the use and benefit of the Party entitled, directly or indirectly, thereto (at the expense of the Party so entitled) and, promptly upon receipt by such Party of any such payment, reimbursement or other Asset, such Party shall promptly pay or transfer or shall cause the applicable member of its Group to pay over or transfer to the applicable Party (or, at the direction, in writing, of the applicable Party, to another member of such Party's Group) such Asset or the amount of such payment or reimbursement without right of set-off, net of any costs, including Tax costs, to the Party making such payment.
all actions, and to do, or to cause to be done, all things reasonably necessary on its part to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements;provided that in no event shall either Party hereto be required to violate Applicable Law or applicable contractual obligations pursuant to thisSection 3.08(b).
ESG SpinCo acknowledges and agrees, on its and its controlled Affiliates' behalf, that KLX and its Affiliates (including following the consummation of the transactions contemplated by the ASG Merger Agreement, ParentASG Buyer and its Affiliates) would be irreparably damaged if ESG SpinCo or any of its controlled Affiliates were to provide services or to otherwise participate in the ownership, management, operation or control of a business that engages in the sale of aerospace fasteners and other consumables directly to suppliers to the commercial, business jet, military and defense airframe manufacturers, the airframe manufacturers, the airlines, aircraft leasing companies, MRO providers, domestic military depots, general aviation, and other distributors anywhere in the world (theRestricted Business) and that any such competition or activity by ESG SpinCo or any of its controlled Affiliates would result in a significant loss of goodwill by KLX and its Affiliates in respect of the Restricted Business. Effective as of, and contingent upon, the Effective Time, ESG SpinCo agrees that until the fifth (5th) anniversary of the Distribution Date, it will not, and will cause its controlled Affiliates not to, directly or indirectly, through one or more Representatives or other third parties, own, manage, operate, control or participate in the ownership, management, operation or control of a Restricted Business anywhere in the world (it is understood and agreed that for this purpose the Restricted Business shall be deemed to be conducted everywhere in the world);provided, however, that it shall not be a violation of thisSection 3.09 for ESG SpinCo or its Affiliates to (i) own (directly or indirectly), as
a passive investment, any class of securities that are publicly traded or listed on any securities exchange or automated quotation system and that constitutes less than two percent (2%) of the outstanding voting power of the issuing Person; (ii) permit their Representatives to perform speaking engagements and receive honoraria in connection with such speaking engagements; or (iii) engage or participate in any activity consented to in advance in writing by ParentASG Buyer where ParentASG Buyer acknowledges in such writing that such activity would be a violation of thisSection 3.09 and expressly waives compliance with thisSection 3.09. ESG SpinCo agrees, on its and its controlled Affiliates' behalf, that this covenant is reasonably designed to protect KLX's substantial investment and is reasonable with respect to its duration, geographical area and scope.
From the date hereof until the Effective Time, at KLX's sole cost and expenses,expense, KLX, KLX Energy Services and ESG SpinCo shall, and shall cause each member of their respective Group to, take all actions necessary or
desirable to transfer the record and beneficial ownership of those certain franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, exemptions, consents, certificates, approvals, registrations, clearances, orders and other authorizations that constitute ESG Assets (theTransferred Permits) from each and every member of the KLX Group who is the record and/or beneficial owners of such Transferred Permits to a member of the ESG Group.
From the date hereof until the Distribution Date, KLX will, directly or indirectly, own 100% of ESG SpinCo and KLX Energy Services. On or prior to the Distribution Date, KLX will contribute the membership interests in KLX Energy Services to ESG SpinCo.
ARTICLE IV
INDEMNIFICATIONINDEMNIFICATION
Effective Time pursuant to the express terms of this Agreement or any Ancillary Agreement; and
Except as otherwise specifically set forth in any provision of this Agreement or any Ancillary Agreement, following the Effective Time, KLX shall, and shall cause the other members of the KLX Group to, indemnify, reimburse, defend and hold harmless the ESG Indemnitees from and against (i) any and all Losses arising out of, by reason of, or otherwise in connection with (A) the KLX Liabilities or (B) any breach by KLX of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder;provided that such indemnity shall not extend to any past, present or future director, officer or employee or agent of the KLX Group to the extent such Person would not be eligible for indemnification under KLX's certificate of incorporation or bylaws with respect to such matter and (ii) any and all Taxes due with respect to or required to be paid on any KLX Combined Income Tax Return to the extent imposed on or assessed against any ESG Indemnitees.Indemnitees (excluding, for avoidance of doubt, any Taxes for which ESG SpinCo is obligated to indemnify the KLX Indemnities pursuant to this Agreement).
Except as otherwise specifically set forth in any provision of this Agreement or any Ancillary Agreement, following the Effective Time, ESG SpinCo shall, and shall cause the other members of the ESG Group to, indemnify, reimburse, defend and hold harmless the KLX Indemnitees from and against any and all Losses arising out of, by reason of or otherwise in connection with (i) the ESG Liabilities, (ii) any action taken by ESG SpinCo or any member of the ESG Group or any Person acting on behalf of any member of the ESG Group, in each case, after the Effective Time and to the extent relating to the Spin-Off, (iii) any Liabilities to the extent relating to, to the extent arising out of or to the extent resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated in any Disclosure Document, or necessary to make the statements therein not misleading, with respect to all information contained in, or incorporated by reference into, any Disclosure Document filed by any Party in connection with the Distribution, or (iv) any breach by ESG SpinCo of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder;provided that such indemnity shall not extend to any past, present or future director, officer or employee or agent of the ESG Group to the extent such Person would not be eligible for indemnification under ESG SpinCo's certificate of incorporation or bylaws with respect to such matter. Notwithstanding anything herein to the contrary, in no event shall ESG SpinCo be required to indemnify, reimburse, defend or hold harmless any KLX Indemnitee from or against any Losses that arise out of or are otherwise incurred in connection with any Proceeding commenced prior to or after the Effective Time by or on behalf of a
KLX shareholder in its capacity as such to the extent such Proceeding relates to the Transactions (as defined in the ASG Merger Agreement) or any filings with the SEC made in connection therewith, other than to the extent such Proceedings (A) relate to the ESG Registration Statement or the Other ESG Required Filings (in each case, as defined in the ASG Merger Agreement), or (B) arise after the Effective Time and relate solely to the Spin-Off. From and after the Effective Time, ESG SpinCo will indemnify, reimburse, defend and hold harmless the KLX Indemnitees from or against any Losses that arise out of or are otherwise incurred in connection with any Proceeding commenced after the Effective Time by or on behalf of a KLX shareholder in its capacity as such to the extent such litigation relates to the Distribution.
firm, after taking into account the comments of each Party, shall be final and binding on both Parties.
Common Stock distributed and to treat (x) any transfer of shares of ESG SpinCo Common Stock to KLX in satisfaction of the indemnity due hereunder as if such shares were issued to KLX by ESG SpinCo immediately before the Distribution and retained by KLX and (y) any cash paid to KLX in satisfaction of the indemnity due under thisSection 4.05 as if such cash had been distributed by ESG SpinCo to KLX immediately before the Distribution.
shall be applied prior to thisSection 4.06(b), and subject to the cap described in the proviso inSection 4.05(e)4.05(d) hereof). Notwithstanding the foregoing, any additional Taxes or loss of Tax attributes resulting solely from a reduction in the basis of ESG SpinCo Common Stock as a result of a Tax Election shall not be treated as an increase in income Taxes or a reduction in Tax attributes for purposes of thisSection 4.06.
Party (provided such counsel is reasonably satisfactory to the Indemnified Party) if the Indemnifying Party (i) agrees in writing to assume responsibility for all indemnity losses arising out of such Third Party Claim (with no reservation of any rights) and (ii) reasonably demonstrates to the Indemnified Party the financial ability of the Indemnifying Party to provide full indemnification with respect to such Third Party Claim (including the ability to post any bond required) to the extent ultimately payable. If the Indemnifying Party assumes such defense, the Indemnified Party shall nonetheless have the right to employ counsel separate from the counsel employed by the Indemnifying Party;provided that the Indemnifying Party shall not be liable to such Indemnified Party for any fees of such separate counsel with respect to the defense of such Third Party Claim, unless the engagement of such separate counsel is consented to by the Indemnifying Party in writing or a conflict of interest exists between such Indemnified Party and the Indemnifying Party that requires such separate representation under applicable standards of professional conduct. If the Indemnifying Party does not assume such defense, and for any period during which the Indemnifying Party has not assumed such defense, the Indemnified Party may defend the Third Party Claim and the Indemnifying Party shall be liable for the reasonable fees and expenses of one single counsel employed (and reasonably acceptable to the Indemnifying Party) by such Indemnified Party (which reasonable fees and expenses shall be considered Losses for purposes of this Agreement). If the Indemnifying Party chooses to defend a Third Party Claim or prosecute a claim in connection therewith, each Indemnified Party shall provide all reasonable cooperation in such defense or prosecution.
of receipt of the Indemnified Party's notice; (iv) such Third Party Claim seeks non-monetary relief that would reasonably be expected to materially and adversely affect the ability of the Indemnified Party to conduct its business, other than as a result solely of money damages or other money payment; or (v) a conflict of interest exists between the Indemnifying Party and the Indemnified Party with respect to such Third Party Claim that would make representation of the interests of both parties by the same legal counsel inappropriate under applicable standards of professional conduct, then the Indemnified Party (upon written notice to the Indemnifying Party) shall have the right to undertake the defense, compromise and/or settlement of such Third Party Claim, by counsel of its own choosing that is reasonably acceptable to the Indemnifying Party, on behalf of and without limiting the indemnification obligations of the Indemnifying Party under this Agreement.
Claim which seeks only monetary relief, the Indemnified Party will not agree to any settlement of, or the entry of any judgement (other than a judgment of dismissal on the merits with prejudice and without costs), in respect of such Third Party Claim without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld, conditioned or delayed;provided that if such consent is withheld for any reason and the final resolution of such Third Party Claim results in Losses which are greater than the amount of Losses that would have resulted if the Third Party Claim had been settled on the terms pursuant to which consent was initially requested (such greater amount, theExcess Losses), then the Indemnifying Party shall be responsible for the amount of the Excess Losses.
All covenants and agreements of the Parties and their respective Indemnitees contained in thisARTICLE IV will survive the Distribution, the sale or transfer by any Party of any assets or businesses, and the assignment by any Party of any Liabilities, and will continue in full force and effect regardless of (i) any investigation made by or on behalf of any Indemnitee, (ii) any sale or transfer by either Party or any member of its Group of any Asset or Liability or business, (iii) any merger, consolidation, business combination, sale of all or substantially all of the Assets, restructuring, recapitalization, reorganization or similar transaction involving either Party or any member of its Group and (iv) the knowledge by the Indemnitee of Liabilities for which it might be entitled to indemnification hereunder.
or not it has become effective and whether or not such registration has counted as a permitted registrations hereunder.
If KLX elects to not sell all its ESG SpinCo Common Stock in any public offering of ESG SpinCo Common Stock (other than any offering pursuant toSection 4.10(a)) in connection with which KLX was provided full rights to participate pursuant toSection 4.10(b) without cutback for any reason (including for the benefit of ESG SpinCo or its affiliates or any other Person holding ESG SpinCo Common Stock), KLX will agree to a commercially reasonable customary lock-up agreement of not more than 90 days to the extent requested by any underwriters in connection with any ESG Registration Statement.ARTICLE V
ACCESS TO RECORDS; ACCESS TO INFORMATION; LEGAL AND OTHER MATTERS
Other than in circumstances in which indemnification is or may be sought pursuant toARTICLE IV (in which event the provisions of such Article will govern) and subject to appropriate restrictions for privileged or Confidential Information:
receipt of such request, appropriate copies of such documents (or the originals thereof if the Party making the request has a reasonable need for such originals) in the possession or control of KLX or any of its Subsidiaries, but only to the extent such items so relate and are not already in the possession or control of the requesting Party, and in no event will KLX or any of its Subsidiaries be required to change the form or substance of such documentation;provided that in the event that KLX reasonably determines that the provision of such documentation could be commercially detrimental, violate Applicable Law or result in the loss of any legal privilege, then the Parties shall use commercially reasonable efforts to facilitate the provision of the requested documentation to the extent and in a manner that avoids any such harm or consequence.
