NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. Description of Organization and Business
Operations
Organization and General
Sentinel Energy Services
Inc. (the “Company”) was incorporated in the Cayman Islands on June 5, 2017 (date of inception). The Company was formed
for the purpose of effecting a merger, amalgamation, capital stock exchange, asset acquisition, stock purchase, reorganization
or similar business combination with one or more businesses. The Company is an “emerging growth company,” as defined
in Section 2(a) of the Securities Act of 1933, as amended, or the “Securities Act,” as modified by the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”).
On December 28, 2018,
the Company changed its jurisdiction of incorporation from the Cayman Islands (“Sentinel Cayman”) to the State of Delaware
(“Sentinel Delaware”), as described further below (the “Domestication”) and continued to be named Sentinel
Energy Services Inc. As a result of the Domestication, each of Sentinel Cayman’s issued and outstanding Class A ordinary
shares (the “Class A ordinary shares”) and Class B ordinary shares (the “Class B ordinary shares”) automatically
converted by operation of law into one share of Class A common stock (“Class A common stock”) and Class B common stock
(“Class B common stock”), of Sentinel Delaware, respectively. Similarly, each of Sentinel Cayman’s outstanding
units and warrants automatically converted by operation of law, on a one-for-one basis, into units of Sentinel Delaware and warrants
to acquire the corresponding number of shares of Class A common stock, respectively. Accordingly, all references to the Company’s
capital stock both before and after the Domestication are referred to as shares of “common stock” in this filing.
The registration statement
for the Company’s Public Offering (Note 3) was declared effective by the U.S. Securities and Exchange Commission (the “SEC”)
on November 2, 2017.
At March 31, 2020,
the Company had not yet commenced operations. All activity through March 31, 2020 relates to the Company’s formation and
initial public offering (the “Public Offering”) described below, and since the closing of the Public Offering, a search
for a business combination candidate, including activities in connection with the announced and subsequently terminated proposed
business combination with Strike Capital, LLC (“Strike”) (as described in Note 5). The Company did not generate any
operating revenues since inception. The Company generated non-operating income in the form of interest income on cash and cash
equivalents from the proceeds derived from the Public Offering.
The Company intended to
finance its initial business combination with proceeds from the Public Offering and sale of the Private Placement Warrants (Note
3), the Company’s capital stock, debt or a combination of the foregoing. Upon the closings of the Public Offering and the
sale of the Private Placement Warrants, approximately $345,000,000 was placed in a trust account (the “Trust Account”)
(discussed below). The Company was not able to consummate a business combination prior to the November 7, 2019 deadline under
its Charter. As a result, the Company commenced the liquidation of the Trust Account and returned the funds held therein to its
public stockholders by redeeming 100% of the Company’s shares of Class A common stock included in the Units (as defined
in Note 3) sold in the Public Offering (the “Public Shares”) in accordance with the Charter, which completely extinguished
the public stockholders’ rights in the Company. In connection with the redemption of the Public Shares, each stockholder
received approximately $10.30 per share on November 18, 2019. The Company withheld approximately $1,300,000 from the distribution.
In April 2020, the Company paid the income tax liability for the year ended December 31, 2019 of $259,284 and distributed the
remaining $1,152,035 to its public shareholders on May 4, 2020. (See Note 7).
Trust Account
The proceeds held
in the Trust Account were invested only in U.S. government treasury bills with a maturity of one hundred eighty (180) days or
less or in money market funds that meet certain conditions under Rule 2a-7 under the Investment Company Act of 1940 and that
invest only in direct U.S. government obligations. Funds were to remain in the Trust Account until the earlier of (i) the
consummation of an initial business combination or (ii) the distribution of the Trust Account proceeds as described below.
The remaining proceeds outside the Trust Account were to be used to pay for business, legal and accounting due diligence on
prospective acquisitions and continuing general and administrative expenses.
