8-K: Nabors Energy Transition II Terminates e2Companies Merger

Nabors Energy Transition Corp. II and e2Companies LLC have mutually terminated their business combination agreement, settling a lawsuit and establishing a secured promissory note for $29.23 million.

Summary

• The Business Combination Agreement and Plan of Reorganization (BCA) between Nabors Energy Transition Corp. II (NETD) and e2Companies LLC (e2), along with all ancillary agreements, was mutually terminated on October 14, 2025.
• A lawsuit, Nabors Energy Transition Corp. II, et al. v. e2Companies LLC, C.A. No. 2025-0810-BWD, initiated by NETD and Merger Sub against e2, has been dismissed with prejudice, and all parties released various known and unknown claims.
• e2 issued a secured promissory note to NETD for an aggregate principal amount of $29.23 million, comprising a First Note of $14.615 million maturing on March 31, 2026, and a Second Note of $14.615 million maturing on October 14, 2028.
• e2 is required to prepay $3.5 million of the First Note on or before December 31, 2025.
• Certain security interests granted by e2 and its subsidiaries to NETD will not vest until the repayment in full of all obligations owed to a priority creditor, GridEdge Digital, L.P. ('GridEdge').
• e2 must make a cash payment to NETD equal to 6.5% of e2's equity value in excess of $500 million upon a 'Trigger Event' (change of control, initial public offering, or public listing of e2) occurring within 24 months from the Settlement Date.
• If NETD enters into and consummates an alternative initial business combination (NETD Alt. Transaction) prior to the maturity date of the Second Note, the remaining principal amount of the Second Note will be cancelled, though accrued and unpaid interest will remain due.

Sentiment

Score: 4

Explanation: The termination of the primary business combination is a significant setback for NETD, representing a failure of its initial strategic objective. While a settlement was reached and a secured promissory note issued, it is a less favorable outcome than a successful merger. The potential for a 'Trigger Event Payment' offers some speculative upside, but the overall situation is negative due to the failure of the initial strategic objective and the shift from equity acquisition to debt holding with subordinated security interests.

Positives

• Resolution of a legal dispute, avoiding further litigation costs and uncertainty for both NETD and e2.
• Establishment of a secured promissory note provides a defined financial recovery mechanism for NETD following the terminated merger.
• Potential for a 'Trigger Event Payment' offers an upside for NETD if e2 achieves significant equity value growth or a liquidity event within 24 months.
• NETD is now free to pursue other 'initial business combinations' without the encumbrance of the e2 merger.

Negatives

• The original business combination failed, indicating a missed strategic opportunity and potential challenges in the initial due diligence or negotiation process.
• NETD's position has shifted from an acquirer with equity upside in e2 to a creditor, changing its risk profile with respect to e2.
• The security interest for NETD's promissory note is subordinated to a priority creditor (GridEdge) for certain assets, delaying vesting and potentially impairing recovery if e2 defaults before GridEdge is paid.
• The principal of the Second Note will be cancelled if NETD consummates an an alternative business combination, meaning NETD may not recover the full $29.23 million principal amount.

Risks

• **Credit Risk**: e2's ability to meet its repayment obligations under the $29.23 million promissory note, including the $3.5 million prepayment by December 31, 2025, and the First Note by March 31, 2026, is a key concern.
• **Subordination Risk**: NETD's security interest in certain collateral is contingent upon GridEdge Payment in Full, meaning NETD's recovery could be delayed or impaired if e2 defaults before GridEdge's obligations are satisfied.
• **Liquidity Event Risk**: The 'Trigger Event Payment' is speculative, contingent on e2 achieving a change of control, IPO, or public listing within 24 months and exceeding a $500 million equity value threshold, which is not guaranteed.
• **Operational Risk (e2)**: Any material adverse effect on e2's business, assets, properties, liabilities, operations, or financial condition could impact its ability to repay the note.
• **Legal/Compliance Risk**: Breaches of covenants in the Secured Promissory Note or Settlement Agreement by e2 could lead to events of default, potentially triggering acceleration of the debt.
• **Valuation Risk**: The equity value of e2 for the Trigger Event Payment is subject to mutual agreement or independent advisor determination, which could be influenced by future market conditions and e2's performance.

Future Outlook

Nabors Energy Transition Corp. II is now positioned to seek an alternative initial business combination. The company will receive payments from e2Companies LLC via a secured promissory note and potentially a Trigger Event Payment if e2 achieves a significant liquidity event within 24 months. The Second Note's principal will be cancelled if NETD consummates an alternative business combination, impacting the total recovery from e2.

Management Comments

• The Board of Directors of NETD has determined that it is advisable and in the best interest of NETD and its stockholders to terminate the BCA and enter into this Agreement.
• e2 has determined that it is in its best interest to enter into this Agreement.