Other than in circumstances in which indemnification is sought pursuant toARTICLE IV (in which event the provisions of such Article will govern), from the Distribution Date and for so long as any
access is required, each of KLX and ESG SpinCo shall afford to the members of the respective other Group and their authorized accountants, counsel and other designated Representatives reasonable access during normal business hours, upon reasonable advance notice, subject to appropriate restrictions for privileged or Confidential Information and to preserve the completeness and integrity of the information, to the personnel, properties, and information of such Party and its Subsidiaries insofar as such access is reasonably required by the other Party and relates to (i) such other Group or the conduct of its business prior to the Effective Time or (ii) any Ancillary Agreement. Nothing in thisSection 5.02 shall require any Party to violate any agreement with any third party regarding the confidentiality of information relating to that third party or its business;provided, however, that (i) in the event that a request for access to such third party-related information is made pursuant to this provision, the Party from whom the information is requested shall use commercially reasonable efforts to obtain such third party's consent to the disclosure of such information, or (ii) in the event that the providing Party reasonably determines that disclosure of any information could be commercially detrimental, violates Applicable Law or results in the loss of any legal privilege, the Parties shall use commercially reasonable efforts to permit compliance with such obligations to the extent and in a manner that avoids any such harm or consequence.
from the recipient of such services, upon the presentation of invoices therefor, payments for such amounts, relating to disbursements and other out-of-pocket expenses (which shall not include the costs of salaries and benefits of employees who are witnesses or anypro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees' employer regardless of the employees' service as witnesses), as may be reasonably incurred and properly payable under Applicable Law.
Except to the extent otherwise provided by this Agreement or any Ancillary Agreement, a Party providing information or access to information to the other Party under thisArticle V shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses, as may be reasonably incurred in providing such information or access to such information.
Notwithstanding any termination of this Agreement, the Parties shall hold, and shall cause each of the other members of their respective Groups to hold, and shall each cause their respective
Representatives (including those of each other member of their respective Groups) to hold, in strict confidence, and not to disclose or release or use, without the prior written consent of the other Party, any and all Confidential Information concerning the other Party (or any other member of such Party's Group) or its respective business;provided, however, that the Parties may disclose, or may permit disclosure of, Confidential Information (i) to their respective auditors, attorneys, financial advisors, bankers and other appropriate consultants and advisors who have a need to know such information and are informed of their obligation to hold such information confidential to the same extent as is applicable to the Parties and in respect of whose failure to comply with such obligations, the applicable Party will be responsible, (ii) if the Parties or any other member of their respective Groups are required or compelled to disclose any such Confidential Information by judicial or administrative process or by other requirements of Applicable Law or stock exchange rule, (iii) as required in connection with any Proceeding by one Party against the other Party, or (iv) as necessary in order to permit a Party to prepare and disclose its financial statements, Tax Returns or other required disclosures. Notwithstanding the foregoing, in the event that any demand or request for disclosure of Confidential Information is made pursuant to clause (ii) above, each Party shall, to the extent not prohibited by Applicable Law, promptly notify the other of the existence of such request or demand and shall provide the other a reasonable opportunity to seek an appropriate protective order or other remedy, which such Parties will reasonably cooperate in obtaining, at the sole cost of the Party seeking such order or other remedy. In the event that such appropriate protective order or other remedy is not obtained, the Party whose Confidential Information is required to be disclosed shall or shall cause the other Party to furnish, or cause to be furnished, only that portion of the Confidential Information that is legally required to be disclosed and shall use commercially reasonable efforts, at the sole cost and expense of the Party whose Confidential Information is required to be disclosed, to ensure that confidential treatment is accorded such information. Notwithstanding anything in this Agreement to the contrary, includingSection 7.02(f), each Party hereby acknowledges that the other Party, in addition to any other remedies available to it for any breach or threatened breach of thisSection 5.06, shall be entitled to seek a preliminary injunction, temporary restraining order or other equivalent relief restraining such Party and any member of such Party's Group from any such breach or threatened breach.
Group, whether or not the privileged information is in the possession of or under the control of KLX or ESG SpinCo;
such Party shall promptly (and in any event within five (5) Business Days) notify the other Party of the existence of the request and shall provide the other Party a reasonable opportunity to review the information and to assert any rights it or they may have under thisSection 5.07 or otherwise to prevent the production or disclosure of such privileged information.
of ESG SpinCo that was originally a Liability of ESG SpinCo's Subsidiary or the KLX Group, or otherwise compromise the position of the ESG Group in such ESG Litigation Matters.
ARTICLE VI
TERMINATIONTERMINATION
This Agreement may be terminated, and the Distribution may be abandoned at any time, prior to the Distribution Date by and in the sole discretion of KLX, subject to compliance with the terms of the ASG Merger Agreement. After the Effective Time, this Agreement may only be terminated by an agreement in writing signed by a duly authorized officer of each of the Parties and, unless the ASG Merger Agreement has been terminated, ParentASG Buyer (as defined under the ASG Merger Agreement).
In the event of termination of this Agreement in accordance withSection 6.01, this Agreement shall forthwith become void and there shall be no Liability on the part of either Party;provided that Section 5.06 shall survive any termination of this Agreement.
This Agreement may not be amended or modified except (a) by an instrument in writing signed by, or on behalf of, the Parties or (b) by a waiver in accordance withSection 6.04, in each case subject to compliance with the terms of the ASG Merger Agreement.
Subject to the restrictions set forth in the ASG Merger Agreement, eithera Party to this Agreement may (a) extend the time for the performance of any of the obligations or other acts of theany other Party and (b) waive compliance with any of the agreements of theany other Party or conditions to such Party's obligations contained herein. Any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the Party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of eithera Party to assert any of its rights hereunder shall not constitute a waiver of any of such rights.
ARTICLE VII
DISPUTE RESOLUTION
Except as otherwise specifically provided in any Ancillary Agreement (the terms of which, to the extent so provided therein, shall govern the resolution of disputes, controversies or claims that are the subject of such Ancillary Agreement), the procedures for discussion, negotiation and arbitration set forth in thisARTICLE VII shall apply to all disputes, controversies or claims (whether arising in contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection with, this Agreement or any Ancillary Agreement, or the transactions contemplated hereby or thereby (including all actions taken in furtherance of the transactions contemplated hereby or thereby on or prior to the Effective Time), between or among any member of the KLX Group, on the one hand, and any member of the ESG Group, on the other hand (collectively,Agreement Disputes).
notice (anEscalation Notice) demanding an in-person meeting involving senior-level management representatives of KLX and ESG SpinCo (including, if appropriate, a senior management representative within the relevant strategic business unit or division within each such entity). A copy of any such Escalation Notice shall be given to the Law Department of each of KLX and ESG SpinCo (which copy shall state that it is an Escalation Notice pursuant to thisSection 7.02). Any agenda, location or procedures for such discussions or negotiations between KLX and ESG SpinCo may be established by KLX and ESG SpinCo from time to time;provided,however, that the representatives of KLX and ESG SpinCo shall use their commercially reasonable efforts to meet in person, or telephonically if the representatives are unable to meet in person, within 30 days of the Escalation Notice.
no power to award non-monetary or equitable relief of any sort. The decision of the arbitrators shall be executory, and judgment thereon may be entered by any court of competent jurisdiction. The seat of the arbitration shall be New York, NY.
ARTICLE VIII
MISCELLANEOUSMISCELLANEOUS
The provision of certain services by KLX to the members of the ESG SpinCoGroup following the Distribution Date shall be exclusively governed by the Transition Services Agreement attached asExhibit 8.01 (theTransition Services Agreement).
Except as otherwise provided herein and not inconsistent with the Employee Matters Agreement, this Agreement shall not govern any employee matters, which shall be exclusively governed by the Employee Matters Agreement attached asExhibit 8.02 (theEmployee Matters Agreement).
Except as otherwise provided herein and not inconsistent with the IP Matters Agreement, this Agreement shall not govern any matters relating to the KLX Names and Marks and the ESG Names and Marks, which shall be exclusively governed by the IP Matters Agreement attached asExhibit 8.03 (theIP Matters Agreement).
EACH OF KLX (ON BEHALF OF ITSELF AND EACH OTHER KLX GROUP COMPANY) AND ESG SPINCO (ON BEHALF OF ITSELF AND EACH OTHER ESG GROUP COMPANY) UNDERSTANDS AND AGREES THAT, EXCEPT AS SET FORTH IN THE ASG MERGER AGREEMENT OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES, INFORMATION OR LIABILITIES CONTRIBUTED, TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS OR
GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY (OR OTHER MEMBER OF SUCH PARTY'S GROUP), OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SET-OFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY ACTION OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY (OR OTHER MEMBER OF SUCH PARTY'S GROUP), OR AS TO THE LEGAL SUFFICIENCY OF ANY TRANSACTION, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER.
IN NO EVENT SHALL ANY MEMBER OF THE KLX GROUP OR THE ESG GROUP BE LIABLE TO ANY MEMBER OF THE OTHER GROUP FOR ANY PUNITIVE DAMAGES OR LOST PROFITS ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES AWARDED TO THIRD PARTIES IN A THIRD PARTY CLAIM SET FORTH HEREIN.
Subject toSection 3.01, all Transaction Expenses shall be borne by KLX.
All notices, consents, and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt), (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent by e-mail or facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, or (d) on the third (3rd)(3rd) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with thisSection 8.07):
[**************************][**************************][**************************]Phone: [*****************]Fax: [*****************]Email: [********************]Attention: [*****************];
with a copy (which shall not constitute notice) to:
Freshfields Bruckhaus Deringer US LLP601 Lexington Avenue, 31st FloorNew York, NY 10022Phone: (212) 277-4000Fax: (212) 277-4001Email: Valerie.Jacob@freshfields.com Omar.Pringle@freshfields.comAttention: Valerie Ford Jacob, Esq. Omar Pringle, Esq.
KLX Energy Services Holdings, Inc.
1300 Corporate Center Way
Wellington, FL 33414
Phone: (561) 383-5100
Fax: (561) 791-5479
Email: Roger.Franks@klx.comTom.McCaffrey@KLX.com
Attention: General Counsel;Tom McCaffrey;
with a copy (which shall not constitute notice) toto::
Freshfields Bruckhaus Deringer US LLP
601 Lexington Avenue, 31st Floor
New York, NY 10022
Phone: (212) 277-4000
Fax: (212) 277-4001
Email: Valerie.Jacob@freshfields.com
Omar.Pringle@freshfields.com
Attention: Valerie Ford Jacob, Esq.
Omar Pringle, Esq.
KLX Inc.
1300 Corporate Center Way
Wellington, FL 33414
Phone: (561) 383-5100
Fax: (561) 791-5479
Email: Roger.Franks@klx.com
Attention: General Counsel;
with a copy (which shall not constitute notice) to:
Following the Effective Time, except as expressly permitted by the ASG Merger Agreement, the Parties shall not make, and shall procure that none of its respective Group members makes, any press release or public announcement in respect of this Agreement or the transactions contemplated by this
Agreement without the prior written consent of the other Party unless otherwise required by Applicable Law or applicable stock exchange regulation.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Distribution be consummated as originally contemplated to the fullest extent possible.
Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties (whether by operation of Applicable Law or otherwise) without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective permitted successors and assigns. Any attempted assignment in violation of thisSection 8.11 shall be null and void.
This Agreement (including the exhibits, annexes and appendices hereto and any other agreement entered into by and between the Parties in connection herewith) constitutes, together with the Ancillary Agreements, the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, by and between the Parties with respect to the subject matter hereof.
This Agreement is not intended to and shall not confer upon any Person other than the Parties any rights or remedies hereunder;provided,however, that it is specifically intended that the KLX D&O Indemnified Parties and the ESG D&O Indemnified Parties (with respect toSection 3.05 and thisSection 8.13 from and after the Effective Time) are intended third-party beneficiaries of such provisions.
This Agreement and all Proceedings (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of KLX and ESG SpinCo in the negotiation, administration, performance and enforcement thereof, shall be governed by, and construed in accordance with, the Applicable Laws of the State of Delaware, without giving effect to any choice or conflict of laws provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Applicable Laws of any jurisdiction other than the State of Delaware.
state or federal court within the State of Delaware), (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such courts, (iii) agrees that it will not bring any claim or Proceeding relating to this Agreement or the transactions contemplated by this Agreement except in such courts and (iv) waives, to the fullest extent it may legally and effectively do so, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, any objection which it may now or hereafter have to the laying of venue of any claim or Proceeding arising out of or relating to this Agreement. Notwithstanding the foregoing, each of KLX and ESG SpinCo agrees that a final and nonappealable judgment in any Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Applicable Law.
Each Party irrevocably consents to the service of process in any claim or Proceeding with respect to this Agreement and the transactions contemplated by this Agreement or for recognition and enforcement of any judgment in respect hereof brought by the other Party may be made by mailing copies thereof by registered or certified United States mail, postage prepaid, return receipt requested, to its address as specified in or pursuant toSection 8.07 and such service of process shall be sufficient to confer personal jurisdiction over such Party in such claim or Proceeding and shall otherwise constitute effective and binding service in every respect.
This Agreement may be executed in multiple counterparts, all of which shall together be considered one and the same agreement. Delivery of an executed signature page to this Agreement by electronic transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
EACH OF KLX AND ESG SPINCO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) BETWEEN ANY OF THEM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF KLX OR ESG SPINCO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the date first written above.
KLX Inc. | ||||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||||
Name: | Thomas P. McCaffrey | |||||||
Title: | President and Chief Operating Officer | |||||||
KLX Energy Services Holdings, Inc. | ||||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||||
Name: | Thomas P. McCaffrey | |||||||
Title: | Vice President | |||||||
KLX Energy Services LLC | ||||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||||
Name: | Thomas P. McCaffrey | |||||||
Title: | Director and President |
,JULY 13, 2018
KLX INC.
KLX ENERGY SERVICES LLC
and
KLX ENERGY SERVICES HOLDINGS, INC.
EMPLOYEE MATTERS AGREEMENT
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ARTICLE I DEFINITIONS | | E-1 | ||||
1.1 | | Definitions | | E-1 | ||
1.2 | | Terms | | E-1 | ||
| | E-3 | ||||
2.1 | | Active Employees | | E-3 | ||
2.2 | | Former Employees | | E-4 | ||
2.3 | | Employment Law Obligations | | E-4 | ||
2.4 | | Employee Records | | E-5 | ||
| | E-6 | ||||
3.1 | | General Principals | | E-6 | ||
3.2 | | Establishment of Long-Term Incentive Plan | | E-6 | ||
3.3 | | Treatment of Outstanding KLX Equity Awards | | E-6 | ||
3.4 | | Employee Stock Purchase Plan | | E-7 | ||
3.5 | | Liabilities for Settlement of Awards | | E-7 | ||
3.6 | | Tax Reporting, Withholding and Deduction for Equity-Based Awards | | E-7 | ||
| | E-8 | ||||
4.1 | | Establishment of Welfare Plans | | E-8 | ||
4.2 | | Accrued Paid Time Off | | E-9 | ||
4.3 | | Flexible Spending Accounts | | E-9 | ||
4.4 | | COBRA and HIPAA | | |||
4.5 | | Third Party Vendors | | |||
| | E-10 | ||||
5.1 | | Deferred Compensation Plan | | E-10 | ||
5.2 | | Non-Employee Directors Deferred Compensation Plan | | E-10 | ||
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6.1 | | KLX Savings Plan | | |||
| | E-11 | ||||
7.1 | | KLX Annual Incentive Plans | | E-11 | ||
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8.1 | | Restrictive Covenants in Employment and Other Agreements | | |||
8.2 | | Termination of Participation | | E-12 | ||
8.3 | | Leaves of Absence | | E-12 | ||
8.4 | | Workers' and Unemployment Compensation | | E-12 | ||
8.5 | | Preservation of Rights to Amend | | E-13 | ||
8.6 | | Confidentiality | | E-13 | ||
8.7 | | Administrative Complaints/Litigation | | E-13 | ||
8.8 | | Reimbursement and Indemnification | | E-13 | ||
8.9 | | Fiduciary Matters; Restrictive Covenants and Confidentiality | | E-13 | ||
8.10 | | Section 409A | | E-14 | ||
8.11 | | Non-Solicitation | | E-14 |
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ARTICLE IX MISCELLANEOUS | | |||||||
9.1 | | Limitation of Liability | | |||||
9.2 | | Expenses | | |||||
9.3 | | Notices | | |||||
9.4 | | Interpretation; Certain Definitions | | |||||
9.5 | | Public Announcements | | E-16 | ||||
9.6 | | Severability | | |||||
9.7 | | Entire Agreement | | |||||
9.8 | | Assignment | | E-17 | ||||
9.9 | | No Third-Party Beneficiaries | | E-17 | ||||
9.10 | | Governing Law | | E-17 | ||||
9.11 | | Consent to Jurisdiction | | |||||
9.12 | | Effect if Distribution Does Not Occur | | E-18 | ||||
9.13 | | Counterparts | | E-18 | ||||
9.14 | | Waiver of Jury Trial | | E-18 |
E-ii
ThisEMPLOYEE MATTERS AGREEMENT (thisAgreement), dated as of [ · ],July 13, 2018 by and betweenamong KLX Inc., a corporation organized under the laws of the State of Delaware (KLX), and KLX Energy Services Holdings, Inc., a corporation organized under the laws of the State of Delaware (ESG SpinCo) and KLX Energy Services LLC, a Delaware limited liability company and wholly-owned subsidiary of ESG SpinCo (KLX Energy Services). Each of KLX, and ESG SpinCo and KLX Energy Services is sometimes referred to herein as a "Party" and together, as the "Parties".
WHEREAS, KLX, and ESG SpinCo and KLX Energy Services have entered into a Distribution Agreement as of the date hereof (theDistribution Agreement) pursuant to which KLX shall separate the ASG Business and the ESG Business through a taxable spin-off of the ESG Business into a separate publicly traded company and distribute to the holders of KLX Common Stock all of the ESG SpinCo Common Stock; and
WHEREAS, in connection with the Distribution, the Parties desire to enter into this Agreement as a complement to the Distribution Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and in the Distribution Agreement, and intending to be legally bound hereby, KLX, and ESG SpinCo and KLX Energy Services hereby agree as follows:
Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to them in the Distribution Agreement.
As used herein, the following terms have the following meanings:
Agreement has the meaning as set forth in the Preamble.
ASG Business Employee means an individual whose employment duties are primarily related to the ASG Business immediately prior to the Distribution Date.
Benefit Plan shall mean any plan, program, policy, agreement, arrangement or understanding that is an employment, consulting, deferred compensation, executive compensation, incentive bonus or other bonus, employee pension, profit sharing, savings, retirement, supplemental retirement, stock option, stock purchase, stock appreciation right, restricted stock, restricted stock unit, deferred stock unit, other equity-based compensation, severance pay, retention, change in control, salary continuation, life, death benefit, health, hospitalization, workers' compensation, sick leave, vacation pay, disability or accident insurance or other employee benefit plan, program, agreement or arrangement, including any "employee benefit plan" (as defined inSection 3(3) of ERISA) (whether or not subject to ERISA) sponsored or maintained by such entity or to which such entity is a party.
COBRA means the U.S. Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
Committee means the Compensation Committee of the Board.
Distribution Agreement has the meaning as set forth in the Recitals.
Employee Records means all records pertaining to employment, including benefits, eligibility, training history, performance reviews, disciplinary actions, job experience and history and compensation history.
ERISA means the U.S. Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
ESG Deferred Compensation Plan has the meaning as set forth inSection 5.1(b).
ESG Employee means any individual who shall be employed by ESG SpinCo or a member of the ESG Group (a) on and after the date two days prior to the Distribution Date or (b) in the case of the Specified Employees, each of whom shall transfer employment from KLX to ESG SpinCo on or prior to the closing of the transactions contemplated by the ASG Merger, (theASG Closing), on and after the Transfer Date.
ESG Equity Plan has the meaning as set forth inSection 3.2.
ESG ESPP has the meaning as set forth inSection 3.33.4.
ESG FSA has the meaning as set forth inSection 4.3.
ESG NEDDSP has the meaning as set forth inSection 5.2.
ESG Non-Employee Director means any individual who shall be a non-employee member of the board of directors of ESG immediately after the Distribution Date and who is not a KLX Non-Employee Director.
ESG Savings Plans has the meaning as set forth inSection 6.1(a).
ESG SpinCo has the meaning as set forth in the Preamble.
ESG Welfare Plans has the meaning as set forth inSection 4.1(a).
Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.
FICA has the meaning as set forth inSection 2.1(e).
Former ESG Employee has the meaning as set forth inSection 2.2(b).
Former KLX Employee has the meaning as set forth inSection 2.2(c).
FSA Participation Period has the meaning as set forth inSection 4.4.
FUTA has the meaning as set forth inSection 2.1(e).
HIPAA shall mean the Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations promulgated thereunder.
KLX Adjustment Ratio means a fraction, the numerator of which is the KLX Pre-Distribution Stock Value and the denominator of which is the KLX Post-Distribution Stock Value.
KLX Annual Incentive Plan means any annual incentive bonus or commission program maintained by KLX.
KLX Deferred Compensation Plan means the KLX Inc. 2014 Deferred Compensation Plan, as amended.
KLX DSU means any stock unit held by a non-employee member of the Board pursuant to the KLX NEDDSP and/or the KLX Deferred Compensation Plan.
KLX Employee means any individual who shall be employed by a member of the KLX Group on and after the Distribution Date.
KLX Energy Services has the meaning as set forth in the Preamble.
KLX Equity Awards means KLX RSAs, KLX RSUs, KLX PSUs, and KLX DSUs.
KLX Equity Plan means the KLX Inc. Long-Term Incentive Plan, as amended from time to time.
KLX ESPP means the KLX Inc. Employee Stock Purchase Plan, effective as of January 1, 2015, as amended.
KLX has the meaning as set forth in the Preamble.
KLX NEDDSP means the KLX Inc. Non-Employee Directors Stock and Deferred Compensation Plan, as amended.
KLX PSU means a KLX stock unit award subject to performance-based vesting.
KLX Post-Distribution Stock Value means the opening price per share of the KLX Common Stock trading on the first trading day following the Distribution Date during Regular Trading Hours.
KLX Pre-Distribution Stock Value means the closing price per share of the KLX Common Stock trading regular way with due bills on the Distribution Date during Regular Trading Hours.
KLX RSA means the portion of any restricted stock awards issued under the KLX Equity Plan that is subject only to time-based vesting.
