Item 1.01 Entry into a Material Definitive Agreement
Merger Agreement
On November 4, 2020, Kimball International, Inc. (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Project Fifth Gear Merger Corp., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), Poppin, Inc., a Delaware corporation (“Poppin”), and Fortis Advisors LLC, as the Stockholders’ Representative.
The Merger Agreement provides, among other things, that upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will be merged with and into Poppin, with Poppin continuing as the surviving corporation and a wholly-owned subsidiary of the Company (the “Merger”). In addition, the Merger Agreement contains customary representations, warranties and covenants from each of the parties. The Merger Agreement also provides customary termination rights for each of the parties, and the closing of the transactions contemplated by the Merger Agreement is subject to customary closing conditions, which the Company expects will be satisfied promptly following its announcement of the Merger Agreement.
The total consideration to be paid in connection with the Merger is approximately $110 million in cash at the closing of the Merger, subject to customary purchase price adjustments as provided in the Merger Agreement, and potential earn-out payments of up to an additional $70 million in cash, subject to meeting certain financial targets as provided in the Merger Agreement. The Merger is not subject to any financing condition. A portion of the Merger consideration will be held in escrows to serve as security for customary post-closing purchase price adjustments as provided for in the Merger Agreement. Concurrently with the execution of the Merger Agreement, certain members of Poppin’s management team have entered into employment agreements with the Company, which will become effective upon consummation of the Merger.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference. The above description of the Merger Agreement is not intended to provide any other factual information about the Company, Poppin or their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement and only as of specific dates, were solely for the benefit of the parties to the Merger Agreement, and may be subject to limitations agreed upon by the parties in connection with negotiating the terms of the Merger Agreement, including being qualified by confidential disclosures made by each party to the other for the purposes of allocating contractual risk between them. In addition, certain representations and warranties may be subject to a contractual standard of materiality different from those generally applicable to investors and may have been used for the purpose of allocating risk between the parties rather than establishing matters as facts. Information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the Company or Poppin. Investors should not rely on the representations and warranties or covenants, or any description thereof, as characterizations of the actual state of facts or condition of the Company, Poppin or any of their respective subsidiaries, affiliates or businesses.
Amendment to Credit Agreement
On November 4, 2020, the Company entered into a First Amendment to Credit Agreement among the Company, the lender parties thereto, JPMorgan Chase Bank, National Association, as administrative agent (the “Administrative Agent”), and the guarantors named therein (the “Credit Agreement”). The Credit Agreement amends the Amended and Restated Credit Agreement, dated as of October 24, 2019, by and among the Company, the lender parties thereto, the Administrative Agent, and the guarantors named thereon (the “Base Agreement”). The Credit Agreement provides for amendments to the Base Agreement (a) in connection with, and to facilitate, the Merger, (b) to provide for an increase in available borrowings to $125 million (up from $75 million), and (c) to provide for certain adjustments to the financial covenants of, and borrowing rates available to, the Company.
The Credit Agreement retains a maturity date of October 24, 2024. The revolving loans under the Credit Agreement may consist of, at the Company's election, advances in U.S. dollars or advances in any other currency that is agreed to by the lenders. The proceeds of the revolving loans are to be used for general corporate purposes of the Company including acquisitions. A portion of the credit facility, not to exceed $10 million of the principal amount, will be available for the issuance of letters of credit. A commitment fee on the unused portion of principal amount of the credit facility is payable at a rate that ranges from 20.0 to 30.0 basis points per annum as determined by the Company's ratio of consolidated total indebtedness to adjusted consolidated EBITDA.
The interest rate is dependent on the type of borrowings and will be one of the following two options:
•the adjusted London Interbank Offered Rate (“Adjusted LIBO Rate” as defined in the Credit Agreement) in effect two business days prior to the advance (adjusted upwards to reflect bank reserve costs) for such interest period, plus the Eurocurrency Loans margin which can range from 125.0 to 200.0 basis points based on the Company's ratio of consolidated total indebtedness to adjusted consolidated EBITDA; or
•the Alternate Base Rate (the “ABR”) which is defined as the highest of the fluctuating rate per annum equal to the higher of
a.prime rate as last quoted by The Wall Street Journal;
b.1% per annum above the Adjusted LIBO rate; or
c.1/2% per annum above the Federal Reserve Bank of New York;
plus the ABR Loans spread which can range from 25.0 to 100.0 basis points based on the Company's ratio of consolidated total indebtedness to adjusted consolidated EBITDA.
The Fixed Charge Coverage Ratio was deleted from the Credit Agreement and replaced with an Interest Coverage Ratio. The Company's financial covenants under the Credit Agreement now require:
•an adjusted leverage ratio of (a) consolidated total indebtedness minus unencumbered U.S. cash equivalents in excess of $15,000,000 provided that the maximum subtraction shall not exceed $35,000,000 to (b) adjusted consolidated EBITDA, determined as of the end of each of its fiscal quarters for the then most recently ended four fiscal quarters, to not be greater than 3.0 to 1.0, and
•an interest coverage ratio, for any period, of (a) Consolidated EBITDA for such period to (b) cash interest expense for such period, calculated for the Company and its subsidiaries on a consolidated basis in accordance with GAAP for the trailing four quarter period then ending, to not be less than 3.00 to 1.00.
The foregoing description of the Credit Agreement and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the full text of the Credit Agreement, a copy of which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.