Business Context and Reporting Period
This Form 8-K filing by MaxLinear, Inc. (the "Company") reports on material events occurring on May 12, 2017. The primary events include the entry into a material definitive credit agreement and the completion of the acquisition of Exar Corporation ("Exar") via a cash tender offer and subsequent merger.
Key Financial Metrics and Transaction Details
- Debt Financing: The Company entered into a Credit Agreement for a secured Term B loan facility with an aggregate principal amount of $425.0 million. The loan was fully drawn on the lending date.
- Acquisition Cost: The aggregate amount paid for the acquisition of Exar shares in the tender offer and merger was approximately $687 million.
- Offer Price: The purchase price was $13.00 per share of Exar common stock.
- Shares Acquired: 44,385,399 shares were validly tendered (approximately 85.4% of outstanding shares), plus 895,150 shares tendered by notice of guaranteed delivery (approximately 1.7%).
- Interest Rates: Loans bear interest at a base rate plus 1.50% or an adjusted LIBOR rate (floor 0.75%) plus 2.50%.
- Amortization: The Initial Term Loan amortizes in equal quarterly installments of 0.25% of the original principal, commencing September 30, 2017, with a maturity date seven years from the lending date.
Material Changes and Transaction Funding
The Company completed the acquisition of Exar, which was funded through a combination of available cash on hand, cash on hand at Exar, and net proceeds from the new $425.0 million Credit Agreement. Following the merger, Exar survives as a wholly-owned subsidiary of MaxLinear. The Company intends to delist Exar shares from the NYSE and deregister them under the Exchange Act. The Credit Agreement imposes customary covenants limiting the Company's ability to incur additional debt, grant liens, or make restricted payments, and requires mandatory prepayments from asset dispositions and excess cash flow.
Outlook, Risks, and Contingencies
- Covenants and Defaults: The Credit Agreement contains affirmative and negative covenants. Events of default include payment defaults, cross-defaults, covenant breaches, and change in control. Upon default, lenders may demand immediate payment of all obligations.
- Collateral: The Company's obligations are secured by substantially all assets of the Company and subsidiary guarantors.
- Incremental Borrowing: The Company may request incremental loans up to $160.0 million plus an unlimited amount subject to leverage ratio tests, subject to lender commitments.
- Prepayment Terms: The Company may prepay loans without penalty after the first six months; a 1.0% soft call premium applies during the first six months.
Investor Verification Checklist
- Verify the full text of the Credit Agreement (Exhibit 10.1) and Security Agreement (Exhibit 10.2) for specific covenant thresholds and definitions of "excess cash flow."
- Confirm the exact number of shares remaining after the merger and the total cash consideration paid to dissenting shareholders exercising appraisal rights.
- Review the Company's subsequent 10-Q or 10-K filings to assess the impact of the new debt load on leverage ratios and liquidity.
- Monitor the integration progress of Exar and any potential synergies or cost savings realized post-merger.
- Check for any subsequent amendments to the Credit Agreement or additional borrowings under the incremental loan provisions.