Item 1.01 Entry into a Material Definitive Agreement.
On November 7, 2019, Digi International Inc. (Digi) entered into an Agreement and Plan of Merger with Namath Merger Sub, Inc. (Merger Sub), Opengear, Inc. (Opengear), and Shareholder Representative Services LLC, as representative of the securityholders of Opengear (the Sellers).
The merger agreement provides that, among other things, Merger Sub, a wholly-owned subsidiary of Digi, would merge with and into Opengear, resulting in Opengear becoming a wholly-owned subsidiary of Digi (the Merger). The purchase price for the Merger consists of approximately $140 million in cash due at closing, which amount is subject to net working capital, cash and debt adjustments. Digi has agreed to pay to the Sellers up to $15 million in additional consideration based on revenue in excess of established threshold amounts for Opengear through the remainder of 2019 and 2020. Digi has agreed to deposit an aggregate of $17 million of the initial purchase price into certain escrow accounts to be used for potential purchase price adjustments and indemnity claims against the Sellers.
Closing of the Merger remains subject to customary closing conditions, including the expiration of any applicable waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, the absence of any law or order preventing the consummation of the transactions contemplated by the merger agreement, the accuracy of the representations and warranties contained in the merger agreement subject to various exceptions and qualifications including the absence of a material adverse effect with respect to Opengear, and material compliance with the covenants in the merger agreement. The merger agreement also contains certain termination rights, including that either Digi or the Sellers may terminate the merger agreement if the transaction is not closed by January 6, 2020 and such terminating party is not responsible for the failure to close.
The foregoing descriptions of the material terms of the merger agreement and the Merger do not purport to be complete and are subject to, and qualified by reference to, the full text of the purchase agreement, which is filed as Exhibit 2.1 to this current report on Form 8-K.
Commitment Letter
In connection with the execution of the merger agreement, on November 7, 2019, Digi executed a commitment letter with BMO Harris Bank N.A. and BMO Capital Markets Corp. (collectively, BMO) pursuant to which BMO committed to provide, subject to the various terms and conditions set forth in the commitment letter, a $100,000,000 revolving loan facility (the Revolving Facility) and a $50,000,000 term loan facility (the Term Facility and collectively with the Revolving Facility, the Facilities) to facilitate the consummation of the transactions contemplated by the merger agreement. It is intended that the Facilities will be secured by substantially all of the assets of Digi and its subsidiaries.
The Revolving Facility will be a five-year facility available to Digi on a revolving basis and the proceeds may be used for working capital and other general corporate purposes and, together with the Term Facility, to finance a portion of the transactions contemplated by the merger agreement. The Term Facility will be made available to Digi in a single drawing on the date that the Merger closes to finance the transactions contemplated by the merger agreement. The loans under the Term Facility would amortize in equal quarterly installments in an aggregate annual amount equal to (i) 5.00% of the original principal amount of the Term Facility during the first and second year following the closing date, (ii) 7.50% of the original principal amount of the Term Facility during the third and fourth year after the Closing Date and (iii) 10% of the original principal amount of the Term Facility thereafter. The Term Facility will mature five years following the closing date. Digi may elect that the loans under the Facilities bear interest at a rate per annum equal to either a base rate or reserve adjusted LIBO rate plus, in each case, an applicable margin that fluctuates depending on Digis total net leverage ratio.
The foregoing description of the material terms of the commitment letter does not purport to be complete and is subject to, and qualified by reference to, the full text of the commitment letter agreement, which is filed as Exhibit 10.1 to this current report on Form 8-K.
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conditions within particular regions of the world which could negatively affect product demand and the financial solvency of customers and suppliers, the impact of natural disasters and other events beyond our control that could negatively impact our supply chain and customers, our ability to attract and retain important employees, potential unintended consequences associated with restructuring or other similar business initiatives that may impact our ability to retain important employees and our ability to execute on the business to achieve the anticipated benefits and synergies associated with the transaction. These and other risks, uncertainties and assumptions identified from time to time in our filings with the Commission, including without limitation, our annual report on Form 10-K for the year ended September 30, 2018 and subsequent quarterly reports on Form 10-Q and other filings, could cause the Digis future results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. Many of such factors are beyond our ability to control or predict. These forward-looking statements speak only as of the date for which they are made. We disclaim any intent or obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
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