Item 1.01 Entry into a Material Definitive Agreement.
On August 17, 2018, Black Box Corporation (the “Company”) and Norstan Communications, Inc. (“Seller”), a direct wholly-owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with NXOF Intermediate Holdings, Inc., an affiliate of a private equity firm (“Buyer”). Pursuant to the terms and subject to the conditions set forth in the Purchase Agreement, Seller agreed to sell to Buyer all of the issued and outstanding membership interests of NextiraOne Federal, LLC (“NextiraOne”) for an aggregate cash consideration of $75,000,000 in cash on a cash-free, debt-free basis. NextiraOne, together with its direct wholly-owned subsidiary Mutual Telecom Services Inc., operates the Company’s federal government IT services business (the “Federal Business”).
As the Company previously disclosed in a Form 8-K, filed with the Securities and Exchanges Commission (“SEC”) on July 2, 2018, which is incorporated herein by reference in its entirety, the Company and certain direct and indirect wholly-owned subsidiaries of the Company entered into a Second Amendment, dated June 29, 2018, with PNC Bank, National Association, as administrative agent (the “Agent”), and certain other lenders party thereto (together with the Agent, the “Lenders”) to amend the Credit Agreement entered into among the Loan Parties, the Agent and the Lenders on May 9, 2016 (as amended by the Amendment and Joinder Agreement, dated August 9, 2017, and the Second Amendment, the “Amended Credit Agreement”). The Amended Credit Agreement established a new “last in first out” senior revolving credit facility in an amount not to exceed $10,000,000 (the “LIFO Facility”), which is currently used to finance the Company’s budgeted cash flow needs. The Credit Agreement required the Company to satisfy certain milestones related to the sale of the Federal Business, including the execution of the Purchase Agreement on or prior to July 31, 2018 (which deadline was extended by the Agent, as disclosed by the Company in a Form 8-K, filed with the SEC on August 6, 2018) and the consummation of the sale of the Federal Business by August 31, 2018 (subject to extension by the Agent under the Amended Credit Facility). The net proceeds of the sale of the Federal Business, after fees, costs, expenses and accrued interest under the Amended Credit Facility, will be used to pay down all outstanding indebtedness under the LIFO Facility, which will then remain available for future borrowings (subject to continued compliance with the Amended Credit Agreement). The remainder of the net proceeds will be used to pay down other indebtedness under the Amended Credit Agreement.
The Purchase Agreement contains customary representations, warranties and covenants, including, among others, covenants by Seller to conduct the Federal Business in the ordinary course between the date of the Purchase Agreement and the closing of the transaction (the “Closing”). The Closing is subject to customary closing conditions and the parties do not anticipate any material regulatory filings or third party consents will be required. Buyer intends to obtain third party debt financing as well as equity financing to fund the purchase price and has provided Seller with customary financing commitment letters, however, Buyer’s receipt of such financing is not a condition to Closing. The Closing will occur on the second business day following the satisfaction or waiver of the closing conditions set forth in the Purchase Agreement, but the Closing will not take place earlier than the 10
th
business day following the execution date of the Purchase Agreement unless otherwise mutually agreed by the parties. The parties anticipate that the Closing will occur on or prior to August 31, 2018.
Seller may terminate the Purchase Agreement due to Buyer’s breach of the Purchase Agreement or failure to consummate the transaction, in which case, Buyer will be required to pay a termination fee of $2,500,000. Seller also has certain rights to obtain specific performance to close the transaction in the event Buyer fails to close despite the satisfaction of all closing conditions and the availability of Buyer’s third party financing.
Seller has agreed to deliver the Federal Business to Buyer with a level of working capital between $22,000,000 and $26,000,000. The purchase price will be reduced for any shortfall in working capital below $22,000,000 or increased by any excess in working capital above $26,000,000. If the working capital amount is between $22,000,000 and $26,000,000, no adjustment will be made.
The parties have agreed to place $3,000,000 (the “Escrow Fund”) in escrow. After the Final Adjustment Determination Date and the release of funds from the Escrow Fund to Buyer to cover a shortfall in the purchase price adjustment, if any, Seller will be entitled to receive a distribution from the Escrow Fund. If the Company has consummated a Permitted Alternative Transaction prior to the Final Adjustment Determination Date, then the Escrow Agent will distribute the entire remaining balance of the Escrow Fund, if any, to Seller. If the Company has not consummated a Permitted Alternative Transaction prior to the Final Adjustment Determination Date, then the Escrow Agent will retain not more than $1,000,000 for a period of 18 months to satisfy indemnification claims.
At the Closing, the Company, Seller, Buyer and NextiraOne will enter into certain post-Closing commercial agreements, including among other things, a restrictive covenants agreement (the “Restrictive Covenants Agreement”), where the Company will agree, on behalf of itself and its controlled affiliates, for a period of five years after Closing (or reduced to three years following a
Change of Control (as defined in the Restrictive Covenants Agreement)), to refrain from competing with the Federal Business or soliciting certain customers of the Federal Business. In addition, the Company will, and will cause its affiliates to, refrain from using the name “Black Box” to compete with the Federal Business for a period of five years after Closing, which period will be reduced to three years following any Change of Control (as defined in the Restrictive Covenants Agreement) of the Company. Buyer and NextiraOne, on the one hand, and the Company, on the other hand, will agree not to (and cause their respective affiliates not to) solicit or hire (a) management-level employees, as of the Closing, of the other party for a period of three years after the Closing and (b) other employees, as of the Closing, of the other party for a period of six months after the Closing, subject to certain exceptions.
The foregoing descriptions of the Purchase Agreement and the Restrictive Covenants Agreement are only a summary, do not purport to be complete and are qualified in their entirety by reference to the full text of the Purchase Agreement and the form of Restrictive Covenants Agreement, copies of each of which are attached hereto as Exhibit 10.1 and Exhibit 10.2 and are incorporated herein by reference in their entirety.