KLX RSU means any stock unit award issued under the KLX Equity Plan that is subject only to time-based vesting.
KLX Welfare Plans has the meaning set forth inSection 4.1(a).
Party has the meaning as set forth in the Preamble.
Regular Trading Hours means the period beginning at 9:30 AM, New York City time, and ending at 4:00 PM, New York City time.
Specified Employee means an individual set forth onSchedule 1.2.1.2.
Transfer Date means with respect to a Specified Employee, the date on which such individual's employment transfers to ESG SpinCo.
ARTICLE II
ASSIGNMENT OF EMPLOYEES
a "change of control," "change in control," or term of similar import for purposes of Section 409A of the Code or any Benefit Plan of the KLX Group or ESG Group.
On and after the Distribution Date (i) the members of the ESG Group shall be responsible for adopting and maintaining any policies or practices, and for all other actions and inactions, necessary to comply with employment-related laws and requirements relating to the employment of the ESG Employees and (ii) the members of the KLX Group shall remain responsible for adopting and maintaining any policies or practices, and for all other actions and inactions, necessary to comply with employment-related laws and requirements relating to the employment of the KLX Employees and the
treatment of the Former KLX Employees and Former ESG Employees in respect of their former employment with KLX.
On or prior to the Distribution Date, ESG SpinCo shall establish a long-term incentive plan for the benefit of eligible ESG Employees that is substantially similar to the KLX Equity Plan (theESG Equity Plan). Prior to the Distribution Date, KLX, as the sole stockholder of ESG SpinCo, shall approve the ESG Equity Plan.
following the Distribution Date or the Transfer Date, as the case may be, will be treated as continued service with KLX and the KLX Group, and such continued vesting shall be conditioned upon the relevant ESG Employees remaining in the continued service of the ESG Group following the Distribution Date or the Transfer Date, as the case may be, and through the applicable vesting date(s) under the applicable KLX Equity Award. In connection with the foregoing, ESG SpinCo shall promptly notify KLX of any termination of employment of an ESG Employee holding any such KLX Equity Award so that KLX can properly account for the vesting or forfeiture of such KLX Equity Awards in accordance with the otherwise applicable provisions of the KLX Equity Plan rules and relevant award agreements to which such KLX Equity Awards are subject.
From and after the Distribution Date KLX shall remain responsible for all Liabilities associated with KLX Equity Awards, including share delivery, registration or other obligations related to the exercise, vesting or settlement of the KLX Equity Awards.
separation from service of an ESG Employee or other event, in order to effectuate withholding and remittance of Taxes in a timely, efficient, and appropriate manner in accordance with Applicable Law.
Table KLX shall not be liable for adverse tax consequences to ESG Employees under Section 409A or otherwise, and associated costs, resulting from failures of ContentsESG SpinCo to timely and accurately notify KLX of any separation from service or other events impacting the Equity Awards.
ARTICLE IV
CERTAIN U.S. WELFARE BENEFIT MATTERS
and dental claims) for expenses incurred and for all non-reimbursement claims (such as life insurance claims) incurred by ESG Employees (and their dependents and beneficiaries) under such plans prior to the Distribution Date or the Transfer Date, as applicable, and ESG SpinCo shall retain Liability and responsibility in accordance with the ESG Welfare Plans for all reimbursement claims (such as medical and dental claims) for expenses incurred and for all non-reimbursement claims (such as life insurance claims) incurred by ESG Employees (and their dependents and beneficiaries) on or following the Distribution Date or the Transfer Date, as applicable. For purposes of thisSection 4.1(c), a benefit claim shall be deemed to be incurred as follows: (i) when
the event giving rise to the benefit under the applicable plan has occurred as set forth in the governing plan documents, if it is clear based on the governing documents of both the KLX Welfare Plan and ESG Welfare Plans which plan should be responsible for the claim or, if not, as follows: (ii) (A) health, dental, vision, employee assistance program, education assistance program and prescription drug benefits (including in respect of any hospital confinement), upon provision of such services, materials or supplies; and (B) life, accidental death and dismemberment and business travel accident insurance benefits, upon the death, or other event giving rise to such benefits. The members of the KLX Group shall retain liabilityLiability and responsibility in accordance with the applicable KLX Welfare Plan for all reimbursement claims (such as medical and dental claims) for expenses incurred and for all non-reimbursement claims (such as life insurance claims) for individuals who, immediately prior to the Distribution Date are Former ESG Employees (and their dependents and beneficiaries), including any such employee on long-term disability on the Distribution Date.
ESG SpinCo shall credit each ESG Employee with the amount of accrued but unused vacation time, sick time and other time-off benefits as such ESG Employee had with the KLX Group as of the Distribution Date or the Transfer Date, as applicable.
On or prior to the Distribution Date, ESG SpinCo shall establish and adopt ESG Welfare Plans that will provide health care flexible spending account and dependent care flexible spending account benefits to ESG Employees (each anESG FSA).
KLX shall retain responsibility for compliance with the health care continuation coverage requirements of COBRA with respect to Former ESG Employees who, prior to the Distribution Date or the Transfer Date, as applicable, were covered under a KLX Welfare Plan pursuant to COBRA. KLX shall be responsible for administering compliance with any certificate of creditable coverage requirements of HIPAA or Medicare applicable to the KLX Welfare Plans with respect to ESG Employees. The Parties agree that neither the Distribution nor any transfers of employment that occur in connection with and on or prior to the Distribution shall constitute a COBRA qualifying event for purposes of COBRA;provided, that, in all events, ESG SpinCo shall assume, or shall have caused the ESG Welfare Plans to assume, responsibility for compliance with the health care continuation coverage requirements of COBRA with respect to ESG Employees who, on or after the Distribution Date or the Transfer Date, as applicable, incur a qualifying event for purposes of COBRA.
Except as provided below, to the extent any KLX Welfare Plan is administered by a third-party vendor, KLX and ESG SpinCo will cooperate and use their reasonable commercial efforts to "clone"
any or negotiate a more favorable contract with sucha third-party vendor for ESG SpinCo and KLX to maintain any pricing discounts or other preferential terms for both KLX and ESG SpinCo. Neither party shall be liable for failure to obtain such pricing discounts or other preferential terms for ESG SpinCo. Each party shall be responsible for any additional premiums, charges or administrative fees that such party may incur pursuant to thisSection 4.5.
ARTICLE V
NONQUALIFIED DEFERRED COMPENSATION PLANS
On or prior to the Distribution Date, ESG SpinCo shall establish a nonqualified deferred compensation plan for the benefit of ESG Non-Employee Directors that is comparable to the KLX NEDDSP (theESG NEDDSP).
ARTICLE VI
U.S. DEFINED CONTRIBUTION PLAN
transferred to the ESG Savings Plan and its related trust as of the time of such transfer, and (iii) ESG SpinCo will cause such transferred accounts to be accepted by the ESG Savings Plan and its related trust and will cause the ESG Savings Plan to satisfy all protected benefit requirements under the Code and Applicable Law with respect to the transferred accounts.
ARTICLE VII
ANNUAL INCENTIVE PLANS
accordance with the terms and conditions of the KLX Annual Incentive Plan. ESG SpinCo shall be entitled to the benefit of any Tax deduction in respect of the cash bonus payment made pursuant to this Section 7.1(a).
ARTICLE VIII
COMPENSATION MATTERS AND GENERAL BENEFIT AND EMPLOYEE MATTERS
ToExcept as otherwise provided inSection 2.1(f), to the fullest extent permitted by the agreements described in thisSection 8.1and Applicable Law, KLX shall assign, or cause an applicable member of the KLX Group to assign (including through notification to employees, as applicable), to ESG SpinCo or a member of the ESG Group, as designated by ESG SpinCo, all agreements containing restrictive covenants (including confidentiality,
non-competition and non-solicitation provisions) between a member of the KLX Group and an ESG Employee, with such assignment to be effective as of the Distribution Date or the Transfer Date, as applicable. Notwithstanding any such assignment, the restrictive covenant obligations noted above shall continue in effect with respect to ESG Employees' ongoing obligations to maintain and not use or disclose, without prior written authorization from KLX, any confidential informationConfidential Information of KLX, except in the good faith performance of such ESG Employees' duty to ESG SpinCo or a member of the ESG Group. To the extent that assignment of such agreements is not permitted, effective as of the Distribution Date or the Transfer Date, as applicable, each member of the ESG Group shall be considered to be a successor to each member of the KLX Group for purposes of, and a third-party beneficiary with respect to, all agreements containing restrictive covenants (including confidentiality, non-competition and non-solicitation provisions) between a member of the KLX Group and an ESG Employee, such that each member of the ESG Group shall enjoy all the rights and benefits under such agreements (including rights and benefits as a third-party beneficiary), with respect to the business operations of the ESG Group;provided, however, that in no event shall KLX be permitted to enforce such restrictive covenant agreements against ESG Employees for action taken in their capacity as employees of a member of the ESG Group.
Except as otherwise provided under this Agreement, effective as of the Distribution Date or the Transfer Date, as applicable, ESG Employees shall cease participation in each KLX Benefit Plan and shall no longer be eligible to participate in any KLX Benefit Plan.
ESG SpinCo will continue to apply the appropriate leave of absence policies applicable to inactive ESG Employees who are on an approved leave of absence as of the Distribution Date. Leaves of absence taken by ESG Employees prior to the Distribution Date shall be deemed to have been taken as employees of a member of the ESG Group.
All workers' compensation Liabilities relating to, arising out of, or resulting from any claim by a KLX Employee, Former KLX Employee, ESG Employee or Former ESG Employee that results from an accident, incident or event occurring, or from an occupational disease which becomes manifest, prior
to the Distribution Date shall be retained by KLX. Effective as of the Distribution Date, ESG SpinCo, acting through the member of the ESG Group employing each ESG Employee, will be responsible for (a) obtaining workers' compensation insurance, including providing all collateral required by the insurance carriers and providing all notices to ESG Employees required by applicable workers' compensation Laws and (b) establishing new or transferred unemployment insurance employer accounts, policies and claims handling contracts with the applicable government agencies.
The rights of KLX or ESG SpinCo to amend or terminate any plan, program, or policy referred to herein shall not be limited in any way by this Agreement.
Each Party agrees that any information conveyed or otherwise received by or on behalf of a Party in conjunction herewith is confidential and is subject to the terms of the confidentiality provisions set forth in the Distribution Agreement.
To the extent that any legal action relates to a putative or certified class of plaintiffs, which includes both KLX Employees (or Former KLX Employees) and ESG Employees (or Former ESG Employees) and such action involves employment or Benefit Plan related claims, reasonable costs and expenses incurred by the Parties in responding to such legal action shall be allocated among the Parties equitably in proportion to a reasonable assessment of the relative proportion of KLX Employees (or Former KLX Employees) and ESG Employees (or Former ESG Employees) included in or represented by the putative or certified plaintiff class. The procedures contained in the indemnification and related litigation cooperation provisions of the Distribution Agreement shall apply with respect to each Party's indemnification obligations under thisSection 8.7.
To the extent provided for under this Agreement, each Party agrees to reimburse the other Party, within 30 days of receipt from the other Party of reasonable verification, for all costs and expenses which the other Party may incur on its behalf as a result of any of the respective Welfare Plans and other Benefit Plans. All Liabilities retained, assumed, or indemnified against by ESG SpinCo pursuant to this Agreement, and all Liabilities retained, assumed, or indemnified against by KLX pursuant to this Agreement, shall in each case be subject to the indemnification provisions of the Distribution Agreement. Notwithstanding anything to the contrary, (i) no provision of this Agreement shall require any member of the ESG Group to pay or reimburse to any member of the KLX Group any benefit-related cost item that a member of the ESG Group has paid or reimbursed to any member of the KLX Group prior to the Distribution Date; and (ii) no provision of this Agreement shall require any member of the KLX Group to pay or reimburse to any member of the ESG Group any benefit-related cost item that a member of the KLX Group has paid or reimbursed to any member of the ESG Group prior to the Distribution Date.
