Item
1.01
Entry into a Material Definitive Agreement.
On February 20, 2018, Sphere 3D Corp., an Ontario
corporation (the
Company
), Overland Storage, Inc., a California
corporation and a wholly owned subsidiary of the Company (
Overland
),
and Silicon Valley Technology Partners LLC, a Delaware limited liability company
established and controlled by Eric Kelly, the Companys Chief Executive Officer and
Chairman of the Board of Directors (the
Purchaser
) entered into a share purchase agreement (the
Purchase Agreement
), pursuant to which, among other things, and subject
to certain closing conditions, the Company will sell to Purchaser all of the
issued and outstanding shares of capital stock of Overland for $45,000,000 (the
Purchase Price
), subject to working capital adjustments (the
Share
Purchase
). The net proceeds from the Share Purchase will be used to repay
the Companys outstanding obligations under its Credit Agreement with Opus Bank
and its outstanding obligations under the $24,500,000 convertible note with FBC
Holdings. The Company will use the remaining net proceeds to pay other
liabilities of the Company and transaction expenses associated with the Share
Purchase. The Special Committee of the Board of Directors of the Company and the
Board of Directors of the Company (with Eric Kelly recusing) unanimously
approved the entry into the Purchase Agreement by the Company.
Under
the terms of the Purchase Agreement, the Share Purchase is contingent upon, and
Purchaser must use its best efforts to arrange for, debt and/or equity financing
in an amount at least equal to the Purchase Price in order to consummate the
Share Purchase (the
Financing
). In addition, the Company must use
commercially reasonable efforts to provide all cooperation reasonably requested
by Purchaser regarding the Financing.
Until
the Financing is committed pursuant to a Contingency Termination Event (as
defined below), the Company is free to solicit and negotiate other offers to
purchase the Company, Overland or any or all of their assets and has the right
to terminate the Purchase Agreement for any or no reason without penalty
(subject to the expense reimbursement provisions described below).
The closing of the Share Purchase and of the other transactions contemplated by
the Purchase Agreement is subject to (i) the adoption of the Purchase Agreement
by the affirmative vote of the holders of (a) at least 66 2/3% of the outstanding
common shares of the Company cast in person or by proxy at the special meeting
of shareholders and (b) a majority of the votes cast by certain minority
shareholders in person or by proxy at the special meeting of shareholders (the
Shareholder Approval
) and (ii) the transfer by the Company of (a) the
businesses of (x) Unified ConneXions, Inc. and (y) HVE ConneXions, LLC
(including the provision of information technology consulting services and
hardware solutions around cloud computing, data storage and server
virtualization to corporate, government, and educational institutions), and (b)
the SNAP network attached storage business to a subsidiary of the Company other
than Overland or a subsidiary of Overland. The closing of the Share Purchase and
of the other transactions contemplated by the Purchase Agreement is also subject
to various other conditions, including the consummation of the Financing, the
absence of any order, statute, rule, regulation, executive order, decree or
injunction issued by any governmental entity prohibiting the Share Purchase, the
absence of a pending claim, suit, action or proceeding material claims seeking
to prohibit the Share Purchase, the accuracy of the representations and
warranties contained in the Purchase Agreement, compliance with the covenants
and agreements contained in the Purchase Agreement in all material respects, and
the absence of a material adverse effect on either the Company or Overland.
The Company has made customary representations, warranties and covenants in the
Purchase Agreement, including, among others, covenants (i) to conduct its
business in the ordinary course during the period between the execution of the
Purchaser Agreement and the closing of the Share Purchase, (ii) not to engage in
specified types of transactions during this period unless agreed to in writing
by Purchaser, (iii) to convene and hold a meeting of its shareholders for the
purpose of obtaining the Shareholder Approval and (iv) subject to certain
exceptions and only following the occurrence of the Contingency Termination
Event (as defined below), not to solicit and negotiate other offers to purchase
the Company, Overland or any or all of their assets or to withdraw, modify or
qualify in a manner adverse to Purchaser the recommendation of the Board that
the Companys shareholders vote in favor of approving the Share Purchase. The
Company has also agreed to indemnification provisions in favor of Purchaser that
are customary for transactions of this type.
Upon
the (i) execution and delivery of financing commitments in forms reasonably
acceptable to the Company, which provide, among other things, for commitments
from financing sources sufficient to pay the Purchase Price in the Share
Purchase, (ii) execution and delivery by Purchaser of an irrevocable waiver in a
form reasonably acceptable to the Company waiving Purchasers
condition to the obligation to close the Share Purchase that the Financing has
been received and (iii) an executed certificate delivered by Purchaser to the
Company regarding the accuracy of certain representations regarding the
Financing (the
Contingency Termination Event
), the Company has the
right to terminate the Purchase Agreement for any reason or for no reason. The
Purchase Agreement also provides that, upon such termination of the Purchase
Agreement by the Company, the Company has agreed to reimburse Purchaser up to
approximately $350,000 for the reasonable and documented out-of-pocket expenses
incurred by the Purchaser and the sources for the Financing in connection with
the negotiation, execution and performance of the Purchase Agreement and the
transactions contemplated thereby, as well as the fees and expenses of the
Purchaser's outside counsel.
2
In
addition, the Purchase Agreement contains certain other termination rights,
including, following the occurrence of the Contingency Termination Event, the
right of the Company to terminate the Purchase Agreement under specified
circumstances to accept an unsolicited superior proposal from a third party. The
Purchase Agreement provides that, following the occurrence of the Contingency
Termination Event and upon termination of the Purchase Agreement by the Company
under specified circumstances (including termination by the Company to accept a
superior proposal) or by Purchaser under specified circumstances, a termination
fee equal to the lesser of (i) $1,000,000 and (ii) the amount of Purchasers
reasonable fees and expenses in connection with the negotiation, execution and
performance of the Purchase Agreement (including the amount that the Purchaser
must pay or reimburse to the sources for the Financing) will be payable by the
Company to the Purchaser. Such termination fee is also payable following the
occurrence of the Contingency Termination Event and under certain other
specified circumstances set forth in the Purchase Agreement. The Purchase
Agreement also provides that each party to the Purchase Agreement may compel the
other party or parties thereto to specifically perform its or their obligations
under the Purchase Agreement. However, if the Purchase Agreement is terminated
such that the Company termination fee becomes payable, the Purchaser will be
precluded from any other remedy against the Company or Overland, including
expense reimbursement and specific performance. Further, if the Purchase
Agreement is terminated such that the expense reimbursement becomes payable, the
Purchaser will be precluded from any other remedy against the Company or
Overland, including the Company termination fee and specific performance.
Subject to certain exceptions and limitations, either party may terminate the
Purchase Agreement if the Share Purchase is not consummated by August 19, 2018.