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Magseis Acquires Fairfield Geotechnologies’ Seismic Technologies Business

Source: 10/30/2018, Location: Europe

Magseis ASA (Magseis) and Fairfield Geotechnologies (Fairfield) entered into an agreement whereby Magseis will acquire the Seismic Technologies business from Fairfield comprising data acquisition, nodal and system sale & rental activities including all shares in Fairfield's wholly owned UK subsidiary WGP Group (jointly the "Business")(the “Transaction”). The consideration in the Transaction comprises a combination of cash, Magseis shares, warrants and an earn-out payment, with the agreed purchase price based on an enterprise value of approximately USD 233 million. Further details regarding the consideration is described below.

The Transaction combines two highly complementary businesses to create a leading provider of marine seismic solutions, including Ocean Bottom Seismic (“OBS”):

• Unmatched global presence through complementary geographical footprints
• Combined client base comprising the world’s largest E&P companies
• Most efficient technologies for all OBS segments and offerings
• Demonstrated track-record and profitability
• Solid combined backlog of more than USD 350m
• Positioned for accelerated growth in the expanding marine seismic industry

“This transformational transaction enables Magseis to take pole position in the development of the marine seismic industry with critical mass, leading technology, modern crews and financial capabilities to capitalize on exciting growth opportunities”, says Jan Pihl Grimnes, Chairman of the Board of Directors of Magseis.

Fairfield Seismic Technologies is a leading provider of marine ocean bottom nodal (OBN) seismic systems. The Business has performed 45 OBN surveys globally since 2005 and owns an extensive portfolio of intellectual property for both OBS, land and permanent reservoir monitoring solutions. Headquartered in Houston, the Business has approximately 230 full-time employees and 250 contracted personnel.

Byron Sugahara, Chairman of Fairfield-Maxwell Ltd, the owner of Fairfield, says “Through Fairfield-Maxwell, my family has owned and invested in Fairfield Geotechnologies for more than 40 years. We are excited to become Magseis Fairfield’s largest shareholder given our positive outlook on the seismic services industry and confidence in the combined management team. We are also pleased that the transaction will provide Fairfield-Maxwell additional capital for potential reinvestment in Fairfield Geotechnologies’ remaining data licensing and data processing business.”

The Business generated YTD 2018 revenues as of 30 September 2018 of USD 172 million, and backlog as of 1 January 2019 is USD 180 million (including the multi-client award from TGS and Schlumberger announced on 12 October 2018).

Key financial figures and other information regarding the Business are attached hereto as "Appendix 1".
On a combined, pro-forma basis, Magseis and Fairfield Seismic Technologies provide guidance for 2019 revenues exceeding USD 500 million. Combined pro-forma backlog as of 30 September 2018 was USD 350 million (including Magseis’ contract award from BGP Offshore, China National Petroleum Corporation announced on 8 October 2018 and the award from TGS and Schlumberger).

“Magseis and Fairfield Seismic Technologies combined will have the industry’s largest nodal inventory and be positioned for global operations with substantial scale advantages. The combined entity will have an excellent technology platform providing optimal ability to meet all client requirements regardless of geography, water depth and acquisition methodology” says Per Christian Grytnes, Chief Executive Officer of Magseis.

The CEO of Fairfield, Charles W. (Chuck) Davison, is proposed to become new Chairman of the Board of Directors of Magseis upon completion of the Transaction. Anthony Dowd, President and CEO of Fairfield Maxwell Ltd, has been proposed to become a member of Magseis' nomination committee.

“We are truly excited and look forward to combining with Magseis, creating a leader in the marine seismic industry on a global basis. We believe the multiple value creation opportunities afforded by the Transaction are extremely compelling and in the best long-term interest of all stakeholders, including our customers and employees” says Chuck Davison.

The Transaction will not lead to any other direct changes in the management of Magseis.
The Transaction does not include the data licensing or data processing business of Fairfield, which will be retained by Fairfield. The Business will be carved out of Fairfield's organization and transferred into a newly incorporated company owned by Fairfield before completion of the Transaction (the “Carve-out”).

Following completion of the Transaction, the combined organization will comprise approximately 430 full-time employees and be structured in three business areas: (i) Eastern Hemisphere Operations (Headquarters in Oslo, Norway), (ii) Western Hemisphere Operations (Headquarters in Houston, USA) and (iii) Technology.

The parties have agreed that the purchase price payable by Magseis shall be based on an enterprise value for the Business of approximately USD 233 million. The final purchase price will be determined based on the Business’ level of cash, debt and working capital at time of completion of the Transaction.

Based on the estimated level of cash, debt and working capital, the purchase price will be settled by the following elements:

- Cash consideration of USD 165 million;
- 33.5 million Magseis shares, where number of shares issued to Fairfield is calculated based on a value of USD 85 million and NOK 21.00 per share;

The cash consideration will be adjusted for the actual level of cash, debt and working capital at completion.

In addition, Fairfield will receive:
- Earn-out payment related to the Al Shaheen project (included in the backlog of the Business) where Fairfield will receive 40% of the net cash generated from the project; and
- 18.25 million warrants for shares in Magseis exercisable at any time during the five year period after completion of the Transaction. The exercise price for the warrants will be set at 150% of the lower of (i) the subscription price in the contemplated equity offering and (ii) the highest of NOK 21.00 and 80% of the subscription price.

The consideration shares and any shares to be issued pursuant to the warrants will be subject to an 18 months and 6 months lock-up, respectively, pursuant to which such shares, subject to certain exceptions, cannot be sold or otherwise transferred without the prior consent of Magseis.

Magseis intends to finance the cash consideration through a combination of the issuance of new shares and debt. It is contemplated that Magseis will raise minimum USD 150 million by issuing new shares in an accelerated bookbuilding process expected to be completed early November 2018, and USD 50 million through new bank facilities provided by DNB.

When deciding on the total amount of equity being raised, Magseis will ensure to maintain a substantial liquidity buffer and solid balance sheet with limited leverage to provide a robust basis for further growth and investments.

Completion of the Transaction is conditional upon, inter alia (i) antitrust approval in the United States, (ii) Magseis being able to raise the required funds, and (iii) the general meeting of Magseis approving the share and warrant issues required for Magseis to complete the Transaction.

Completion of the Transaction is also subject to fulfilment of certain additional conditions, such as Magseis having established, for the benefit of certain officers and employees in the Business, an incentive plan of approximately USD 7 million, Chuck Davison having been elected as Chairman of the Board of Directors of Magseis, completion of a confirmatory due diligence and no material breach of warranties, as well as certain other customary conditions.

Major existing shareholders of Magseis representing more than 50% of the shares outstanding, have communicated their support for the Transaction and undertaken to vote in favor of the issuance of new equity and warrants, and for the election of Chuck Davison as new Chairman, at an extraordinary general meeting of Magseis (the “EGM”). Magseis will issue a listing prospectus for the listing at the Oslo Stock Exchange of the new shares to be issued in conjunction with the Transaction.

Financing commitments for the Transaction are expected to be secured (subject to approval by the EGM) as soon as practically possible and at the latest by the end of November 2018.

There are no agreements in connection with the Transaction in favor of Magseis' senior executives or directors, or for senior executives or directors of Fairfield or the Business other than the incentive plan described above.

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