12. Subsequent Events

Stock Purchase Agreement with Pakedge Device & Software Inc.

On January 29, 2016, Control4 entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Pakedge. Pursuant to the Purchase Agreement, Control4 acquired all of the outstanding common stock of Pakedge. 

 

In accordance with the terms and conditions of the Purchase Agreement, Control4 agreed to acquire all of the outstanding shares of common stock of Pakedge on January 29, 2016 (the “Closing Date”) for a price of $32.0 million. After customary working capital adjustments and net of cash in Pakedge as of the Closing Date, the total purchase price is expected to be approximately $32.7 million (the “Purchase Price”). Approximately 15% of the Purchase Price will be held in escrow for up to 18 months to cover any of the Sellers’ post-Closing obligations, including without limitation any indemnification obligations that may arise. The Purchase Price was funded as follows: (i) approximately $5.0 million was financed by Control4 pursuant to its line of credit with SVB and (ii) the balance of the Purchase Price was funded by Control4’s cash and cash equivalents. In addition, Control4 committed to grant retention Restricted Stock Units (“RSUs”) to certain key employees of Pakedge upon their acceptance of employment offers with Control4. These RSUs will be granted pursuant to Control4’s 2013 Stock Option and Incentive Plan and will vest over three years. 

 

The Company is in the process of determining the fair values of the net assets acquired and will include Pakedge’s results of operations in its financial statements with effect from the purchase date. Due to the timing of the acquisition, it is not currently practicable to include any preliminary disclosures of estimated fair values or pro forma information.

 

Amendment to the Silicon Valley Bank Loan Agreement

 

On January 29, 2016, Control4 entered into the Second Loan Modification Agreement (the “2016 Loan Amendment”) with Silicon Valley Bank, a California corporation (“SVB”), which amends that certain Amended and Restated Loan and Security Agreement dated as of June 17, 2013, between Control4 and SVB (the “2013 Loan Agreement”).

 

In the 2016 Loan Amendment, Control4 establishes a revolving credit facility of $30.0 million under the terms of the 2013 Loan Agreement (the “New Credit Facility”). All borrowings under the New Credit Facility are collateralized by the general assets of the Company. Amounts borrowed under the New Credit Facility are due and payable in full on the maturity date, which is January 28, 2018.  Advances made pursuant to the New Credit Facility are either: (i) Prime Rate Advances, which bear interest at the Prime Rate plus a Prime Rate Margin of either 0% or 0.25%, depending on Control4’s leverage ratio for the subject quarter, or (ii) LIBOR Rate Advances, which bear interest at the LIBOR Rate plus a LIBOR Rate Margin of either 2.50% or 2.75%, depending on Control4’s leverage ratio for the subject quarter.    

 

Control4 paid a commitment fee of $75,000 in connection with the New Credit Facility, and will be assessed an Unused 2016 Revolving Line Facility Fee of 0.25% in any quarter where the amount of advances under the New Credit Facility is less than $15.0 million.  

 

As a condition of the 2016 Loan Amendment, Control4 must satisfy certain financial covenants including: (i) a liquidity coverage test such that the ratio of (a) Control4’s unrestricted cash at SVB plus net billed accounts receivable to (b) Control4’s aggregate amount of outstanding obligations to SVB is at least 1.50:1.0,and (ii) an interest coverage test such that the ratio, during the subject 12-month period, of (x) Control4’s Adjusted EBITDA (as defined in the 2016 Loan Amendment) minus unfunded capital expenditures and cash taxes to (y) the actual interest payments due to SVB is at least at least 2.0:1.0. The liquidity coverage covenant is waived as long as its cash, cash equivalents and securities/investments with SVB are above $30.0 million.