SENTINEL
ENERGY SERVICES INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
In accordance with
the terms of the Investment Management Trust Agreement entered into by the Company in connection with the Public Offering, other
than the withdrawal of interest to pay income taxes, if any, none of the funds held in the Trust Account were to be released until
the earlier of: (i) the completion of an initial business combination; (ii) the redemption of any Public Shares that have been
properly tendered in connection with a stockholder vote to amend the Company’s certificate of incorporation (the “Charter”)
to modify the substance or timing of its obligation to redeem 100% of such shares of Class A common stock if it does not complete
an initial business combination by November 7, 2019; and (iii) the redemption of 100% of the Class A common stock included in the
Units sold in the Public Offering if the Company is unable to complete an initial business combination by November 7, 2019 (subject
to the requirements of law). The proceeds deposited in the Trust Account could become subject to the claims of the Company’s
creditors, if any, which could have priority over the claims of the Company’s public stockholders. The Company was unable
to complete an initial business combination by the November 7, 2019 deadline under its Charter and so it commenced the liquidation
of the assets in the Trust Account on November 8, 2019.
Initial Business Combination
The Company’s
management had broad discretion with respect to the specific application of the net proceeds of the Public Offering, although substantially
all of the net proceeds of the Public Offering were intended to be generally applied toward consummating an initial business combination.
The Charter and the
prospectus that the Company filed in connection with its initial public offering provided that the Company had 24 months after
the closing of its Public Offering, or until November 7, 2019, to complete a business combination. During the period since the
Company’s Public Offering, the Company diligently searched for a business to combine with in a transaction that would generate
value for the Company’s stockholders; however, over the same period, the energy sector experienced significant headwinds,
which increased the challenges faced by the Company in sourcing a compelling target business. Despite the Company’s best
efforts, it was not able to consummate a business combination prior to the November 7, 2019 deadline under its Charter. As a result,
the Company commenced the liquidation of the Trust Account and returned the funds held therein to its public stockholders by redeeming
100% of the Company’s Public Shares in accordance with the Charter, which extinguished the public stockholders’ rights
in the Company.
Liquidation
As discussed above,
the Company was not able to consummate a business combination prior to the November 7, 2019 deadline under its Charter. As a result,
the Company commenced the liquidation of the Trust Account and returned the funds held therein of approximately $355.5 million
to its public stockholders by redeeming 100% of the Company’s shares of Class A common stock included in the Units (as defined
in Note 3 below) sold in the Public Offering (the “Public Shares”) in accordance with the Charter, which completely
extinguished the public stockholders’ rights in the Company. In connection with the redemption of the public shares, each
stockholder received approximately $10.30 per share on November 18, 2019.
Upon closing of
the closing of the Public Offering, the Company paid an underwriting discount of 2.0% of the per Unit offering price to the
underwriters at the with an additional fee (the “Deferred Discount”) of 3.5% ($12,075,000) of the gross offering
proceeds payable upon the Company’s completion of an initial business combination. In accordance with the terms of the
underwriting agreement entered into in connection with the Public Offering, the underwriters forfeited any rights or claims
to the Deferred Discount because the Company was unable to consummate an initial business combination by the November 7, 2019
deadline under its Charter.
SENTINEL
ENERGY SERVICES INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
The Company withheld
approximately $1,300,000 from the distribution in order to pay the income tax liability for the year ended December 31, 2019, after
which, the Company will distribute the remaining proceeds to the public stockholders. In April 2020, the Company paid the income
tax liability for the year ended December 31, 2020 of $259,284 and distributed the remaining $1,152,035 to its public stockholders.
During the liquidation period, the Company and the holders
of its Public Warrants executed an amendment to the Warrant Agreement, dated as of November 2, 2017 (the “Warrant Agreement”),
between the Company and Continental Stock Transfer & Trust Company, to automatically convert each of the Company’s 11,500,000
outstanding Public Warrants into the right to receive $0.02 per whole Public Warrant, payable in cash. In December 2019, the Company
paid $225,990 to its warrant holders in relation to the automatic redemption of the warrants.
Mandatory Liquidation, Going Concern
and Liquidity
In accordance with the
terms of its Charter, the Company was unable to complete an initial business combination by November 7, 2019. The Company ceased
all operations except for the purpose of winding up; (ii) redeemed the Public Shares, at a per-share price, payable in cash, equal
to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account
and not previously released to the Company to pay the Company’s income taxes of approximately $10.30 per share (less up
to $100,000 of such net interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which
redemption extinguished public stockholders’ rights as stockholders (including the right to receive further liquidating
distributions, if any), subject to applicable law, and (iii) as promptly as possible following such redemption, subject to the
approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject
in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of
other applicable law.
