Item 1.01 Entry into a Material Definitive Agreement
Agreement and Plan of Merger
On March 7, 2023, Kimball International, Inc., an Indiana corporation (“Kimball”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among Kimball, HNI Corporation, an Iowa corporation (“HNI”), and Ozark Merger Sub, Inc., an Indiana corporation and a wholly-owned subsidiary of HNI (“Merger Sub”).
The Merger Agreement provides that, among other things and subject to the terms and conditions of the Merger Agreement, (a) Merger Sub will be merged with and into Kimball (the “Merger”), with Kimball surviving the Merger as a wholly-owned subsidiary of HNI, and (b) at the effective time of the Merger (the “Effective Time”), each share of common stock, par value $0.05 per share, of Kimball (“Kimball Common Stock”) outstanding immediately prior to the Effective Time, other than shares exercising dissenters’ rights, shares held by Kimball as treasury stock, shares held by HNI or any subsidiary of Kimball or HNI, and restricted stock units with respect to shares of Kimball Common Stock (collective, the “Excluded Shares”), will be converted into the right to receive (i) $9.00 in cash (the “Cash Consideration”) and (ii) 0.1301 shares of common stock of HNI, par value $1.00 per share (“HNI Common Stock”) (together with the Cash Consideration, the “Merger Consideration”).
The Merger Agreement provides that outstanding Kimball equity awards will be treated as follows at the Effective Time: (a) each outstanding award of Kimball restricted stock units that is not subject to performance vesting conditions will cease to represent an award with respect to Kimball Common Stock and thereafter constitute a restricted stock unit award, on the same terms and conditions (including vesting and forfeiture, but subject to accelerated vesting upon termination of employment without cause), with respect to a number of shares of HNI Common Stock, determined by multiplying (i) each share of Kimball Common Stock subject to such Kimball restricted stock unit award by (ii) the sum of (A) 0.1301 (the “Exchange Ratio”) and (B) the quotient of the sum of the Cash Consideration plus the dividend equivalents accrued thereon, divided by the volume weighted average price per share of HNI Common Stock on the New York Stock Exchange for the ten consecutive trading days ending the two trading days prior to the closing of the Merger as reported by Bloomberg, L.P. (such price, the “Parent Share Price”); and (b) with respect to each outstanding award of Kimball restricted stock units subject to performance-based vesting, (i) if such vesting is based on relative total shareholder return, the award will vest at a pro rata portion of the target amount based on the portion of the performance cycle then completed, and (ii) if such vesting is based on earnings per share, the award will vest at the target amount, and, in each such case of performance-based vesting restricted stock units, the full award will automatically be cancelled and converted into the right to receive from HNI (shortly following the Effective Time), in respect of each share of Kimball Common Stock subject to the vested portion of such cancelled award, an amount of cash (without any interest thereon and subject to applicable withholding taxes), equal to the sum of (i) the Cash Consideration, plus (ii) the Parent Share Price multiplied by the Exchange Ratio. However, if the Effective Time occurs prior to June 30, 2023, the tranche of each award of Kimball restricted stock units that is not subject to performance vesting conditions and that is scheduled to vest on June 30, 2023 will, at the Effective Time, vest and be cancelled and converted into the right to receive from HNI (shortly following the Effective Time), in respect of each share of Kimball Common Stock subject to such vesting tranche, an amount of cash (without any interest thereon and subject to applicable withholding taxes) equal to the sum of (A) the Cash Consideration plus the dividend equivalents that have accrued thereon, and (B) the Parent Share Price multiplied by the Exchange Ratio.
In connection with its entry into the Merger Agreement, on March 7, 2023, HNI entered into a debt financing commitment letter and related fee letter with Wells Fargo Bank, National Association, Wells Fargo Securities, LLC and U.S. Bank, National Association (the “Commitment Parties”), pursuant to
which the Commitment Parties have committed to provide HNI with debt financing in an aggregate principal amount of $440 million in the form of a senior unsecured 364-day bridge loan facility, subject to customary conditions as set forth therein. The net proceeds of the debt financing will be used to pay all or a portion of the costs associated with the transactions contemplated under the Merger Agreement, to refinance certain existing indebtedness of Kimball and to pay any related fees and expenses.
Kimball’s board of directors has unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, Kimball and its shareholders, (2) approved and declared advisable the Merger Agreement and the transactions contemplated thereby, including the Merger, and (3) resolved to recommend that Kimball’s shareholders vote in favor of the adoption of the Merger Agreement and the transactions contemplated thereby, including the Merger.
