FLOW » Topics » Contemplated Merger with OMAX

These excerpts taken from the FLOW 10-K filed Jun 26, 2009.
Contemplated Merger with OMAX
 
On December 4, 2007, the Company entered into an Option Agreement (the “Option Agreement”) with OMAX. OMAX is a provider of precision-engineered, computer-controlled, two-axis abrasivejet systems for use in the general machine shop environment. The contemplated transaction with OMAX was subject to due diligence, the negotiation of a mutually acceptable definitive agreement and other customary closing conditions, including approval of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The purchase price pursuant to the Option Agreement was at $108.75 million payable in cash and stock as well as an earn-out provision of up to $26 million on the two-year anniversary of the closing of the merger.
 
In September 2008, the Company successfully negotiated the terms of a Merger Agreement with OMAX, amended in November 2008, which effectively reduced the purchase price to $75 million payable in a combination of cash, stock and a note payable. The Merger Agreement, as amended, also provided for an earn-out provision of up to $52 million on the third anniversary of the closing of the merger.
 
In March 2009, the Company simultaneously entered into the following two agreements with OMAX:
 
(1) A Settlement and Cross License Agreement (the “Agreement”) where both parties agreed to dismiss the litigation pending between them and release all claims made up to the date of the execution of the Agreement. The Company agreed to pay $29 million to OMAX in relation to this agreement which was funded as follows:
 
  •  A non-refundable cash payment of $8 million to OMAX in March 2009 as part of the execution of the Agreement;


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Table of Contents

 
FLOW INTERNATIONAL CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
  •  A cash payment of $6 million in March 2009 paid directly to an existing escrow account with OMAX, increasing the escrow amount from $9 million to a total of $15 million as part of the execution of the Agreement; and
 
  •  In the event the merger would be consummated by August 15, 2009, the entire amount would be applied towards the $75 million purchase price. However, in the event the merger would not be consummated by August 15, 2009, the $15 million held in escrow would be released to OMAX on August 16, 2009 and the Company would issue a promissory note in the principle amount of $6 million to OMAX for the remaining balance on the $29 million settlement amount.
 
(2) An amendment to the existing Merger Agreement which provided for the following:
 
  •  A non-refundable cash payment of $2 million to OMAX for the extension of the closing of the merger from March 31, 2009 to August 15, 2009 — with closing at the option of the Company; and
 
  •  In the event the merger would be consummated by August 15, 2009, the $2 million would be applied towards the $75 million purchase price. However, in the event the merger would not be consummated by August 15, 2009 the $2 million would be forfeited and the Company would issue a promissory note of $4 million to OMAX.
 
In May 2009, the Company made the decision to terminate its option to acquire OMAX following a thorough investigation of financing alternatives to complete the merger and unsuccessful attempts to negotiate a lower purchase price with OMAX. Pursuant to the terms of the amended Merger Agreement and the Settlement and Cross Licensing Agreement dated March 2009, the Company will be required to issue the two promissory notes to OMAX with principal amounts of $6 million and $4 million on August 16, 2009 as discussed above. Both promissory notes will bear interest at a compounded annual rate of 2% with accumulated interest and principal being payable and due in August 2013. As the stated interest rate of 2% is below its incremental borrowing rate, the Company will discount these promissory notes upon issuance and record the subsequent amortization of the discount on the promissory notes to interest expense. The Company anticipates recording a charge of approximately $2.4 million in relation to the termination of the Merger Agreement with OMAX, net of the discounts related to the two promissory notes, in the first quarter of its fiscal year 2010.
 
As of April 30, 2009, the Company had accumulated a total of $17.1 million in deferred acquisition costs which consists of the $15 million, and accrued interest of $0.1 million, held in escrow as detailed above, and the non-refundable amount of $2 million which was paid directly to OMAX in March 2009.
 
Contemplated Merger with OMAX
 
On December 4, 2007, the Company entered into an Option Agreement (the “Option Agreement”) with OMAX. OMAX is a provider of precision-engineered, computer-controlled, two-axis abrasivejet systems for use in the general machine shop environment. The contemplated transaction with OMAX was subject to due diligence, the negotiation of a mutually acceptable definitive agreement and other customary closing conditions, including approval of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The purchase price pursuant to the Option Agreement was at $108.75 million payable in cash and stock as well as an earn-out provision of up to $26 million on the two-year anniversary of the closing of the merger.
 
In September 2008, the Company successfully negotiated the terms of a Merger Agreement with OMAX, amended in November 2008, which effectively reduced the purchase price to $75 million payable in a combination of cash, stock and a note payable. The Merger Agreement, as amended, also provided for an earn-out provision of up to $52 million on the third anniversary of the closing of the merger.
 