Each Party acknowledges that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other Applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good-faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard. Each Party shall be responsible
for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release and indemnify the other Party for any Liabilities caused by the failure to satisfy any such responsibility.
Each Party acknowledges and agrees that no Party or individual shall be deemed to be in breach of such Party's or individual's fiduciary duty to ESG or the ESG Group, or KLX or the KLX Group, as applicable, solely by virtue of the fact that such Party or individual is, while an ESG Employee or KLX Employee, as applicable, providing services to ESG or the ESG Group, and KLX or the KLX Group, simultaneously, as applicable. Each Party shall fully release and indemnify the other Party for any Liabilities caused by any such dual and simultaneous obligations.
Each Party acknowledges and agrees that no Party or individual shall be deemed to be in breach of such Party's or individual's obligation of confidentiality or other restrictive covenant obligations (including non-competition and non-solicitation restrictions) to ESG or the ESG Group, or KLX or the KLX Group, as applicable, solely by virtue of the fact that such Party or individual is, while an ESG Employee or KLX Employee, as applicable, providing services to ESG or the ESG Group, and KLX or the KLX Group, simultaneously, as applicable. Each Party shall fully release and indemnify the other Party for any Liabilities caused by any such dual and simultaneous obligations.
KLX and ESG SpinCo shall cooperate in good faith so that the transactions contemplated by this Agreement and the Distribution Agreement will not result in adverse Tax consequences under Section 409A of the Code to any ESG Employee, ESG Non-Employee Director, Former ESG Employee, KLX Employee, KLX Non-Employee Directornon-employee director or Former KLX Employee, in respect of their respective benefits under any Benefit Plan. In the event the Parties determine that the actions described in this Agreement may result in any ESG Employee, ESG Non-Employee Director, Former ESG Employee, KLX Employee, KLX Non-Employee Directornon-employee director or Former KLX Employee becoming subject to additional Taxes pursuant to Section 409A of the Code, the Parties agree to cooperate in good faith to modify the procedures described in this Agreement to prevent such ESG Employee, ESG Non-Employee Director, Former ESG Employee, KLX Employee, KLX Non-Employee Directornon-employee director or Former KLX Employee from becoming subject to such additional Tax.
From the Distribution Date until the 18-month anniversary of the Closing Date, KLX and ESG SpinCo shall not, and each shall cause, in the case of KLX, each member of the KLX Group and, in the case of ESG SpinCo, each member of the ESG Group, not to, solicit, hire, or in any other capacity recruit, offer employment, employ or engage as a consultant or independent representative, in the case of EGS SpinCo, any KLX Employee, and, in the case of KLX, any ESG Employee (such individuals described in the foregoing,Covered Employees);provided that, the foregoing shall not restrict (a) KLX, ESG SpinCo or their respective Affiliates from making general solicitations of employment in the ordinary course of business that are not specifically directed to any Covered Employee, (b) KLX, ESG SpinCo or their respective Affiliates from employing, hiring, engaging, recruiting or soliciting any Covered Employee whose service with the Company or a Member or any of its Affiliates, as the case may be, has been terminated, or (c) ESG SpinCo from soliciting, engaging, recruiting and/or hiring any Specified Employee.
IN NO EVENT SHALL ANY MEMBER OF THE KLX GROUP OR THE ESG GROUP BE LIABLE TO ANY MEMBER OF THE ESG GROUP OR THE KLX GROUP, RESPECTIVELY, FOR ANY PUNITIVE DAMAGES ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S INDEMNIFICATION OBLIGATIONS FOR LIABILITIES AWARDED TO THIRD PARTIES.
Except as otherwise provided in this Agreement, in this Agreement, the Distribution Agreement or in any Ancillary Agreement, each Party shall pay its own expenses in fulfilling its obligations under this Agreement. Notwithstanding anything in this Agreement, the Distribution Agreement or in any Ancillary Agreement to the contrary, all ESG Transaction Costs shall be borne by ESG SpinCo and all KLX Transaction Costs shall be borne by KLX.
All notices, consents, and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt), (b) when
received by the addressee if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent by e-mail or facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, or (d) on the third (3rd)(3rd) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with thisSection 9.3):
[**************************]KLX Energy Services Holdings, Inc.[**************************]1300 Corporate Center Way[**************************]Wellington, FL 33414Facsimile: [*****************]Phone: (561) 383-5100
Fax: (561) 791-5479
Email: [********************]Tom.McCaffrey@KLX.com
Attention: [*****************];Tom McCaffrey
with a copy (which shall not constitute notice) to:
Freshfields Bruckhaus Deringer US LLP
601 Lexington Avenue, 31st Floor
New York, NY 10022
Phone: (212) 277-4000
Fax: (212) 277-4001
Email: Valerie.Jacob@freshfields.com
Omar.Pringle@freshfields.com
Attention: Valerie Ford Jacob, Esq.
Omar Pringle, Esq.
KLX Inc.
1300 Corporate Center Way
Wellington, FL 33414
Phone: (561) 383-5100
Fax: (561) 791-5479
Email: Roger.Franks@klx.com
Attention: General Counsel;
with a copy (which shall not constitute notice) to:
as if drafted collectively by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.
Following the Effective Time, KLX shall not make, and shall procure that none of the members of the KLX Group makes, any press release or public announcement in respect of this Agreement or the
transactions contemplated by this Agreement without the prior written consent of ESG SpinCo unless otherwise required by Applicable Law or applicable stock exchange regulation.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Distribution be consummated as originally contemplated to the fullest extent possible.
This Agreement and the Distribution AgreementsAgreement (including the other Ancillary Documents)Agreements) constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, by and between the Parties with respect to the subject matter hereof and thereof. Irrespective of anything else contained herein, the Parties do not intend for this Agreement constitute the establishment or adoption of, or amendment to, any Benefit Plan, and no person participating in any such Benefit Plan shall have any claim or cause of action, under ERISA or otherwise, in respect of any provision of this Agreement as it relates to any such Benefit Plan or otherwise.
Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties (whether by operation of Applicable Law or otherwise) without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective permitted successors and assigns. Any attempted assignment in violation of thisSection 9.8 shall be null and void.
The Parties acknowledge and agree that all provisions contained in thisAgreement with respect to ESG Business Employees and ASG Business Employees are included for the sole benefit of the respective Parties and shall not create any right (i) in any other Person, including employees, former employees, any participant or any beneficiary thereof, in any Benefit Plan, or (ii) to continued employment with the ESG Group or the KLX Group. Notwithstanding anything in thisAgreement to the contrary, nothing in this Agreement, whether express or implied, shall be treated as an amendment or other modification of any Benefit Plan or shall prohibit the KLX group or the ESG Group from amending or terminating any Benefit Plan.
This Agreement and all Proceedings (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of KLX and ESG SpinCo in the negotiation, administration, performance and enforcement thereof, shall be governed by, and construed in accordance with, the Applicable Laws of the State of Delaware, without giving effect to any choice or conflict of laws provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Applicable Laws of any jurisdiction other than the State of Delaware.
be sufficient to confer personal jurisdiction over such Party in such claim or Proceeding and shall otherwise constitute effective and binding service in every respect.
Notwithstanding anything in this Agreement to the contrary, if the Distribution Agreement is terminated prior to the Distribution Date, this Agreement shall be of no further force and effect.
This Agreement may be executed in multiple counterparts, all of which shall together be considered one and the same agreement. Delivery of an executed signature page to this Agreement by electronic transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
EACH OF KLX, AND ESG SPINCO AND KLX ENERGY SERVICES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) BETWEEN ANY OF THEM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF KLX OR ESG SPINCO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their respective officers, each of whom is duly authorized, all as of the day and year first above written.
KLX INC. | ||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||
Name: | Thomas P. McCaffrey | |||||
Title: | President and Chief Operating Officer | |||||
| ||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||
Name: | Thomas P. McCaffrey | |||||
Title: | Vice President | |||||
| ||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||
Name: | Thomas P. McCaffrey | |||||
Title: | Director and President |
[ ],JULY 13, 2018
KLX INC.
and
KLX ENERGY SERVICES HOLDINGS, INC.
TRANSITION SERVICES AGREEMENT
| | Page | ||||
---|---|---|---|---|---|---|
ARTICLE I DEFINITIONS | F-1 | |||||
1.1 | Definitions | F-1 | ||||
1.2 | Terms | F-1 | ||||
| F-2 | |||||
2.1 | Services; Time Period | F-2 | ||||
2.2 | Fees and Invoicing | F-2 | ||||
2.3 | Cooperation | F-3 | ||||
2.4 | Access to Systems | F-3 | ||||
2.5 | Subcontractors | |||||
2.6 | Migration Planning | F-4 | ||||
2.7 | Compliance Matters | |||||
2.8 | Limitation of Services | F-5 | ||||
| F-5 | |||||
3.1 | Term | F-5 | ||||
3.2 | Termination Rights | F-5 | ||||
| F-6 | |||||
4.1 | Nature of Services | F-6 | ||||
4.2 | Limitations on Liability; Disclaimer of Warranties | F-7 | ||||
4.3 | Indemnification | F-8 | ||||
4.4 | Employment-Related Liabilities | F-8 | ||||
4.5 | Force Majeure | |||||
| ||||||
5.1 | Owned Intellectual Property | |||||
5.2 | Notices | F-10 | ||||
5.3 | Interpretation; Certain Definitions | F-11 | ||||
5.4 | Severability | |||||
5.5 | Assignment | |||||
5.6 | Entire Agreement | |||||
5.7 | No Third Party Beneficiary | F-12 | ||||
5.8 | Governing Law | F-12 | ||||
5.9 | Consent to Jurisdiction and Service of Process | F-12 | ||||
5.10 | Counterparts | |||||
5.11 | WAIVER OF JURY TRIAL |
F-i
THIS TRANSITION SERVICES AGREEMENT (thisAgreement), dated as of [ · ]July 13, 2018 (theEffective Date), is entered into by and between KLX Inc., a corporation formed under the laws of the State of Delaware (KLX), and KLX Energy Services Holdings, Inc., a corporation formed under the laws of the State of Delaware (ESG SpinCo). KLX and ESG SpinCo are referred to herein individually as a Party and collectively as the Parties.
WHEREAS, KLX and The Boeing Company (theASG Buyer) have entered into an Agreement and Plan of Merger on April 30, 2018 (theASG Merger Agreement), pursuant to which a wholly owned subsidiary of the ASG Buyer (Merger Sub) will be merged with and into KLX, whereupon the separate existence of the Merger Sub shall cease, and KLX will continue as the surviving corporation and as a direct or indirect wholly owned subsidiary of the ASG Buyer (theASG Merger);
WHEREAS, concurrently with the execution of this Agreement, KLX, KLX Energy Services LLC (KLX Energy Services) and ESG SpinCo are entering into a distribution agreement (theDistribution Agreement) pursuant to which, inter alia, KLX agrees to separate the ASG Business and the ESG Business through a taxable spin-off of the ESG Business into a separate publicly traded company upon the terms and subject to the conditions set forth in the Distribution Agreement;
WHEREAS, the Distribution Agreement contemplates that ESG SpinCo and KLX enter into this Agreement; and
WHEREAS, in connection therewith, KLX agrees to provide to the ESG Group, for the time periods set forth herein, certain services to support the operation of the ESG Business after the Distribution Date (as defined in the Distribution Agreement) in accordance with the terms and subject to the conditions set forth herein, in order to allow the ESG Group a period of time after the Distribution to make arrangements to purchase from one or more third parties, or develop the capability to perform itself, such services in connection with its independent operation.
NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements entered into herein and in the Distribution Agreement, and intending to be legally bound hereby, the Parties hereto agree as follows:
Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to them in the Distribution Agreement.
As used herein, the following terms have the following meanings:
Agreement has the meaning set forth in the Recitals.
ASG Buyer has the meaning set forth in the Recitals.
ASG Merger has the meaning set forth in the Recitals.
Benefit Plan means any plan, program, policy, agreement, arrangement or understanding that is an employment, consulting, deferred compensation, executive compensation, incentive bonus or other bonus, employee pension, profit sharing, savings, retirement, supplemental retirement, stock option, stock purchase, stock appreciation right, restricted stock, restricted stock unit, deferred stock unit, other equity-based compensation, severance pay, retention, change in control, salary continuation, life, death benefit, health, hospitalization, workers' compensation, sick leave, vacation pay, disability or accident
insurance or other employee benefit plan, program, agreement or arrangement, including any "employee benefit plan" (as defined in Section 3(3) of ERISA) (whether or not subject to ERISA) sponsored or maintained by such entity or to which such entity is a party.
Closing Date has the meaning set forth in the ASG Merger Agreement.
Confidential Information has the meaning set forth inSection 5.1(d).
Distribution Agreement has the meaning set forth in the Recitals.
Effective Date has the meaning set forth in the Preamble.
ESG SpinCo has the meaning set forth in the Recitals.
KLX has the meaning set forth in the Recitals.
KLX Confidential Information has the meaning set forth inSection 5.1(d).
Merger Sub has the meaning set forth in the Recitals.
Migration Plan has the meaning set forth inSection 2.6.
Reference Period means the twelve (12) month period prior to April 30, 2018.
Representatives means, with respect to a Party, (i) an Affiliate of such Party or (with respect to KLX) a subcontractor or delegate; (ii) any director, officer, or employee of such Party or of any such Party's Affiliates; or (iii) any attorney, accountant, business, financial, technical or other advisor, or consultant retained by such Party, or any investor or potential purchaser of such Party.
Services means the services set forth inExhibit A hereto.
Third Party Provider has the meaning set forth inSection 2.5.
Third Party Services has the meaning set forth inSection 2.5.
Transition Service Period has the meaning set forth inSection 3.1.
ARTICLE II
TRANSITION SERVICES; FEES
Subject to the terms and conditions of this Agreement, KLX shall provide, or cause to be provided through its Affiliates or Third Party Providers, from and after the Distribution Date, each of the Services to the ESG Group. The Services shall be provided for the Transition Service Period unless terminated earlier in accordance withARTICLE III.
Each Party agrees to use commercially reasonable efforts in good faith to cooperate with the other Party in all matters relating to the provision and receipt of the Services. KLX will have no liability for any failure to perform (or to timely perform) its obligations if such failure results from any member of the ESG Group's failure to cooperate in any applicable matter relating to the provision and receipt of the Services, and any such KLX failure in such circumstances will not be deemed a breach of this Agreement. Notwithstanding anything to the contrary in this Agreement, in no event shall KLX's obligation to cooperate with ESG SpinCo provided for under the terms of this Agreement require KLX to (i)(a) advance funds to, or on behalf of, ESG SpinCo, (ii)(b) assume any liability or obligation of ESG SpinCo, or (iii)(c) to incur any new liability or obligation to any third party. To the extent any Service requires KLX to disburse funds on behalf of ESG SpinCo, upon written notice by KLX (which such notice may be based on an estimated amount subject to a subsequent "true-up" to the actual amount disbursed by KLX), ESG SpinCo shall provide such funds to KLX (subject, in the case of any estimated amount, to any subsequent "true-up"), in advance of such disbursement by KLX, by electronic funds transfer to an account designated by KLX in writing.
On or before the Distribution Date, ESG SpinCo shall inform in writing all employees of the ESG Group who have access to KLX's information technology systems, telecommunications, networks and data, computer software, and hardware (collectively, theKLX Systems) pursuant to this Agreement or the Distribution Agreement or any ancillary agreements related to the transactions contemplated hereby or thereby, or in connection with the performance, receipt or delivery of any Service, (x) to comply with the written security guidelines (including physical security, network access, internet security, confidentiality and personal data security guidelines) of KLX (which may be updated from time to time during the Transition Service Period), and (y) that failure to abide by such policies and procedures shall be grounds for immediate termination.termination of employment. ESG SpinCo shall, in addition, request access in writing from KLX (with consent for such access not to be unreasonably withheld) with respect to any additional personnel, advisors, agents or independent contractors of the ESG Group who are granted access to such systems by KLX after the Distribution Date of the foregoing prior to such individuals obtaining access to any such systems. ESG SpinCo shall cooperate and fully implement thisSection 2.4 and shall be liable to KLX for any breach hereof by any of its Representatives. The Parties acknowledge that additional conditions and restrictions may apply to satisfy the requirements of Governmental Authorities and Applicable Laws with respect to any KLX Systems subject to a
government security classification. For the avoidance of doubt, the KLX Systems shall exclude the information technology systems, telecommunications, networks and data, computer software, and hardware of ASG Buyer and its Affiliates (other than the KLX Group).
Immediately on signing this Agreement (if not already established prior to the date of this Agreement), the Parties shall establish a joint transition project team to begin planning for the efficient migration of the Services to the IT systems or other facilities of the ESG Group, or of third parties approved by KLX in writing (approval not to be unreasonably withheld or delayed). The Parties shall work together in good faith to finalize a plan to achieve such migration (theMigration Plan) as soon as
reasonably practicable after the Effective Date. ESG SpinCo shall be primarily responsible for preparing and documenting the Migration Plan, subject to KLX's review and final approval. The Parties shall, and shall cause their Affiliates to, comply with their obligations set out in the Migration Plan. KLX shall charge ESG SpinCo for its time spent and other reasonably incurred expenses in complying with its Migration Plan obligations in accordance withExhibit A.
Each Party shall comply with Applicable Laws in connection with this Agreement and, subject toSection 2.5, shall obtain and maintain in force all licenses, consents, permits and regulatory approvals that are necessary in connection with this Agreement. Neither Party assumes any responsibility for compliance by the other Party with any Applicable Laws applicable to the other Party (and, for the avoidance of doubt, ESG SpinCo shall be responsible for ensuring that the operations of the ESG Business complies with all Applicable Laws on and from the Effective Date). Neither KLX nor any Third Party Provider shall be required to provide any Service to the extent the performance of such Service would constitute a violation of, or would result in the breach of, any Applicable Law.
Services provided under this agreement shall generally be limited to transitional access to systems and data that are necessary for ESG SpinCo to operate. Notwithstanding anything to the contrary herein, in no event shall KLX be obligated to (a) make modifications to its existing systems; (b) acquire additional assets, equipment, rights or properties (including computer equipment, software, furniture, furnishings, fixtures, machinery, vehicles, tools and other personal property) that are not in KLX's or any of its Affiliates' ordinary course of operations; (c) hire additional employees; (d) pay any costs related to the transfer or conversion of data from KLX or any of its Affiliates to the ESG Group; or (e) perform any Services that would cause KLX to violate its contractual obligations to any other Party or would violate any applicable requirements, consents, policies or approval of any Governmental Authority, relating to the subject matter of the services at issue.
3.1
The term of this Agreement shall commence on the Effective Date and shall terminate upon the earlier of (i)(a) the date that is six (6) months after the Closing Date and (ii)(b) the date on which this Agreement has been terminated in accordance withSection 3.2(a) (theTransition Service Period). ESG SpinCo shall, and shall cause the ESG Group to, use commercially reasonable efforts to end the ESG Group's dependency on and use of each Service as promptly as is reasonably practicable after the Effective Date.
debtors, and such non-terminating Party fails to have such proceeding stayed or vacated within ninety (90) days or (iv)(D) if the non-terminating Party makes an assignment for the benefit of creditors, or a receiver is appointed for such non-terminating Party which is not discharged within thirty (30) days after the appointment of the receiver;
after the Closing, the information technology systems, telecommunications, networks and data, computer software or hardware of the ASG Buyer or any of its Affiliates; and
ARTICLE IV
LIMITATION ON LIABILITY
Reference Period, and (B)(ii) provide, or cause to be provided, any Service (i)(A) in a volume or quantity or at a level of service that exceeds the volumes, quantities or levels of the services provided to the ESG Group that are reasonably necessary for the ESG Group to conduct its business in a manner substantially similar to the manner in which such business was conducted during the Reference Period, or (ii)(B) in a jurisdiction where the ESG Group did not operate immediately prior to the Effective Date and where, on the written advice of legal counsel to KLX, a permit, license or other authorization from a Governmental Authority is required to perform the Service in such jurisdiction and KLX does not hold such a permit, license or authorization. In providing the Services, the KLX Group shall accord, and shall use commercially reasonable efforts to cause any Third Party Providers to accord, to the ESG Group no less than the substantially same priority and treatment under comparable circumstances as the KLX Group, or any applicable Third Party Provider, provided during the Reference Period.
4.3
Except as otherwise specifically set forth in any provision of this Agreement, the Distribution Agreement or any other Ancillary Agreement, following the Effective Time, ESG SpinCo shall, and shall cause the other members of the ESG Group to, indemnify, defend and hold harmless the KLX Indemnitees from and against any and all Losses arising out of, by reason of or otherwise in connection with (i) the provision of or the ESG Group's receipt or use of the Services, (ii) ESG SpinCo's (or a member of the ESG Group's) exercise of its rights under this Agreement or (iii) any breach by any member of the ESG Group of this Agreement.
4.4
In the event that any member of the KLX Group is determined by any administrative agency or court of competent jurisdiction to be an employer of any of the ESG Group's employees or agents, or is otherwise deemed to be or required to become an employer of such employees or agents of the ESG Group pursuant to any Applicable Laws, for the purpose of any Tax or to provide such employees or agents with compensation, benefits, coverages, damages or other payments under: (a) any Employee Benefit Plan of the ESG Group, (b) any state unemployment insurance, worker's compensation or disability benefits programs, (c) Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in Employment Act of 1967, as amended, the Americans with Disabilities Act, as amended, the Family and Medical Leave Act, as amended, ERISA, the Worker Adjustment Retraining and Notification Act
or any other local, state or federal civil rights or employment statue, (d) the Federal Insurance Contributions Act, as amended, the Federal Unemployment Tax Act or the Fair Labor Standards Act, as amended, or any local or state analogue thereof, or (e) any other Applicable Law, then ESG SpinCo shall be financially responsible for, and shall indemnify, hold harmless and reimburse KLX (or the applicable Affiliate thereof) for the total costs of any compensation, benefits, coverage, taxes, damages, penalties or other payments provided by KLX (or any Affiliate thereof), together with related attorney's fees and other Losses, on account of same.
4.5
KLX shall not be responsible for any delay or failure to perform any of its obligations hereunder due to any cause or causes beyond its control, including any of the following: labor disturbances, accidents, hurricanes, fires, floods, wars, riots, rebellions, blockages, acts of governments, acts of terrorism, governmental requirements and regulations, restrictions imposed by law, interruption or outages of communication or data networks or power supply, infrastructure disruptions, or any criminal or tortious acts of any person other than KLX.
ARTICLE V
MISCELLANEOUS
5.1
Intellectual Property rights owned by the other Party or any of its Affiliates. In no event shall KLX by virtue of performing the Services, or ESG SpinCo by virtue of receiving the Services, be required to transfer or deliver any Intellectual Property to the other Party.
