This section provides a summary description of agreements between Oil States and us relating to our restructuring transactions and our relationship with Oil States after the spin-off. This description of the agreements between Oil States and us is a summary and, with respect to each such agreement, is qualified by reference to the terms of the agreement, each of which will be filed as an exhibit to the registration statement of which this information statement is a part. We encourage you to read the full text of these agreements. We will enter into these agreements with Oil States prior to the completion of the spin-off; accordingly, we will enter into these agreements with Oil States in the context of our relationship as a wholly- owned subsidiary of Oil States. The terms of these agreements may be more or less favorable to us than if they had been negotiated with unaffiliated third parties.
The terms of the agreements described below have not yet been finalized. Changes, some of which may be material, may be made prior to our separation from Oil States. No changes may be made after the Spin-Off without our consent.
Separation and Distribution Agreement
The Separation and Distribution Agreement will govern the terms of the separation of the accommodations business from Oil States’ other businesses. Generally, the Separation and Distribution Agreement will include Oil States’ and our agreements relating to the restructuring steps to be taken to complete the separation, including the assets and rights to be transferred, liabilities to be assumed, contracts to be assigned and related matters. Subject to the receipt of required governmental and other consents and approvals, in order to accomplish the separation, the Separation and Distribution Agreement will provide for Oil States and us to transfer specified assets and liabilities between the companies that will operate the accommodations business after the distribution, on the one hand, and Oil States’ remaining businesses, on the other hand. As a result of this transfer, we will own all assets exclusively related to the accommodations business and will assume all liabilities to the extent related to the accommodations business. Oil States will generally retain all other assets and liabilities, including assets and liabilities related to discontinued, non-accommodation businesses. The Separation and Distribution Agreement will require Oil States and us to endeavor to obtain consents, approvals and amendments required to novate or assign the assets and liabilities that are to be transferred pursuant to the Separation and Distribution Agreement as soon as reasonably practicable.
Unless otherwise provided in the Separation and Distribution Agreement or any of the related ancillary agreements, all assets will be transferred on an “as is, where is” basis. Generally, if the transfer of any assets or liabilities requires a consent that will not be obtained before the distribution, or if any assets or liabilities are transferred to the other party and should not have been so transferred, each party will agree to hold the assets or liabilities for the intended party’s use and benefit (and at its expense) until they can be transferred to such intended party.
The Separation and Distribution Agreement will specify those conditions that must be satisfied or waived by Oil States prior to the distribution. In addition, Oil States will have the right to determine the date and terms of the distribution, including payment by us of a special dividend of $750.0 million to Oil States, and will have the right, at any time until completion of the spin-off, to determine to abandon or modify the distribution and to terminate the Separation and Distribution Agreement.
Transition Services Agreement
The Transition Services Agreement will set forth the terms on which Oil States will provide to us, and we will provide to Oil States, on a temporary basis, certain services or functions that the companies historically have shared. Transition services provided to us by Oil States may include administrative, payroll, legal, human resources, data processing, financial audit support, financial transaction support, and other support services, information technology systems and various other corporate services. Transition services provided to Oil States by us may include information technology systems, financial audit support, tax support and other corporate services. We expect the agreement will provide for the provision of specified transition services, generally for a period of up to nine months, with a possible extension of 1 month (an aggregate of 10 months) at a predetermined fee based on estimated cost to Oil States.
Tax Sharing Agreement
The Tax Sharing Agreement will govern the respective rights, responsibilities, and obligations of Oil States and us with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings, and other matters regarding taxes. The Tax Sharing Agreement will remain in effect until the parties agree in writing to its termination; however, notwithstanding such termination, the Tax Sharing Agreement will remain in effect with respect to any payments or indemnification due for all taxable periods prior to such termination during which the agreement was in effect.