In March 2009, the Company simultaneously entered into the following two agreements with OMAX:
 
(1) A Settlement and Cross License Agreement (the “Agreement”) where both parties agreed to dismiss the litigation pending between them and release all claims made up to the date of the execution of the Agreement. The Company agreed to pay $29 million to OMAX in relation to this agreement which was funded as follows:
 
  •  A non-refundable cash payment of $8 million to OMAX in March 2009 as part of the execution of the Agreement;


55


Table of Contents

 
FLOW INTERNATIONAL CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
  •  A cash payment of $6 million in March 2009 paid directly to an existing escrow account with OMAX, increasing the escrow amount from $9 million to a total of $15 million as part of the execution of the Agreement; and
 
  •  In the event the merger would be consummated by August 15, 2009, the entire amount would be applied towards the $75 million purchase price. However, in the event the merger would not be consummated by August 15, 2009, the $15 million held in escrow would be released to OMAX on August 16, 2009 and the Company would issue a promissory note in the principle amount of $6 million to OMAX for the remaining balance on the $29 million settlement amount.
 
(2) An amendment to the existing Merger Agreement which provided for the following:
 
  •  A non-refundable cash payment of $2 million to OMAX for the extension of the closing of the merger from March 31, 2009 to August 15, 2009 — with closing at the option of the Company; and
 
  •  In the event the merger would be consummated by August 15, 2009, the $2 million would be applied towards the $75 million purchase price. However, in the event the merger would not be consummated by August 15, 2009 the $2 million would be forfeited and the Company would issue a promissory note of $4 million to OMAX.
 
In May 2009, the Company made the decision to terminate its option to acquire OMAX following a thorough investigation of financing alternatives to complete the merger and unsuccessful attempts to negotiate a lower purchase price with OMAX. Pursuant to the terms of the amended Merger Agreement and the Settlement and Cross Licensing Agreement dated March 2009, the Company will be required to issue the two promissory notes to OMAX with principal amounts of $6 million and $4 million on August 16, 2009 as discussed above. Both promissory notes will bear interest at a compounded annual rate of 2% with accumulated interest and principal being payable and due in August 2013. As the stated interest rate of 2% is below its incremental borrowing rate, the Company will discount these promissory notes upon issuance and record the subsequent amortization of the discount on the promissory notes to interest expense. The Company anticipates recording a charge of approximately $2.4 million in relation to the termination of the Merger Agreement with OMAX, net of the discounts related to the two promissory notes, in the first quarter of its fiscal year 2010.
 
As of April 30, 2009, the Company had accumulated a total of $17.1 million in deferred acquisition costs which consists of the $15 million, and accrued interest of $0.1 million, held in escrow as detailed above, and the non-refundable amount of $2 million which was paid directly to OMAX in March 2009.
 
Contemplated
Merger with OMAX



 



On December 4, 2007, the Company entered into an Option
Agreement (the “Option Agreement”) with OMAX. OMAX is
a provider of precision-engineered, computer-controlled,
two-axis abrasivejet systems for use in the general machine shop
environment. The contemplated transaction with OMAX was subject
to due diligence, the negotiation of a mutually acceptable
definitive agreement and other customary closing conditions,
including approval of the merger under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976. The purchase price pursuant
to the Option Agreement was at $108.75 million payable in
cash and stock as well as an earn-out provision of up to
$26 million on the two-year anniversary of the closing of
the merger.


 



In September 2008, the Company successfully negotiated the terms
of a Merger Agreement with OMAX, amended in November 2008, which
effectively reduced the purchase price to $75 million
payable in a combination of cash, stock and a note payable. The
Merger Agreement, as amended, also provided for an earn-out
provision of up to $52 million on the third anniversary of
the closing of the merger.


 



In March 2009, the Company simultaneously entered into the
following two agreements with OMAX:


 



(1) A Settlement and Cross License Agreement (the
“Agreement”) where both parties agreed to dismiss the
litigation pending between them and release all claims made up
to the date of the execution of the Agreement. The Company
agreed to pay $29 million to OMAX in relation to this
agreement which was funded as follows:


 
















  • 

A non-refundable cash payment of $8 million to OMAX in
March 2009 as part of the execution of the Agreement;





55





Table of Contents





 




FLOW
INTERNATIONAL CORPORATION




 




NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)


 


 


























  • 

A cash payment of $6 million in March 2009 paid directly to
an existing escrow account with OMAX, increasing the escrow
amount from $9 million to a total of $15 million as
part of the execution of the Agreement; and
 
  • 

In the event the merger would be consummated by August 15,
2009, the entire amount would be applied towards the
$75 million purchase price. However, in the event the
merger would not be consummated by August 15, 2009, the
$15 million held in escrow would be released to OMAX on
August 16, 2009 and the Company would issue a promissory
note in the principle amount of $6 million to OMAX for the
remaining balance on the $29 million settlement amount.


 



(2) An amendment to the existing Merger Agreement which
provided for the following:


 


























  • 

A non-refundable cash payment of $2 million to OMAX for the
extension of the closing of the merger from March 31, 2009
to August 15, 2009 — with closing at the option
of the Company; and
 
  • 

In the event the merger would be consummated by August 15,
2009, the $2 million would be applied towards the
$75 million purchase price. However, in the event the
merger would not be consummated by August 15, 2009 the
$2 million would be forfeited and the Company would issue a
promissory note of $4 million to OMAX.