Confidential Information (i)(A) to their respective auditors, attorneys, financial advisors, bankers and other appropriate consultants and advisors who have a need to know such information and are informed of their obligation to hold such information confidential to the same extent as is applicable to the Parties and in respect of whose failure to comply with such obligations, the applicable Party will be responsible, (ii)(B) if the Parties are required or compelled to disclose any such Confidential Information by judicial or administrative process or by other requirements of Applicable Law or stock exchange rule, (iii)(C) as required in connection with any legal or other proceeding by one Party against the other Party, or (iv)(D) as necessary in order to permit a Party to prepare and disclose its financial statements, tax returns or other required disclosures. Notwithstanding the foregoing, in the event that any demand or request for disclosure of Confidential Information is made pursuant to clause (ii)(B) above, each Party shall, to the extent not prohibited by Applicable Law, promptly notify the other of the existence of such request or demand and shall provide the other a reasonable opportunity to seek an appropriate protective order or other remedy, which such Parties will reasonably cooperate in obtaining, at the sole cost of the Party seeking such order or other remedy. In the event that such appropriate protective order or other remedy is not obtained, the Party whose Confidential Information is required to be disclosed shall or shall cause the other Party to furnish, or cause to be furnished, only that portion of the Confidential Information that is legally required to be disclosed and shall use commercially reasonable efforts, at the sole cost and expense of the Party whose Confidential Information is required to be disclosed, to ensure that confidential treatment is accorded such information. Notwithstanding anything in this Agreement to the contrary, each Party hereby acknowledges that the other Party, in addition to any other remedies available to it for any breach or threatened breach of thisSection 5.1(d), shall be entitled to seek a preliminary injunction, temporary restraining order or other equivalent relief restraining such Party from any such breach or threatened breach.
5.2
All notices, consents, and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt), (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested), (c) on the date sent by e-mail or facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, or (d) on the third (3rd)(3rd) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective Party at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with thisSection 5.2):
(i)
[**************************]KLX Energy Services Holdings, Inc.[**************************]1300 Corporate Center Way[**************************]Wellington, FL 33414
Attention: [*****************]Tom McCaffrey
Facsimile: [*****************](561) 791-5479
Email: [********************];Tom.Mccaffrey@KLX.com;
with a copy (which shall not constitute notice) to:
Freshfields Bruckhaus Deringer US LLP
601 Lexington Avenue, 31st Floor
New York, NY 10022
Phone: (212) 277-4000
Fax: (212) 277-4001
Email: Valerie.Jacob@freshfields.com
Omar.Pringle@freshfields.com
Attention: Valerie Ford Jacob, Esq.
Omar Pringle, Esq.
(ii)
KLX Inc.
1300 Corporate Center Way
Wellington, FL 33414
Phone: (561) 383-5100
Facsimile: [*****************](561) 791-5479
Email: [********************]Roger Franks
Attention: General Counsel;
with a copy (which shall not constitute notice) to:
Freshfields Bruckhaus Deringer US LLP
601 Lexington Avenue, 31st Floor
New York, NY 10022
Phone: (212) 277-4000
Fax: (212) 277-4001
Email: Valerie.Jacob@freshfields.com
Omar.Pringle@freshfields.com
Attention: Valerie Ford Jacob, Esq.
Omar Pringle, Esq.
5.3
defined in the text of this Agreement have such meaning throughout this Agreement, unless otherwise indicated in this Agreement, and all terms defined in this Agreement shall have the meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. All references to "dollars" or "$" refer to currency of the United States.
5.4
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the Distribution be consummated as originally contemplated to the fullest extent possible.
5.5
Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties (whether by operation of Applicable Law or otherwise) without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective permitted successors and assigns. Any attempted assignment in violation of thisSection 5.5 shall be null and void.
5.6
This Agreement (including the exhibits, annexes and appendices hereto and any other agreement entered into by and between the Parties in connection herewith) constitutes, together with the Ancillary Agreements, the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, by and between the Parties with respect to the subject matter hereof.
5.7
This Agreement is not intended to and shall not confer upon any Person other than the Parties any rights or remedies hereunder.
5.8
This Agreement and all Proceedings (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of KLX and ESG SpinCo in the negotiation, administration, performance and enforcement thereof, shall be governed by, and construed in accordance with, the Applicable Laws of the State of Delaware, without giving effect to any choice or conflict of laws provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Applicable Laws of any jurisdiction other than the State of Delaware.
5.9
particular matter, any state or federal court within the State of Delaware), (ii) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such courts, (iii) agrees that it will not bring any claim or Proceeding relating to this Agreement or the transactions contemplated by this Agreement except in such courts and (iv) waives, to the fullest extent it may legally and effectively do so, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, any objection which it may now or hereafter have to the laying of venue of any claim or Proceeding arising out of or relating to this Agreement. Notwithstanding the foregoing, each of KLX and ESG SpinCo agrees that a final and nonappealablenon-appealable judgment in any Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Applicable Law.
This Agreement may be executed in multiple counterparts, all of which shall together be considered one and the same agreement. Delivery of an executed signature page to this Agreement by electronic transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
5.11
EACH OF KLX AND ESG SPINCO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) BETWEEN ANY OF THEM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF KLX OR ESG SPINCO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their respective officers, each of whom is duly authorized, all as of the Effective Date.
KLX Inc. | ||||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||||
Name: | Thomas P. McCaffrey | |||||||
Title: | President and Chief Operating Officer | |||||||
KLX Energy Services Holdings, Inc. | ||||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||||
Name: | Thomas P. McCaffrey | |||||||
Title: | Vice President |
THIS IP MATTERS AGREEMENT (thisAgreement), dated as of [ · ],July 13, 2018, is entered into by and between KLX Inc., a corporation formed under the laws of the State of Delaware (KLX), and KLX Energy Services Holdings, Inc., a corporation formed under the laws of the State of Delaware (ESG SpinCo). KLX and ESG SpinCo are referred to herein individually as aParty and collectively as theParties.
WHEREAS, KLX owns the KLX Trademarks (as defined herein);
WHEREAS, KLX has been using certain KLX Trademarks in relation to the ASG Business, and KLX Energy Services LLC (KLX Energy Services) and ESG SpinCo hashave been using certain KLX Trademarks in relation to the ESG Business;
WHEREAS, KLX and The Boeing Company (theASG Buyer) entered into an Agreement and Plan of Merger on April 30, 2018 (theASG Merger Agreement), pursuant to which a wholly owned subsidiary of the ASG Buyer (Merger Sub) will be merged with and into KLX, whereupon the separate existence of the Merger Sub shall cease, and KLX will continue as the surviving corporation and as a direct or indirect wholly owned subsidiary of the ASG Buyer (theASG Merger);
WHEREAS, concurrently with the execution of this Agreement, KLX, and ESG SpinCo and KLX Energy Services are entering into a distribution agreement (theDistribution Agreement) pursuant to which, inter alia, KLX agrees to separate the ASG Business and the ESG Business through a taxable spin-off of the ESG Business into a separate publicly traded company upon the terms and subject to the conditions set forth in the Distribution Agreement (theSpin-Off);
WHEREAS, following the Spin-Off andimmediately prior to the ASG Merger, the Parties intend that ESG SpinCo will own the KLX Trademarks; and
WHEREAS, KLX and ESG SpinCo wish to enter into this Agreement setting forth their rights and obligations with respect to the transfer of the KLX Trademarks and associated rights (as set forth inSection 3.01), on an as-is basis, to ESG SpinCo and the rebranding of the ASG Business (as more fully described inArticle IV).
NOW,THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the mutual terms, conditions and other agreements set forth herein, and intending to be legally bound hereby, the Parties agree, with effect as of the Effective Time, as follows:
As used herein, the following terms have the following meanings:
Acquired Rights has the meaning set forth inSection 3.01.
Affiliate means, with respect to any Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meaning, the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract or otherwise.
Agreement has the meaning set forth in the Preamble.
Ancillary Agreement has the meaning given in the Distribution Agreement.
Applicable Law has the meaning given in the ASG Merger Agreement.
ASG Business means all businesses of KLX and its Subsidiaries, other than the ESG Business.
Assignment has the meaning set forth inSection 3.023.02(a).
Closing has the meaning given in the ASG Merger Agreement.
Closing Date has the meaning given in the ASG Merger Agreement.
Effective Time has the meaning given in the Distribution Agreement.
ESG Business means the business of providing technical services and related rental equipment to oil and gas exploration and production companies in remote oil and gas producing regions solely as conducted by the ESG Group, but does not include any other business operated or conducted by any member of the KLX Group.
ESG Group means ESG SpinCo, KLX RE Holdings LLC, KLX Energy Services and each Person that is or becomes a Subsidiary of ESG SpinCo, including in each case any Person that is merged or consolidated with and into ESG SpinCo or any Subsidiary of ESG SpinCo.
Governmental Authority has the meaning given in the ASG Merger Agreement.
KLX Energy Services has the meaning given in the Recitals.
KLX ES Mark means the United States trademark "KLX ENERGY SERVICES" (Registration No. 5212182).
KLX Group means KLX, each Person that is or becomes a Subsidiary of KLX (other than the members of the ESG Group), including in each case any Person that is merged or consolidated with and into KLX or any Subsidiary of KLX.
KLX Trademarks means the trademarks and trademark applications listed on Schedule 1, together with any other trademarks, trade names, service marks, logos or similar rights, in each case, (a) owned as of the Effective Time by the KLX Group and (b) containing "KLX".
Parties has the meaning set forth in the Preamble.
Party has the meaning set forth in the Preamble.
Person means any individual or any corporation, limited liability company, partnership, trust, association or other entity of any kind.
Proceeding has the meaning given in the ASG Merger Agreement.
Similar Marks means the "KLX" name and any trademarks, trade names, service marks, logos or similar rights that are likely to cause confusion with the KLX Trademarks.
Subsidiary of a Person means any other Person with respect to which the first Person (i) has the right to elect a majority of the board of directors or other Persons performing similar functions or (ii) beneficially owns more than fifty percent (50%) of the voting stock (or of any other form of voting or controlling equity interest in the case of a Person that is not a corporation), in each case, directly or indirectly through one or more other Persons.
Capitalized terms used but not defined in this Agreement shall have the meaning set forth in the Distribution Agreement.
With effect from the Effective Time until such time as the Acquired Rights are assigned to ESG SpinCo in accordance withSection 3.01, KLX consents to and grants the ESG Group a non-exclusive, irrevocable, royalty-free, non-transferable, non-sublicensable license to use the KLX Trademarks in the form "KLX ENERGY SERVICES" (or any form which varies in insignificant ways thereto), solely in connection with the ESG Business.
KLX shall not, and shall procure that the members of the KLX Group shall not (except, in each case, as otherwise permitted herein):
Notwithstanding anything to the contrary in this Agreement, the ASG Merger Agreement, the Distribution Agreement, or any Ancillary Agreement, with effect from the Closing Date, including after the Acquired Rights have been assigned to ESG SpinCo in accordance withSection 3.01, ESG SpinCo shall not, and shall procure that each member of the ESG Group shall not, use or otherwise attempt to procure a registration for the KLX Trademarks or any Similar Mark, or otherwise permit (whether directly through a license grant or indirectly) any other Person to use or otherwise attempt to procure a registration for the KLX Trademarks or any Similar Mark: (a)(i) in relation to goods or services equivalent or similar to those provided by the ASG Business at any time; (b)(ii) in a manner calculated to cause confusion with the ASG Business; or (c)(iii) otherwise within the fields of use in which the ASG Business may operate.