In general, pursuant to the Tax Sharing Agreement:
● Civeo and Oil States will agree to cooperate in the preparation of tax returns and with regard to any audits relatedto Civeo’s or Oil States’ tax returns;
● the Tax Sharing Agreement will assign responsibilities for administrative matters, such as the filing of tax returns,payment of taxes due, retention of records and conduct of audits, examinations, or similar proceedings;
● with respect to any periods (or portions thereof) ending prior to the distribution, Oil States will pay any U.S. federal income taxes of the affiliated group of which Oil States is the common parent and, if Civeo (including any of its subsidiaries) is included in that affiliated group, Civeo will pay Oil States an amount equal to the amount of U.S. federal income tax Civeo would have paid had Civeo filed a separate consolidated U.S. federal income tax return, subject to certain adjustments. With respect to any periods (or portions thereof) beginning after the distribution, Civeo will be responsible for any U.S. federal income taxes of Civeo and its subsidiaries;
● with respect to any periods (or portions thereof) ending prior to the distribution, Oil States will pay any U.S. state or local income taxes that are determined on a consolidated, combined, or unitary basis and, if Civeo (including any of its subsidiaries) is included in such determination, Civeo will pay Oil States an amount equal to the amount of tax Civeo would have paid had Civeo filed a separate return for such income, subject to certain adjustments;
● with respect to any periods (or portions thereof) beginning after the distribution, Civeo will be responsible for anyU.S. federal income taxes of Civeo and its subsidiaries;
● Oil States will be responsible for any U.S. federal, state, local, or foreign taxes due with respect to tax returns that include only Oil States and/or its subsidiaries (excluding Civeo and its subsidiaries), and Civeo will be responsible for any U.S. federal, state, local or foreign taxes due with respect to tax returns that include only Civeo and/or its subsidiaries;
● to the extent that any gain or income is recognized by Oil States (including its subsidiaries) in connection with the failure of the spin-off to qualify for tax-free treatment under Sections 355 and 368(a)(1)(D) of the Code, Civeo will indemnify Oil States for any taxes on such gain or income to the extent such failure is attributable to:
● any inaccurate written covenant, representation, or warranty by Civeo made in connection with the TaxSharing Agreement or any tax ruling requested or received from the IRS or opinions of Oil States’ outside tax advisors;
● any breach by Civeo of applicable representations, warranties, or covenants in the Tax Sharing Agreement; or
● any other action taken by Civeo; and
● Civeo will bear 50% of the amount of any gain or income that is recognized by Oil States (including itssubsidiaries) in connection with the failure of the spin-off to qualify for tax-free treatment under Sections 355 and 368(a)(1)(D) of the Code, to the extent such failure is not attributable to the fault of either party.
Oil States has received a private letter ruling substantially to the effect that, for U.S. federal income tax purposes, (i) certain transactions to be effected in connection with the separation qualify as transactions under Sections 355 and/or 368(a) of the Code, and (ii) the distribution qualifies as a tax-free transaction under Sections 355 and 368(a)(1)(D) of the Code. In addition, Oil States will receive an opinion from its tax counsel, in form and substance acceptable to Oil States, regarding certain matters upon which the IRS will not rule. The opinion will rely on the private letter ruling as to matters covered by the private letter ruling.
Civeo will agree to certain restrictions that are intended to preserve the tax-free status of the contribution, distribution, and related transactions. During the two-year period following the spin-off, these covenants will restrict Civeo’s ability to sell assets outside the ordinary course of business, to issue or sell its common stock or other securities (including securities convertible into its common stock), or to enter into any other corporate transaction that would cause Civeo to undergo either a 50% or greater change in the ownership of its voting stock or a 50% or greater change in the ownership (measured by value) of all classes of its stock. Civeo may take certain actions otherwise subject to these restrictions only if Oil States consents to the taking of such action or if Civeo obtains, and provides to Oil States, a private letter ruling from the IRS and/or an opinion from an independent law firm or accounting firm, in either case, acceptable to Oil States in its sole discretion, to the effect that such action would not jeopardize the tax-free status of the contribution, distribution, or related transactions.
Employee Matters Agreement
The Employee Matters Agreement will govern Oil States’ and our compensation and employee benefit obligations with respect to the current and former employees of each company, and generally will allocate liabilities and responsibilities relating to employee compensation and benefit plans and programs and will provide for the treatment of outstanding Oil States equity and other compensation awards and programs.
The Employee Matters Agreement will generally provide that:
● Civeo will assume all liabilities and obligations relating to Civeo employees and former employees of theaccommodations business;
● Civeo will assume all obligations pursuant to any collective bargaining, employment and other agreementsbetween any Civeo employee and Oil States;
● Oil States’ time-based equity and equity-based awards held by Civeo employees will be converted into similarawards with respect to Civeo common stock or cancelled and replaced with comparable awards under the EPP, with adjustments to the number of shares subject to the award and exercise price to preserve the pre spin-off value;
● Oil States’ time-based equity and equity-based awards held by current and former Oil States employees ordirectors will remain outstanding with adjustments to the number of shares subject to the award and exercise price to preserve the pre spin-off value;
● Oil States’ performance-based deferred stock awards will be cancelled with the holders thereof entitled to receive a number of time-based restricted shares of Civeo (in the case of Civeo employees) or Oil States (in the case of Oil States employees) to preserve the pre-spinoff value of the prior award, assuming settlement based upon the actual attainment of performance objectives to date as of Oil States’ most recently-completed fiscal quarter;
● Account balances under Oil States’ tax-qualified savings plan which relate to Civeo employees and former employees of the accommodations business will be transferred directly to the tax-qualified savings plan that Civeo will establish;
● Responsibility for amounts held by current Civeo employees and former employees of the accommodations business pursuant to Oil States’ nonqualified deferred compensation plan will be transferred to a comparable plan of Civeo as soon as practicable following the spin-off, with the portion of assets held pursuant to the “rabbi” trust relating to Oil States’ nonqualified deferred compensation plan being transferred contemporaneously; and
● Unless otherwise agreed by Oil States and Civeo, following the spin-off, Civeo employees will cease active participation under all benefit plans sponsored by Oil States and, to the extent Civeo has adopted such plans, will be covered under the corresponding benefit plans of Civeo. Civeo will recognize service with Oil States for all purposes of determining vesting, eligibility and benefit level under Civeo’s benefit plans and will provide credit for all deductibles and other limitations under the Civeo benefit plans to the extent the Civeo employee and former accommodations business employee satisfied the obligation under the corresponding Oil States benefit plan.