 



In May 2009, the Company made the decision to terminate its
option to acquire OMAX following a thorough investigation of
financing alternatives to complete the merger and unsuccessful
attempts to negotiate a lower purchase price with OMAX. Pursuant
to the terms of the amended Merger Agreement and the Settlement
and Cross Licensing Agreement dated March 2009, the Company will
be required to issue the two promissory notes to OMAX with
principal amounts of $6 million and $4 million on
August 16, 2009 as discussed above. Both promissory notes
will bear interest at a compounded annual rate of 2% with
accumulated interest and principal being payable and due in
August 2013. As the stated interest rate of 2% is below its
incremental borrowing rate, the Company will discount these
promissory notes upon issuance and record the subsequent
amortization of the discount on the promissory notes to interest
expense. The Company anticipates recording a charge of
approximately $2.4 million in relation to the termination
of the Merger Agreement with OMAX, net of the discounts related
to the two promissory notes, in the first quarter of its fiscal
year 2010.


 



As of April 30, 2009, the Company had accumulated a total
of $17.1 million in deferred acquisition costs which
consists of the $15 million, and accrued interest of
$0.1 million, held in escrow as detailed above, and the
non-refundable amount of $2 million which was paid directly
to OMAX in March 2009.


 




Contemplated
Merger with OMAX



 



On December 4, 2007, the Company entered into an Option
Agreement (the “Option Agreement”) with OMAX. OMAX is
a provider of precision-engineered, computer-controlled,
two-axis abrasivejet systems for use in the general machine shop
environment. The contemplated transaction with OMAX was subject
to due diligence, the negotiation of a mutually acceptable
definitive agreement and other customary closing conditions,
including approval of the merger under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976. The purchase price pursuant
to the Option Agreement was at $108.75 million payable in
cash and stock as well as an earn-out provision of up to
$26 million on the two-year anniversary of the closing of
the merger.


 



In September 2008, the Company successfully negotiated the terms
of a Merger Agreement with OMAX, amended in November 2008, which
effectively reduced the purchase price to $75 million
payable in a combination of cash, stock and a note payable. The
Merger Agreement, as amended, also provided for an earn-out
provision of up to $52 million on the third anniversary of
the closing of the merger.


 



In March 2009, the Company simultaneously entered into the
following two agreements with OMAX:


 



(1) A Settlement and Cross License Agreement (the
“Agreement”) where both parties agreed to dismiss the
litigation pending between them and release all claims made up
to the date of the execution of the Agreement. The Company
agreed to pay $29 million to OMAX in relation to this
agreement which was funded as follows:


 
















  • 

A non-refundable cash payment of $8 million to OMAX in
March 2009 as part of the execution of the Agreement;





55





Table of Contents





 




FLOW
INTERNATIONAL CORPORATION




 




NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)


 


 


























  • 

A cash payment of $6 million in March 2009 paid directly to
an existing escrow account with OMAX, increasing the escrow
amount from $9 million to a total of $15 million as
part of the execution of the Agreement; and
 
  • 

In the event the merger would be consummated by August 15,
2009, the entire amount would be applied towards the
$75 million purchase price. However, in the event the
merger would not be consummated by August 15, 2009, the
$15 million held in escrow would be released to OMAX on
August 16, 2009 and the Company would issue a promissory
note in the principle amount of $6 million to OMAX for the
remaining balance on the $29 million settlement amount.


 



(2) An amendment to the existing Merger Agreement which
provided for the following:


 


























  • 

A non-refundable cash payment of $2 million to OMAX for the
extension of the closing of the merger from March 31, 2009
to August 15, 2009 — with closing at the option
of the Company; and
 
  • 

In the event the merger would be consummated by August 15,
2009, the $2 million would be applied towards the
$75 million purchase price. However, in the event the
merger would not be consummated by August 15, 2009 the
$2 million would be forfeited and the Company would issue a
promissory note of $4 million to OMAX.


 



In May 2009, the Company made the decision to terminate its
option to acquire OMAX following a thorough investigation of
financing alternatives to complete the merger and unsuccessful
attempts to negotiate a lower purchase price with OMAX. Pursuant
to the terms of the amended Merger Agreement and the Settlement
and Cross Licensing Agreement dated March 2009, the Company will
be required to issue the two promissory notes to OMAX with
principal amounts of $6 million and $4 million on
August 16, 2009 as discussed above. Both promissory notes
will bear interest at a compounded annual rate of 2% with
accumulated interest and principal being payable and due in
August 2013. As the stated interest rate of 2% is below its
incremental borrowing rate, the Company will discount these
promissory notes upon issuance and record the subsequent
amortization of the discount on the promissory notes to interest
expense. The Company anticipates recording a charge of
approximately $2.4 million in relation to the termination
of the Merger Agreement with OMAX, net of the discounts related
to the two promissory notes, in the first quarter of its fiscal
year 2010.


 



As of April 30, 2009, the Company had accumulated a total
of $17.1 million in deferred acquisition costs which
consists of the $15 million, and accrued interest of
$0.1 million, held in escrow as detailed above, and the
non-refundable amount of $2 million which was paid directly
to OMAX in March 2009.


 




EXCERPTS ON THIS PAGE:

10-K (4 sections)
Jun 26, 2009
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