The Sponsor and the Company’s
officers and directors have entered into letter agreements with the Company, pursuant to which they have agreed to waive their
rights to liquidating distributions from the Trust Account with respect to any Founder Shares (as defined below) held by them if
the Company failed to complete the initial business combination by November 7, 2019. However, if the Sponsor or any of the Company’s
directors, officers or affiliates acquire shares of Class A common stock in or after the Public Offering, they were entitled to
liquidating distributions from the Trust Account with respect to such shares if the Company failed to complete the initial business
combination within the prescribed time period.
In connection with the
Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”)
2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company
determined that it does not have sufficient liquidity to meet its future obligations; however, management has determined that
it has access to funds from Sponsor that alleviate going concern. As of March 31, 2020, the Company had a working capital deficit
of approximately $399,000, current liabilities of approximately $684,000 and had cash of approximately $273,000 (excluding amounts
related to the Class A distribution liability and its related cash).
During the three
months ended March 31, 2020, the Sponsor funded the Company approximately $1,830,000 in order for the Company to pay down its
obligations. On March 31, 2020, the Sponsor converted the $5,211,417 of the outstanding convertible note and advances into
521,142 shares of Class A Common Stock of the Company. In addition, the Sponsor intends to financially support the Company
sufficient for the Company to satisfy its working capital needs through one year from the date of the issuance of the
financial statements.
SENTINEL
ENERGY SERVICES INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
2. Summary of Significant Accounting
Policies
Basis of Presentation
The accompanying unaudited
condensed interim financial statements of the Company are presented in U.S. dollars in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) and pursuant to the accounting and disclosure rules and regulations
of the SEC, and reflect all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the financial position as of March 31, 2020 and the results of operations and cash flows for
the periods presented. Certain information and disclosures normally included in financial statements prepared in accordance with
GAAP have been omitted pursuant to such rules and regulations. Interim results are not necessarily indicative of results for a
full year.
The accompanying unaudited
condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto included
in the Form 10-K filed by the Company with the SEC on March 16, 2020.
Emerging Growth Company
The Company is an “emerging
growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, and it may take advantage
of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth
companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404
of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements,
and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of
any golden parachute payments not previously approved.
Further, Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not
have a class of securities registered under the Exchange Act of 1934, as amended (the “Exchange Act”)) are required
to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of
the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election
to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard
is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth
company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison
of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging
growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences
in accounting standards used.
Use of Estimates
The preparation of
financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting periods. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments
that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which,
at times may exceed the Federal depository insurance coverage of $250,000. At March 31, 2020 and December 31, 2019, the Company
had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Risks and Uncertainties
Management is currently
evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the
virus could have a negative effect on the Company’s financial position and results of its operations, the specific impact
is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Financial Instruments
The fair value of the
Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements
and Disclosures,” approximates the carrying amounts represented in the balance sheets.
Cash and Cash Equivalents
The Company considers
all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
SENTINEL
ENERGY SERVICES INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Net Income (Loss) Per Share of Common Stock
Net income (loss) per
share of common stock is computed by dividing net income (loss) applicable to the shares of common stock by the weighted average
number of shares outstanding for the period. As of March 31, 2020, the Company has not considered the effect of the warrants sold
in the Public Offering and private placement to purchase an aggregate of 17,433,333 shares of Class A common stock in the calculation
of diluted income (loss) per share, since their inclusion would be anti-dilutive under the Treasury Stock method. As a result,
diluted net income (loss) per share of common stock is the same as basic net income per share of common stock as of March 31, 2019.
The Company’s
statements of operations include a presentation of income (loss) per share for Class A common stock subject to redemption in a
manner similar to the two-class method of income per share. Net income per share, basic and diluted for Class A common stock is
calculated by dividing the investment income earned on the Trust Account of $1,894,383, respectively, net of applicable income
and franchise taxes of $0 and $49,365, respectively, by the weighted average number of shares of Class A common stock outstanding
for the three months ended March 31, 2019. Net loss per share, basic and diluted for Class B common stock is calculated by dividing
the net income, less income attributable to Class A common stock of $1,894,383, by the weighted average number of shares of Class
B common stock outstanding for the three months ended March 31, 2019.
