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Item 1.01
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Entry into a Material Definitive Agreement.
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Acquisition of Opengear
On December 13, 2019 Digi International Inc. (“Digi”)
completed its acquisition of Opengear, Inc. (“Opengear”) pursuant to the previously announced Agreement and Plan of
Merger (the “Merger Agreement”) with Namath Merger Sub, Inc., Opengear, and Shareholder Representative Services LLC,
as representative of the securityholders of Opengear.
The total consideration for the acquisition was approximately
$140 million in cash paid at closing, subject to net working capital, cash and debt adjustments, and up to $15 million
in potential additional consideration based on revenue in excess of established threshold amounts for Opengear through the remainder
of 2019 and 2020. Digi funded its cash closing obligation with cash on hand and $110 million in proceeds from the Credit Facility
(defined below).
The material terms of the Merger Agreement were previously disclosed
in the current report on Form 8-K filed on November 8, 2019, Item 1.01 of which is incorporated herein by reference.
Senior Secured Credit Facility
On December 13, 2019, Digi entered into a credit agreement
(the “Credit Agreement”) with BMO Harris Bank N.A. (“BMO”), as administrative agent and collateral
agent, BMO Capital Markets Corp., as joint lead arranger and sole book runner and Silicon Valley Bank, as joint lead arranger,
other lenders from time to time party thereto (collectively, the “Lenders”). The Credit Agreement provides Digi with
senior secured credit facilities (the “Credit Facility”) totaling $150 million, consisting of (i) a $50 million
senior secured term loan credit facility (the “Term Loan Facility”) and (ii) a $100 million senior secured
revolving loan credit facility (the “Revolving Loan Facility”). The Revolving Loan Facility includes a $10 million
letter of credit subfacility and $10 million swingline subfacility.
In addition to the $110 million used to fund the acquisition
of Opengear, Digi may use the remaining amounts under the Credit Agreement for working capital, capital expenditures, restricted
payments and acquisitions permitted under the Credit Agreement, and other general corporate purposes.
Borrowings under the Credit Facility bear interest at a rate
per annum equal to one of the following, plus, in both cases, an applicable margin based upon Digi’s leverage ratio: (a) LIBOR
for an interest period of one, two, three or six months as selected by Digi, reset at the end of the selected interest period,
or (b) a base rate determined by reference to the highest of (1) BMO’s prime rate, (2) the Federal Funds Effective
Rate plus 0.5%, or (3) one-month LIBOR for U.S. dollars plus 1.00%. The LIBOR margin is 3.25%-1.25%%, depending on Digi’s
net leverage ratio. The base rate margin is 2.25%-0.25%, depending on Digi’s net leverage ratio.
In addition to paying interest on the outstanding principal
under the Credit Facility, Digi is required to pay a commitment fee on the unutilized commitments thereunder. The commitment fee
is between 0.40%-0.20% depending on Digi’s net leverage ratio.
Loans under the Term Loan Facility will be repaid in quarterly
installments on the last day of each fiscal quarter, with amortization of 5% in the first two years, 7.5% in the next two years
and 10% in the final year. The remaining outstanding balance will be repaid in full after five years.
The Credit Facility is secured by substantially all of the personal
property assets of Digi and its subsidiaries.
Commencing with the fiscal quarter ending December 31, 2019,
the Credit Agreement will require Digi to maintain (a) a minimum fixed charge coverage ratio of 1.25 to 1.00 and (b) a
maximum consolidated net leverage ratio of 3.25 to 1.0, with 0.25 step-downs starting in March 31, 2020 and eventually to 2.50
to 1.00 on March 31, 2022 and each fiscal quarter thereafter, subject to certain temporary increases after a permitted acquisition.
The Credit Agreement also contains other customary affirmative and negative covenants, including covenants that restrict the ability
of Digi and its subsidiaries to incur additional indebtedness, dispose of significant assets, make certain investments, including
any acquisitions other than permitted acquisitions, make certain restricted payments, enter into sale and leaseback transactions
or grant additional liens on its assets, subject to certain limitations.
The Credit Agreement contains customary events of default, the
occurrence of which would permit the lenders to terminate their commitments and accelerate loans under the Credit Facility, including
failure to make payments under the Credit Facility, failure to comply with covenants in the Credit Agreement and other loan documents,
cross default to other material indebtedness of Digi or any of its subsidiaries, failure of Digi or any of its subsidiaries to
pay or discharge material judgments, bankruptcy of Digi or any of its subsidiaries, and change of control of Digi.
Certain lenders under the Credit Facility have performed and
may continue to perform commercial banking and financial services for Digi and its subsidiaries for which they have receive and
will continue to receive customary fees.
The foregoing summaries
of the material terms of the Credit Agreement and underlying Credit Facility are not complete and are qualified by reference to
the full text of the Credit Agreement, which is filed as Exhibit 10.1 to this current report on Form 8-K.