ARTICLE III
ASSIGNMENT OF ACQUIRED RIGHTS
KLX hereby, with effect from immediately prior to the Closing Date (but subject to the occurrence of the Closing), assigns, and causes all members of the KLX Group to assign, to ESG SpinCo, all of its and their right, title and interest in and to:
((a)
Within a reasonable amount of time after the consummation of the assignment pursuant toSection 3.01, KLX shall promptly deliver to ESG SpinCo:
ARTICLE IV
REBRANDING OF KLX GROUP
If the ASG Merger is consummated, then, KLX shall:
Provided that the Assignment has been consummated in accordance withSection 3.01 ESG SpinCo hereby grants to the KLX Group a non-exclusive, irrevocable, royalty-free, non-transferable, sublicensable license to use the KLX Trademarks, for three hundred sixty-five (365) days after the Closing Date, to enable the KLX Group to rebrand in accordance with thisArticle IV and otherwise wind-down and transition off any trademark usage of the KLX Trademarks or any Similar Mark;
provided such use (including sublicensing) is generally consistent with the purposes for which, the
manner in which, and the extent to which the KLX Trademarks or Similar Marks were used (or licensed) by the KLX Group in the six (6) months prior to the Closing Date.
This Agreement shall automatically terminate on the earlier of (i) the termination of the ASG Merger Agreement and (ii) the termination of the Distribution Agreement;provided that if the ASG Merger Agreement is terminated after the consummation of the Spin-Off, KLX and ESG SpinCo shall enter into a long-term brand co-existence agreement on customary terms and conditions to provide for the use of the KLX Trademarks between KLX and ESG SpinCo.
Without affecting any other right or remedy available to it, either Party may terminate this Agreement with immediate effect by giving written notice to the other Party if the other Party commits a material breach of any term of this Agreement which is incapable of remedy or (if such breach is remediable) fails to remedy that breach within a period of thirty (30) days after being notified in writing to do so.
In the event of termination of this Agreement as provided in thisArticle V, this Agreement will be of no further force or effect;provided,however, that no such termination shall affect this paragraphSection 5.03 or any ofSection 2.03,Article I,Article V orArticle VI, which Section. Such Sections and Articles shall survive any termination of this Agreement.
If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner.
Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the Parties (whether by operation of Applicable Law or otherwise) without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective permitted successors and assigns. Any attempted assignment in violation of thisSection 6.02 shall be null and void. Without limiting the foregoing, the licenses and other rights granted, and obligations made, underSection 2.03 (but solely for a period of 10ten (10) years from the Closing Date) andSection 4.02 are intended to be and will be binding on any Person to which the KLX Trademarks may be sold, assigned, transferred, or otherwise divested, and on any subsequent purchaser, assignee, or transferee, and any subsequent owner of the Acquired Rights, and ESG SpinCo shall procure that any such sale, assignment, transfer, or divestiture that it or its Affiliate makes of such Acquired Rights will be made subject to the rights of, and obligations owed to, the KLX Group therein.
This Agreement and all Proceedings (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the actions of KLX and ESG SpinCo in the negotiation, administration, performance and enforcement thereof, shall be governed by, and construed in accordance with, the Applicable Laws of the State of Delaware, without giving effect to any choice or conflict of laws provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Applicable Laws of any jurisdiction other than the State of Delaware.
6.04
6.05
6.06 Notices
All notices, consents, and other communications hereunder shall be in writing and shall be deemed to have been given (a)(i) when delivered by hand (with written confirmation of receipt), (b)(ii) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested), (c)(iii) on the date sent by e-mail or facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, or (d)(iv) on the third (3rd) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the
sent to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with thisSection 6.06):
(i)
[**************************]KLX Energy Services Holdings, Inc.[**************************]1300 Corporate Center Way[**************************]Wellington, FL 33414
Attention: [*****************]Tom McCaffrey
Facsimile: [*****************](561) 791-5479
Email: [********************];Tom.McCaffrey@KLX.com;
with a copy (which shall not constitute notice) to:
Freshfields Bruckhaus Deringer US LLP
601 Lexington Avenue, 31st Floor
New York, NY 10022
Phone: (212) 277-4000
Fax: (212) 277-4001
Email: Valerie.Jacob@freshfields.com
Omar.Pringle@freshfields.com
Attention: Valerie Ford Jacob, Esq.
Omar Pringle, Esq.
(ii)
KLX Inc.
1300 Corporate Center Way
Wellington, FL 33414
Phone: (561) 383-5100
Fax: (561) 791-5479
Email: Roger.Franks@klx.com
Attention: General Counsel;
with a copy (which shall not constitute notice) to:
Freshfields Bruckhaus Deringer US LLP
601 Lexington Avenue, 31st Floor
New York, NY 10022
Phone: (212) 277-4000
Fax: (212) 277-4001
Email: Valerie.Jacob@freshfields.com
Omar.Pringle@freshfields.com
Attention: Valerie Ford Jacob, Esq.
Omar Pringle, Esq.
6.07
sections and paragraphs of, and exhibits, annexes and schedules to, this Agreement, unless otherwise specified, and the table of contents and headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the phrase "without limitation." Words describing the singular number shall be deemed to include the plural andvice versa, words denoting any gender shall be deemed to include all genders, words denoting natural persons shall be deemed to include business entities andvice versa and references to a Person are also to its permitted successors and assigns. The phrases "the date of this Agreement" and "the date hereof" and terms or phrases of similar import shall be deemed to refer to [ · ],July 13, unless the context requires otherwise. Terms defined in the text of this Agreement have such meaning throughout this Agreement, unless otherwise indicated in this Agreement, and all terms defined in this Agreement shall have the meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein. All references to "dollars" or "$" refer to currency of the United States.
6.08
EACH OF KLX (ON BEHALF OF ITSELF AND EACH OTHER KLX GROUP COMPANY) AND ESG SPINCO (ON BEHALF OF ITSELF AND EACH OTHER ESG GROUP COMPANY) UNDERSTANDS AND AGREES THAT, EXCEPT AS SET FORTH IN THE ASG MERGER AGREEMENT, ANY ASSIGNMENT OF THE KLX TRADEMARKS AND ACQUIRED RIGHTS HEREUNDER IS MADE "AS-IS" WITHOUT ANY REPRESENTATION OR WARRANTY, AND NO PARTY TO THIS AGREEMENT IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE KLX TRADEMARKS OR ACQUIRED RIGHTS, AS TO ANY CONSENTS OR GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY (OR OTHER MEMBER OF SUCH PARTY'S GROUP), OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SET-OFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY ACTION OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY (OR OTHER MEMBER OF SUCH PARTY'S GROUP), OR AS TO THE LEGAL SUFFICIENCY OF ANY TRANSACTION, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER.
6.09
This Agreement is not intended to and shall not confer upon any Person other than the Parties any rights or remedies hereunderhereunder.
6.10
This Agreement (including the schedules hereto and any other agreement entered into by and between the Parties in connection herewith) constitutes, together with the ASG Merger Agreement and the Distribution Agreement, the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, by and between the Parties with respect to the subject matter hereof.
6.11
This Agreement may be executed in multiple counterparts, all of which shall together be considered one and the same agreement. Delivery of an executed signature page to this Agreement by electronic transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
6.12 No Partnership; Certain Relationships
Nothing in this Agreement (including any terminology used herein) and no action taken by the Parties under this Agreement is intended to, or shall be deemed to, establish any partnership, association or other co operative entity between any of the Parties or constitute any Party the agent of another Party for any purpose.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the Effective Time.
KLX Inc. | ||||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||||
Name: | Thomas P. McCaffrey | |||||||
Title: | President and Chief Operating Officer | |||||||
KLX Energy Services Holdings, Inc. | ||||||||
By: | /s/ THOMAS P. MCCAFFREY | |||||||
Name: | Thomas P. McCaffrey | |||||||
Title: | Vice President |
MMMMMMMMMMMM . MMMMMMMMMMMMMMM C123456789 000004 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext 000000000.000000 ext ENDORSEMENT_LINE______________ SACKPACK_____________ Electronic Voting Instructions Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Eastern Time, on [•] [•],August 23, 2018. MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 ADD 5 ADD 6 Vote by Internet • Go to www.investorvote.com/KLXI • Or scan the QR code with your smartphone • Follow the steps outlined on the secure website Vote by telephone • Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone • Follow the instructions provided by the recorded message Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Vote on Proposals The Board of Directors unanimously recommends a vote FOR Proposal 1. + For Against Abstain 1. To adopt the Agreement and Plan of Merger, dated as of April 30, 2018, as amended on June 1, 2018, and as it may be further amended from time to time, by and among TBhoeeBinogeinCgoCrpoomrpaatinoynThe Boeing Company (“Boeing”), Kelly Merger Sub, Inc. (“Merger Sub”) and KLX Inc. (“KLX”). The Board of Directors unanimously recommends a vote FOR Proposal 2. For Against Abstain 2. To approve, on a non-binding, advisory basis, certain compensation that will or may be paid by KLX to its named executive officers in connection with the merger of Merger Sub with and into KLX (the “merger”), with KLX surviving the merger as a wholly owned subsidiary of Boeing. The Board of Directors unanimously recommends a vote FOR Proposal 3. For Against Abstain 3. To approve an adjournment of the special meeting from time to time, if necessary or appropriate, for the purpose of soliciting additional votes in favor of Proposal 1 if there are not sufficient votes at the time of the special meeting to approve Proposal 1. To transact any other business that may properly come before the meeting or any adjournment thereof, this proxy will be voted at the discretion of the proxy holder. MMMMMMMC 1234567890 IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD. J N T MR A SAMPLE (THIS AREA IS SET UP TO ACCOMMODATE 140 CHARACTERS) MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND MR A SAMPLE AND + 1 U P X3 8 1 7 3 6 1 02V4ZC02V4ZE MMMMMMMMM A Special Meeting Proxy Card1234 5678 9012 345 X IMPORTANT SPECIAL MEETING INFORMATION
. q IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q Proxy — KLX Inc. + SPECIAL MEETING [•] [•],AUGUST 24, 2018 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY. The undersigned hereby constitutes and appoints Messrs. Michael F. Senft and Roger M. Franks, or either of them, with full power of substitution each, proxies to vote and act at the Special Meeting of Stockholders of KLX Inc. (the “Company”) to be held [•] [•],August 24, 2018 at [•]the Boston Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts 02110 at [•]10:30 a.m. (Eastern Time) and at any adjournment thereof (the “Meeting”), upon and with respect to the number of shares of Company common stock, par value $0.01 per share, that the undersigned would be entitled to vote if personally present. The undersigned hereby instructs such proxies, or their substitutes, to vote on those matters appearinag on the reverse side of this proxy card as specified by the undersigned and in such manner as the proxies may determine on any other matter that may come before the Meeting, all as indicated in the accompanying Notice of Special Meeting and Proxy Statement attached hereto, receipt of which is hereby acknowledged. All proxies previously given by the undersigned in respect of the Meeting are hereby revoked. Unless otherwise specified in the boxes provided on the reverse side of this proxy card, the Proxy will be voted (1) FOR Proposal 1, (2) FOR Proposal 2, (3) FOR Proposal 3, and (4) in the discretion of the named proxies as to any other matter that may properly come before the Meeting. CONTINUED AND TO BE VOTED ON REVERSE SIDE Non-Voting Items Change of Address — Please print new address below. Comments — Please print your comments below. Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below Please sign this proxy card and return it promptly whether or not you expect to attend the meeting. You may nevertheless vote in person if you attend. Please sign your name as it appears on this proxy card. Give full title if an attorney, executor, administrator, trustee, guardian, etc. For an account in the name of two or more persons, each should sign, or if one signs, signer should attach evidence of authority. Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box. + IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A - C ON BOTH SIDES OF THIS CARD. C B