As a result of the redemption of Public Shares in November
2019, for the three months ended March 31, 2020, the Class A shares have no specific redemption rights. As a result, net loss
per common share is calculated by dividing the net loss of $46,713 by the weighted average number of Class A and Class B shares
outstanding for the period.
Income Taxes
The Company follows
the asset and liability method of accounting for income taxes under FASB ASC Topic 740, “Income Taxes.” Deferred
tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial
statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized.
FASB Topic ASC 740
prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not
to be sustained upon examination by taxing authorities. There were no unrecognized tax benefits as of March 31, 2020 and December
31, 2019. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No
amounts were accrued for the payment of interest and penalties at March 31, 2020 and December 31, 2019. The Company is currently
not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company is subject to income tax examinations by major taxing authorities since inception.
The Company may be
subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These potential
examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions,
and compliance with federal, state, and city tax laws. The Company’s management does not expect that the total amount of
unrecognized tax benefits will materially change over the next twelve months.
SENTINEL
ENERGY SERVICES INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Related Parties
The Company follows
FASB ASC 850-10 for the identification of related parties and disclosure of related party transactions.
Pursuant to ASC 850-10-20,
the Company’s related parties include: (a) affiliates of the Company (“Affiliate” means, with respect to any
specified person, any other person that, directly or indirectly through one or more intermediaries, controls, is controlled by
or is under common control with such person, as such terms are used in and construed under Rule 405 under the Securities Act);
(b) entities for which investments in their equity securities would be required, absent the election of the fair value option under
the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; (c) trusts
for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management;
(d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party
controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence
the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties
and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
Subsequent Events
The Company evaluates
subsequent events and transactions that occur after the balance sheet date for potential recognition or disclosure. Any material
events that occur between the balance sheet date and the date that the financial statements were issued are disclosed as subsequent
events, while the financial statements are adjusted to reflect any conditions that existed at the balance sheet date.
Recent Accounting Pronouncements
The Company’s
management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would
have an effect on the Company’s financial statements.
3. Public Offering
In November 2017, the
Company closed its Public Offering of 34,500,000 units at a price of $10.00 per unit (the “Units”), with gross proceeds
of $345,000,000 from the sale of Units. The closings occurred on November 7, 2017 with respect to 30,000,000 Units and on November
9, 2017 with respect to 4,500,000 Units related to the exercise of the underwriters’ overallotment option.
Each Unit consists
of one share of Class A common stock, $0.0001 par value, and one-third of one warrant (each, a “Public Warrant” and,
collectively, the “Public Warrants”). Each whole Public Warrant entitles the holder to purchase one share of Class
A common stock at a price of $11.50 per share. No fractional shares will be issued upon separation of the Units and only whole
Public Warrants trade. Each Public Warrant will become exercisable on the later of 30 days after the completion of the Company’s
initial business combination or 12 months from the closing of the Public Offering and will expire five years after the completion
of the Company’s initial business combination or earlier upon redemption or liquidation. Once the Public Warrants become
exercisable, the Company may redeem the outstanding Public Warrants in whole and not in part at a price of $0.01 per Public Warrant
upon a minimum of 30 days’ prior written notice of redemption, if and only if the last sale price of the Company’s
Class A common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third
trading day prior to the date on which the Company sent the notice of redemption to the Public Warrant holders.
During the liquidation
period the Company and the holders of its Public Warrants executed an amendment to the Warrant Agreement, dated as of November
2, 2017 (the “Warrant Agreement”), between the Company and Continental Stock Transfer & Trust Company, to automatically
convert each of the Company’s 11,500,000 outstanding Public Warrants into the right to receive $0.02 per whole Public Warrant,
payable in cash. In December 2019, the Company paid $225,990 to its warrant holders in relation to the automatic redemption of
the warrants.