Industry Context

The termination of this SPAC merger reflects the ongoing challenges in the de-SPAC market, where many announced combinations face difficulties in closing due to market conditions, valuation disagreements, or due diligence findings. SPACs that fail to complete an initial business combination often liquidate or seek alternative targets, as NETD is now positioned to do. The energy transition sector remains attractive, but successful mergers require robust target companies and favorable market sentiment, which may have been lacking in this specific transaction.

Comparison to Industry Standards

• The termination of the business combination agreement is consistent with a trend observed in the SPAC market, where a significant number of announced deals have been called off due to various factors including market volatility, valuation disputes, and increased regulatory scrutiny. For example, similar terminations have been seen with SPACs like Gores Guggenheim and Polestar, or Churchill Capital IV and Lucid Motors (though Lucid eventually closed, it faced significant challenges).
• The structure of the settlement, involving a secured promissory note and a contingent 'Trigger Event Payment,' is a common mechanism for SPACs to recover some value and mitigate losses when a planned merger fails, rather than simply liquidating. This approach provides a potential upside if the target company (e2) performs well independently.
• The interest rates on the promissory note (7.50% stepping down to 5.00%, with default rates of 20.00% stepping down to 10.00%) are within the typical range for secured debt in a distressed or high-risk scenario, reflecting the underlying credit risk of e2Companies LLC and the market's demand for compensation for such risk.

Corporate Governance

Legal Proceedings

• A lawsuit styled Nabors Energy Transition Corp. II, et al. v. e2Companies LLC, C.A. No. 2025-0810-BWD (Del. Ch.), initiated by NETD and Merger Sub against e2 on July 11, 2025, with e2 filing counterclaims on August 1, 2025, has been dismissed with prejudice as part of the settlement agreement.

Related Party Transactions

• The Settlement Agreement and Secured Promissory Note involve Nabors Energy Transition Corp. II (NETD), Nabors Energy Transition Sponsor II LLC (Sponsor), Liffey Merger Sub, LLC (Merger Sub), and e2Companies LLC (e2), all of whom were parties to the previously terminated Business Combination Agreement.
• The definition of 'Permitted Holder' for 'Change of Control' purposes includes James Richmond and Jeanne Richmond (and their family members/trusts), indicating their continued significant ownership and influence over e2.
• Affiliate Loans are listed in Annex A of the Secured Promissory Note, including Note Payable Agreements between e2 and Iepreneur Consulting, LLC, and e2 and Avanti Insieme, LLC, dated March 29, 2022, and March 31, 2022.
• Transactions with Affiliates are generally restricted unless permitted by the Note Agreement, on fair and reasonable arms-length terms, or specifically listed on Schedule 8.7 (which is redacted in the provided filing).

Stakeholder Impact

• **Shareholders (NETD)**: The termination of the merger means the original investment thesis for the SPAC has changed. Shareholders now hold an interest in a company that is a creditor to e2, with potential for a Trigger Event Payment, but also the risk of non-repayment. The SPAC will seek a new business combination, introducing new uncertainties.
• **Shareholders (e2)**: The company remains independent, avoiding the merger. However, it now carries a significant debt obligation to NETD, which must be repaid. The potential Trigger Event Payment could dilute future equity value if a liquidity event occurs.
• **Management (NETD & e2)**: Resolution of the lawsuit removes a significant distraction. NETD management must now identify and execute a new business combination. e2 management must focus on operational performance to meet debt obligations and potentially trigger the payment event.
• **Creditors (e2)**: The new secured promissory note adds to e2's debt burden. The subordination of NETD's security interest to GridEdge is important for GridEdge's priority position.
• **Employees (e2)**: The company remains independent, avoiding potential integration challenges or changes in corporate culture that might have come with the merger.

Next Steps

• e2 is required to prepay $3.5 million of the First Note on or before December 31, 2025.
• e2 is required to repay the First Note ($14.615 million) by March 31, 2026.
• e2 is required to repay the Second Note ($14.615 million) by October 14, 2028, unless it is cancelled due to NETD consummating an alternative business combination.
• e2 and its subsidiaries must enter into Security Agreements within ten business days after the Effective Date to grant security interests to NETD.
• e2 must provide unaudited consolidated financial statements to NETD within 45 days after the end of each calendar quarter.
• NETD will pursue an alternative initial business combination.

Key Dates

Recommendation

The termination of the business combination agreement is a significant negative event, as it represents the failure of the initial strategic objective for NETD. However, the structured settlement, including a secured promissory note and a contingent 'Trigger Event Payment,' provides a mechanism for recovery and potential upside, mitigating some of the downside. NETD is now free to pursue an alternative business combination, which could be positive but introduces new uncertainties. Given the complex and mixed signals – a failed merger offset by a structured exit and new opportunities – a 'hold' recommendation is appropriate. Investors should await further clarity on NETD's next strategic move and e2's ability to meet its debt obligations before making further investment decisions.

Keywords

SPAC, Business Combination, Merger Termination, Settlement Agreement, Promissory Note, SEC Filing, Energy Transition, e2Companies, Nabors Energy Transition Corp. II, Debt, Corporate Governance, Litigation Settlement