The completion of the Merger is subject to satisfaction or waiver of certain customary closing conditions, including (a) the receipt of the required approvals from the shareholders of Kimball, (b) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”) without the imposition of a Burdensome Condition (as defined below), (c) the absence of any governmental order or law making illegal or otherwise prohibiting the consummation of the Merger or imposing a Burdensome Condition, (d) the effectiveness of the registration statement on Form S-4 to be filed by HNI pursuant to which the shares of HNI Common Stock to be issued in connection with the Merger are registered with the Securities and Exchange Commission (the “SEC”), and (e) the authorization for listing of the shares of HNI Common Stock to be issued in connection with the Merger on the New York Stock Exchange (“NYSE”). The obligation of each party to consummate the Merger is also conditioned upon the other party’s representations and warranties being true and correct (subject to certain materiality exceptions), the other party having performed in all material respects its obligations under the Merger Agreement, the absence of a material adverse effect (as defined in the Merger Agreement) with respect to the other party, and the receipt of an officer’s certificate from the other party to such effect.
The Merger Agreement contains customary representations and warranties of HNI and Kimball relating to their respective businesses, financial statements and public filings, in each case generally subject to customary materiality qualifiers. Additionally, the Merger Agreement provides for customary pre-closing covenants of HNI and Kimball, including, subject to certain exceptions, covenants relating to conducting their respective businesses in the ordinary course consistent with past practice.
HNI and, if requested by HNI, Kimball, each also agreed to take any and all actions and steps necessary to avoid or eliminate each impediment under any antitrust law that may be asserted by any governmental entity to satisfy any closing conditions relating to any antitrust law contained in the Merger Agreement so as to enable the consummation of the Merger and other transactions contemplated by the Merger Agreement as promptly as practicable prior the End Date (as defined below). However, HNI will not be required to commit to or effect any action that, individually or in the aggregate, would or would reasonably be expected to have a material adverse effect on the business, financial condition or operations of HNI and its subsidiaries (including Kimball and its subsidiaries) from and after the Effective Time (calculated as if HNI and its subsidiaries from and after the Effective Time were collectively the same size as Kimball and its subsidiaries prior to the Effective Time) (a “Burdensome Condition”).
Kimball has agreed not to solicit alternative acquisition proposals from third parties, provide non-public information to third parties or engage in discussions with third parties regarding alternative acquisition proposals, and has agreed to certain restrictions on its ability to respond to any such proposals. However, prior to the receipt of the required approval of Kimball’s shareholders, Kimball’s board of directors may withdraw, qualify or modify its recommendation that its shareholders vote in favor of the transactions contemplated under the Merger Agreement in connection with certain intervening events , or
terminate the Merger Agreement in order to enter into an agreement providing for a Superior Proposal (as defined in the Merger Agreement), subject to the requirements and limitations set forth in the Merger Agreement.
The Merger Agreement contains termination rights for each of HNI and Kimball, including, among others, if the consummation of the Merger does not occur on or before September 7, 2023 (provided that if as of such date all closing conditions have been satisfied other than conditions relating to (x) obtaining requisite regulatory approvals under antitrust laws and (y) the absence of injunctions prohibiting consummation of the Merger under antitrust laws, such date will be automatically extended to December 7, 2023) (the “End Date”). Upon termination of the Merger Agreement under specified circumstances, including termination (i) by HNI in connection with a change of recommendation by Kimball’s board of directors or a material breach by Kimball of its covenants relating to solicitation of alternative acquisition proposals, (ii) by Kimball to enter into an agreement in connection with a Superior Proposal or (iii) by either party as a result of a failure to obtain approval of the shareholders of Kimball or to close prior to the End Date, in each case following the making of a proposal for an alternative transaction and upon the entry into an alternative transaction within 12 months after the date of such termination, then Kimball will be required to pay HNI a termination fee of $15,768,265. In addition, upon termination of the Merger Agreement under certain circumstances arising from a breach by HNI of its representations, warranties, covenants or agreements set forth in the Merger Agreement such that the conditions to the closing of the Merger cannot be satisfied, HNI will be required to pay Kimball a termination fee of $24,258,870. In no event will either party be entitled to receive more than one termination fee.
The foregoing description of the Merger Agreement and the transactions contemplated thereby in this Current Report on Form 8-K is only a summary and does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 hereof and incorporated by reference herein. Such description is not intended to provide any other factual information about the parties to the Merger Agreement or their respective subsidiaries and affiliates. The Merger Agreement contains representations and warranties by each of the parties to Merger Agreement, which were made only for purposes of that agreement and as of specified dates. The representations, warranties and covenants in the Merger Agreement were made solely for the benefit of the parties to the applicable agreement, are subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts, as well as by information contained in each party’s periodic reports filed with the SEC, and may be subject to standards of materiality applicable to the contracting parties that may differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of such parties or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the parties’ public disclosures.