SENTINEL
ENERGY SERVICES INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Simultaneous with the
closing of the Public Offering on November 7, 2017, Sentinel Management Holdings, LLC (the “Sponsor”) purchased an
aggregate of 5,333,333 private placement warrants at a price of $1.50 per whole warrant (approximately $8,000,000 in the aggregate)
in a private placement (the “Private Placement Warrants”). Simultaneously with the closing of the overallotment, the
Company consummated the private placement of an additional 600,000 Private Placement Warrants to the Sponsor, generating gross
proceeds of approximately $900,000.
The Company paid an
underwriting discount of 2.0% of the per Unit offering price to the underwriters at the closing of the Public Offering, with the
Deferred Discount payable upon the Company’s completion of an initial business combination. The Deferred Discount was payable
to the underwriters from the amounts held in the Trust Account solely in the event the Company completed its initial business combination. In
accordance with the terms of the underwriting agreement entered into in connection with the Public Offering, the underwriters forfeited
any rights or claims to the Deferred Discount because the Company was unable to consummate an initial business combination by the
November 7, 2019 deadline under its Charter.
4. Related Party Transactions
Founder Shares
In June 2017, the Sponsor
entered into an Amended and Restated Securities Purchase Agreement, for the purchase of 14,375,000 shares of Class B common stock
(the “Founder Shares”) for $25,000, or approximately $0.002 per share. As used herein, unless the context otherwise
requires, “Founder Shares” shall be deemed to include the shares of Class A common stock issuable upon conversion thereof.
The Sponsor is a portfolio company of CSL Capital Management, L.P., an energy services-focused private equity fund.
The Founder Shares
are identical to the shares of Class A common stock included in the Units sold in the Public Offering except that (1) holders of
the Founder Shares have the right to vote on the election of directors prior to an initial business combination, (2) the Founder
Shares are subject to certain transfer restrictions, as described in more detail below, (3) holders of the Founder Shares entered
into letter agreements with the Company pursuant to which they agreed to waive their redemption rights with respect to any Founder
Shares held by them in connection with the completion of an initial business combination, (4) the Founder Shares are shares of
Class B common stock that will automatically convert into shares of Class A common stock at the time of an initial business combination
and (5) the Founder Shares are subject to registration rights, as described below.
In August 2017, the
Sponsor surrendered 5,750,000 shares of its Class B common stock for no consideration, resulting in the Sponsor holding an aggregate
of 8,625,000 shares of Class B common stock. This forfeiture also adjusted the shares subject to forfeiture from 1,875,000 to 1,125,000,
to the extent that the over-allotment option is not exercised in full by the underwriters so that the Founder Shares will represent
20.0% of the Company’s issued and outstanding shares after the Public Offering. As described above, the underwriters exercised
their overallotment option in connection with the Public Offering in full, and therefore none of the Founder Shares were forfeited.
The Company’s
initial stockholders have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until
the earlier to occur of: (A) one year after the completion of an initial business combination or (B) subsequent to an initial business
combination, (x) if the last sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for share splits,
share dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing
at least 150 days after an initial business combination, or (y) the date on which the Company completes a liquidation, merger,
share exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange
their common stock for cash, securities or other property.
In October 2017 and
April 2018, the Sponsor transferred 37,500 Founder Shares to Marc Zenner and Jon A. Marshall, respectively, both of whom are independent
directors of the Company, at the original purchase price. The Sponsor forfeited 90% of the 8,550,000 Founder Shares and all of
the 5,933,333 Private Placement Warrants held by it for no consideration because the Company was unable to consummate an initial
business combination by the November 7, 2019 deadline under its Charter. As a result of these transfers, the Sponsor holds 855,000
Founder Shares and Marc Zenner and Jon A. Marshall hold 3,750 Founder Shares each.
SENTINEL
ENERGY SERVICES INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Private Placement Warrants
Upon the closing of
the Public Offering on November 7, 2017 and November 9, 2017, the Sponsor purchased an aggregate of 5,933,333 Private Placement
Warrants at a price of $1.50 per whole warrant (approximately $8,900,000 in the aggregate) in a private placement that occurred
simultaneously with the closing of the Public Offering. Each whole Private Placement Warrant is exercisable to purchase one share
of Class A common stock at a price of $11.50 per share. A portion of the purchase price of the Private Placement Warrants was added
to the proceeds from the Public Offering held in the Trust Account. The remaining portion of the purchase price was held outside
the Trust Account for transaction and working capital expenses.