Indemnification and Release Agreement
The Indemnification and Release Agreement will govern the treatment of all aspects relating to indemnification, insurance, litigation responsibility and management, and litigation document sharing and cooperation. Generally, the Indemnification and Release Agreement will provide for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our business with us and financial responsibility for the obligations and liabilities of Oil States’ business with Oil States. The Indemnification and Release Agreement will also establish procedures for handling claims subject to indemnification and related matters. Pursuant to the Indemnification and Release Agreement, we and Oil States will generally release the other party from all claims arising prior to the spin-off other than claims arising under the transaction agreements, including the indemnification provisions described above. The Indemnification and Release Agreement also provides that we will use our commercially reasonable efforts to remove Oil States as party to certain contracts. In the event that we are unable to remove Oil States as a party, we have agreed to indemnify Oil States for any liabilities relating to such contracts. Furthermore, until we remove Oil States as a party, we have agreed that, without the prior written consent of Oil States, we will not enter into any transaction that is reasonably likely to result in a violation of the financial covenants in our new revolving credit facility as in effect on the date of the spin-off without regard to any waivers or modifications. In addition, we have agreed not to enter into any transaction that results in any person or entity owning more than 50% of our outstanding economic or voting equity unless such person or entity has agreed to indemnify Oil States for any liability under such contracts.
OTHER RELATED PARTY TRANSACTIONS
In addition to the related party transactions described in “Arrangements Between Oil States and Our Company” above, this section discusses other transactions and relationships with related persons during the past three fiscal years. As a current subsidiary of Oil States, we engage in related party transactions with Oil States. Those transactions are described in more detail in Note 16 in the accompanying combined financial statements.
Policies and Procedures with Respect to Related Party Transactions and Conflicts of Interest
Prior to the spin-off, our board of directors will adopt procedures for approving related party transactions. We will review all relationships and transactions in which we and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. Our Corporate Secretary’s office will be primarily responsible for the development and implementation of processes and controls to obtain information from the directors and executive officers with respect to related person transactions and for then determining, based on the facts and circumstances, whether we or a related person has a direct or indirect material interest in the transaction. As required under the rules of the SEC, transactions that are determined to be directly or indirectly material to us or a related person will be filed with the SEC when required, and disclosed in our proxy statement.
Our Business Conduct & Ethics Code will prohibit conflicts of interest. Any waivers of these guidelines must be approved by the Nominating & Corporate Governance Committee of our board of directors. Under the Business Conduct & Ethics Code, conflicts of interest occur when private or family interests interfere in any way, or even appear to interfere, with our interests. Our prohibition on conflicts of interest under the Business Conduct & Ethics Code will include related person transactions.
We will have multiple processes for reporting conflicts of interests, including related party transactions. Under the Business Conduct & Ethics Code, all directors and employees will be required to report any actual or apparent conflict of interest, or potential conflict of interest, to their supervisors. Any transaction involving related persons must be reported in writing by our division executives as part of their quarterly representation letter. This information will then reviewed by disinterested members of our Nominating & Corporate Governance Committee, our board of directors or our independent registered public accounting firm, as deemed appropriate, and discussed with management. As part of this review, the following factors will generally be considered:
● the nature of the related person’s interest in the transaction;
● the material terms of the transaction, including, without limitation, the amount and type of the transaction;
● the importance of the transaction to the related person;
● the importance of the transaction to us;
● whether the transaction would impair the judgment of a director or executive officer to act in the best interest ofour Company;
● whether the transaction might affect the status of a director as independent under the independence standards of theNYSE; and
● any other matters deemed appropriate with respect to the particular transaction.
Ultimately, all material related party transactions must be approved or ratified by the Nominating & Corporate Governance Committee of our board of directors. Any member of the Nominating & Corporate Governance Committee who is a related person with respect to a transaction will be recused from the review of the transaction.
In addition, we will annually distribute a questionnaire to our executive officers and members of our board of directors