ITEM 1.01. Entry into a Material Definitive Agreement.
Asset Purchase Agreement
On September 20, 2017, Phoenix Color Corp. (“Phoenix”), a wholly owned subsidiary of ALJ Regional Holdings, Inc. (“ALJ” or the “Company”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with LSC Communications, Inc. (“LSC”) and Moore-Langen Printing Company, Inc. (“Moore-Langen”).
Pursuant to the terms and subject to the conditions of the Purchase Agreement, Phoenix will acquire certain assets and assume certain liabilities from Moore-Langen in respect of its printing and manufacturing services division in Terre Haute, Indiana. As consideration for the acquisition, Phoenix will pay an aggregate purchase price of $10,000,000 in cash, subject to customary net working capital adjustments. Phoenix will withhold $1,000,000 from the consideration paid at the closing
and will pay such amount to Moore-Langen on the one-year anniversary of the closing.
The Purchase Agreement contains customary representations, warranties and covenants, including covenants regarding acquiring required consents prior to the closing. The Purchase Agreement also contains customary termination rights for each of Phoenix and Moore-Langen prior to the closing date. The Purchase Agreement further provides
that Moore-Langen will indemnify Phoenix for breaches by Moore-Langen of its representations and warranties and covenants under the Purchase Agreement.
At the closing of the acquisition, Phoenix and LSC will also enter into a supply agreement (the “Supply Agreement”), pursuant to which LSC will agree to purchase from Phoenix its print requirements to continue servicing certain of its customers. Under the Supply Agreement, LSC will also commit to buy minimum amounts of certain components from Phoenix, and to provide Phoenix with a right of last refusal to supply certain non-component work.
Phoenix and ALJ expect to finance the acquisition by borrowing under a term loan with Cerberus Business Finance, LLC (“Cerberus”), selling an aggregate of $1.5 million of ALJ common stock in a private offering to two investors who are unaffiliated with ALJ, and using the $1.0 million in proceeds from the August 2017 exercise by Jess Ravich, Executive Chairman of ALJ, of certain of his outstanding vested options to purchase ALJ common stock. ALJ expects to enter into an amendment to the financing agreement with Cerberus to facilitate the term loan. The private sale will close concurrently with the closing of the acquisition, subject to customary closing conditions, and will involve the sale of an aggregate of 477,706 shares at a price per share equal to $3.14. ALJ has also agreed to enter into registration rights agreements with the investors at the closing of the private sale, granting them customary registration rights in connection with the resale of their shares.
The foregoing description of the Purchase Agreement is only a summary, does not purport to be complete, and is qualified in its entirety by reference to the full text of the Purchase Agreement, which is filed as Exhibit 2.1 hereto, and is incorporated herein by reference.
The representations, warranties, covenants and agreements of Phoenix, LSC and Moore-Langen contained in the Purchase Agreement have been made (i) only for purposes of the Purchase Agreement, (ii) have been qualified by confidential disclosures made to the other party in disclosure schedules delivered in connection with the Purchase Agreement, (iii) are subject to materiality qualifications contained in the Purchase Agreement which may differ from what may be viewed as material by investors, (iv) were made only as of the date of the Purchase Agreement or such other date as is specified in the Purchase Agreement, and (v) have been included in the Purchase Agreement for the purpose of allocating risk between the parties rather than establishing matters as fact. Accordingly, the Purchase Agreement is included as an exhibit to this Current Report on Form 8-K only to provide investors with information regarding the terms of the Purchase Agreement, and not to provide investors with any other factual information regarding Moore-Langen, LSC or Phoenix. Investors should not rely on the representations, warranties, covenants and agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of Moore-Langen, LSC, Phoenix or any of their subsidiaries or affiliates. In addition, information concerning the subject matter of the representations and warranties may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected in ALJ’s public disclosures.