An initial business
combination was not completed by November 7, 2019, and therefore, the proceeds from the sale of the Private Placement Warrants
held in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law),
and the Private Placement Warrants expired worthless. The Private Placement Warrants were non-redeemable and exercisable on a cashless
basis so long as they were held by the Sponsor or its permitted transferees.
The Sponsor and the
Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of the Private
Placement Warrants until 30 days after the completion of an initial business combination. See Founder shares above for forfeiture
of private placement warrants.
Registration Rights
The holders of Founder
Shares may be entitled to registration rights pursuant to a registration rights agreement signed in connection with the Public
Offering. These holders are entitled to certain demand and “piggyback” registration rights.
However, the registration
rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become
effective until termination of the applicable lock-up period for the securities to be registered. The Company will bear the expenses
incurred in connection with the filing of any such registration statements.
Advances from Related Parties
During the three months
ended March 31, 2020 and 2019, the Sponsor or an affiliate of the Sponsor incurred certain administrative expenses on behalf of
the Company in the amount of $0 and $6,627, respectively.
During the three
months ended March 31, 2020, the Sponsor also advanced $1,832,134 to fund ongoing operations of the Company. These advances
were due on demand and were non-interest bearing. On March 31, 2020, the Sponsor converted the $4,211,777 outstanding into
421,178 shares of Class A Common Stock of the Company at a conversion price of $10.00 per share. As of March 31, 2020 and December 31, 2019, the outstanding balance
on the advances was $0 and $2,379,643, respectively.
Promissory Note Payable - Sponsor
On March 1, 2019,
the Company issued a convertible promissory note in the amount of up to $1,500,000 with the Sponsor to fund the
Company’s ongoing expenses. The convertible promissory note does not bear interest and all unpaid principal was due and
payable in full on the earlier of November 7, 2019 or the consummation of an initial business combination by the Company. The
Sponsor had the option to convert any amounts outstanding under the convertible promissory note into warrants of the
post-business combination entity to purchase shares, at a conversion price of $1.50 per warrant. On March 31, 2020, the
Sponsor converted the $999,640 outstanding into 99,964 shares of Class A Common Stock of the Company at a conversion price of $10.00 per share. As of March 31, 2020
and December 31, 2019, the outstanding balance on convertible promissory note was $0 and $999,640, respectively.
Administrative Support Agreement
Commencing on the date
the Units were first listed on the Nasdaq, the Company agreed to pay an affiliate of the Sponsor up to $10,000 per month for office
space, utilities and secretarial and administrative support. Since the Company was unable to complete its initial business combination
prior to the November 7, 2019 deadline in the Charter, pursuant to the Administrative Support Agreement, the Company ceased paying
these monthly fees.
The Company incurred
$1,534 and $1,625 for such expenses under the administrative service agreement for the three months ended March 31, 2020 and 2019,
respectively.
SENTINEL
ENERGY SERVICES INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Option Agreement
On November 2, 2017,
the Company entered into an option agreement (“Option Agreement”) pursuant to which CSL Energy Opportunities Fund III,
L.P. and CSL Energy Holdings III, Corp, LLC (“Option Holders”) agreed to purchase an aggregate of up to 10,000,000
units (the “Co-Investment Units”), consisting of one share of Class A common stock (the “Co-Investment Shares”)
and one-third of one warrant to purchase one share of Class A common stock (the “Co-Investment Warrants,” and together
with the Co-Investment Shares, the “Co-Investment Securities”), for $10.00 per unit (the “Exercise Price”),
or an aggregate maximum amount of $100,000,000, immediately prior to the closing of the Company’s initial business combination.
The Co-Investment Warrants
will have the same terms as the Private Placement Warrants so long as they are held by the Option Holders or its permitted transferees,
and the Co-Investment Shares will be identical to the shares of Class A common stock included in the Units, except that the Co-Investment
Shares will be subject to transfer restrictions and certain registration rights, as described herein. Any Co-Investment Warrant
held by a holder other than the Option Holders or their permitted transferees will have the same terms as the Public Warrants.
