RMG Networks Holding Corporation (NASDAQ:RMGN) has just announced the execution of a definitive merger agreement pursuant to which SCG Digital, LLC, an affiliate of RMG’s Executive Chairman Gregory Sachs, will acquire RMG in a transaction valued at approximately USD 16.8 million, including the assumption of approximately USD 2.65 million of debt.
Under the terms of the merger agreement, RMG stockholders will receive USD 1.27 in cash for each share of RMG’s common stock they hold. Effectively of course, this means that they have been “taken private” – something that has been rumoured for 12 months or so now!
The board of directors of RMG, on the recommendation of a special committee of the board comprised entirely of independent directors, has approved the merger agreement and has resolved to recommend that RMG’s shareholders adopt the agreement.
Gregory H. Sachs and certain entities related to him have reached agreements to vote their shares in favor of the transaction.
Upon receipt of stockholder approval, as well as satisfaction of other closing conditions, the transaction is expected to be completed in the second quarter of 2018.
Under the terms of the merger agreement, the board of directors of RMG, through its special committee and with the assistance of Carl Marks Securities LLC, HAS NO CHOICE BUT TO solicit superior proposals for the acquisition of RMG during the next 45 days.
RMG has advised that there can be no assurance that the solicitation of superior proposals will result in an alternative transaction. RMG does not intend to disclose developments with respect to the solicitation process unless and until the special committee of the board has made a recommendation and the board of directors has made a decision.
Lake Street Capital Markets LLC has delivered a fairness opinion to the special committee of the board of directors of RMG. Carl Marks Securities LLC is acting as financial advisor to the special committee of the board of directors of RMG. Mayer Brown LLP is acting as legal advisor to RMG and DLA Piper LLP is acting as legal counsel to the special committee of the board of directors of RMG. Foley Gardere is acting as legal counsel to SCG Digital, LLC.
In connection with the definitive merger agreement, RMG and certain of its subsidiaries, as borrowers, have entered into a subordinated loan and security agreement on April 2, 2018, with SCG Digital Financing, LLC as the lender, providing RMG with a $2 million bridge loan within one business day of the execution of such loan agreement. In the event that the merger agreement is terminated by RMG because SCG Digital, LLC fails to consummate the merger when otherwise obligated to do so, SCG Digital Financing, LLC will make an additional loan to RMG of $1 million, on terms governed by the subordinated loan agreement. SCG Digital Financing, LLC is an affiliate of MGregory H. Sachs and SCG Digital, LLC.
The bridge loan matures on the later of April 2, 2019 and, if the additional loan is funded, the first anniversary of the funding of the additional loan. No principal payments are required under either loan prior to maturity and, except in limited circumstances, no principal payments are permitted prior to the first anniversary of the closing date. Interest on the bridge loan accrues at a per annum cash interest rate equal to 8.0% above the prime rate plus 2.0% paid-in-kind, and interest on the additional loan will accrue at a per annum paid-in-kind interest rate equal to 5% above the prime rate. If the bridge loan is prepaid prior to the stated maturity date thereof, the borrowers are obligated to pay a prepayment premium equal to the interest the loans would have accrued if they had remained outstanding through maturity. During an event of default, the rate of interest on the loans would increase to 2.5% above the otherwise applicable rate, until such event of default is cured or waived. All accrued and unpaid cash interest is payable quarterly on the last day of each fiscal quarter.
Upon the occurrence of certain events, the lender has the right to convert principal and accrued interest outstanding under the bridge loan into shares of Series A Preferred Stock of the Company on the terms set forth in the subordinated loan and security agreement.
The bridge loan and additional loan, if funded, are secured by a second priority lien in all of the assets of the borrowers.
In connection with the proposed merger, RMG will file a proxy statement with the Securities and Exchange Commission. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER AND THE PARTIES THERETO. Investors and security holders may obtain a free copy of the proxy statement (when available) and other documents filed by RMG at the Securities and Exchange Commission’s Web site at http://www.sec.gov. The proxy statement and such other documents may also be obtained for free from RMG by directing such request to RMG Networks Holding Corporation, 15301 North Dallas Parkway, Suite 500, Addison, TX, Attention: Chief Financial Officer.
RMG and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from its stockholders in connection with the proposed merger. Information concerning the interests of RMG’s participants in the solicitation, which may be different than those of RMG stockholders generally, is set forth in RMG’s proxy statements and Annual Reports on Form 10-K, previously filed with the Securities and Exchange Commission, and in the proxy statement relating to the merger when it becomes available.