The Option Holders
will have the right to transfer a portion of their option to purchase the Co-Investment Securities to third parties, subject to
compliance with applicable securities laws. The Option Agreement also provides that the Option Holders and any permitted transferees
will be entitled to certain registration rights with respect to their Co-Investment Securities, including the shares of Class A
common stock underlying their Co-Investment Warrants.
Pursuant to the Option
Agreement, since the Company was unable to complete an initial business combination by the November 7, 2019 deadline, the option
automatically terminated.
5. Termination of Proposed Business
Combination
On October 18, 2018,
the Company entered into a transaction agreement and plan of merger (the “Transaction Agreement”) with Strike, OEP
Secondary Fund (Strike), LLC, One Equity Partners Secondary Fund, L.P., the other equityholders of Strike party thereto, OEP-Strike
Seller Representative, LLC and SES Blocker Merger Sub, LLC, relating to the proposed acquisition by the Company of a majority of
the equity interests of Strike. For more information on the proposed transaction, please see the Definitive Proxy Statement filed
by the Company with the SEC on January 18, 2019. On February 12, 2019, the Company and Strike entered into a termination agreement
(the “Termination Agreement”), pursuant to which the parties agreed to mutually terminate the Transaction Agreement,
effective as of February 12, 2019.
As a result of
the termination of the Transaction Agreement, each of (i) the purchase and contribution agreement, dated as of October 18,
2018 (the “Contribution Agreement”), by and among the Company, Strike, LLC, a wholly owned subsidiary of Strike,
CSL Energy Holdings III Corp, LLC and Invacor Pipeline and Process Solutions, LLC, (ii) the subscription agreements, dated as
of October 18, 2018, between the Company and each of CSL Capital Management, L.P. and certain funds and accounts managed by
Fidelity Management & Research Company, and (iii) the Voting and Support Agreement, dated as of October 18, 2018, by
and among the Company, the Sponsor and certain stockholders of the Company party thereto, which the Company entered into in
connection with the proposed acquisition, was automatically terminated in accordance with its terms.
Pursuant to the Termination
Agreement, all costs and expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants
to a party and its affiliates) incurred by a party or on its behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of the Transaction Agreement, the Contribution Agreement or the Termination Agreement and
the transactions contemplated thereby are to be paid by the party incurring such expenses. The Company incurred approximately $4.2
million of costs related to the proposed business combination. For more information, please see the Current Report on Form 8-K
filed by the Company with the SEC on February 13, 2019 relating to the termination of the proposed business combination.
SENTINEL
ENERGY SERVICES INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
Of the approximate
$5.7 million in costs related to the various business combination candidates, the Company negotiated with certain vendors to reduce
the amounts due. Accordingly, the Company recorded a reduction in accrued expenses of $1.9 million and reversed approximately $1.9
million of general and administrative expenses during the year ended December 31, 2019.
6. Stockholders’ Equity
Common Stock
The authorized common
stock of the Company includes up to 200,000,000 shares of Class A common stock and 20,000,000 shares of Class B common stock. If
the Company entered into an initial business combination, it may (depending on the terms of such an initial business combination)
be required to increase the number of shares of Class A common stock which the Company is authorized to issue at the same time
as the Company’s stockholders vote on an initial business combination to the extent the Company seeks stockholder approval
in connection with an initial business combination. Holders of the Company’s common stock are entitled to one vote for each
share of common stock held by them. The Sponsor forfeited 90% of the 8,550,000 Founder Shares and all of the 5,933,333 Private
Placement Warrants held by it for no consideration because the Company was unable to consummate an initial business combination
by the November 7, 2019 deadline under its Charter. As a result of these transfers, the Sponsor holds 855,000 Founder Shares and
each of Jon A. Marshall and Marc Zenner hold 3,750 Founder Shares, resulting in a total of 862,500 Founder Shares outstanding.
At March 31, 2020 and
December 31, 2019, there were 521,142 and nil shares of Class A common stock issued and outstanding, respectively, and 862,500
shares of Class B common stock issued and outstanding.
Preferred Stock
The Company is authorized
to issue 1,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined
from time to time by the Company’s board of directors. At March 31, 2020 and December 31, 2019, there were no shares of preferred
stock issued or outstanding.
7. Subsequent Events
On May 4, 2020, the
Company made its final distribution payment of $1,152,035 to the Class A public stockholders.