Item 1.01
Entry into a Material Definitive Agreement.
On February 14, 2019, The Toro Company, a Delaware corporation (“Toro”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Helix Company, Inc., an Oklahoma corporation and a wholly owned subsidiary of Toro (“Merger Sub”), The Charles Machine Works, Inc., an Oklahoma corporation (“CMW”), and Agent 186 LLC, an Oklahoma limited liability company, solely in its capacity as a Shareholders’ Agent thereunder (the “Shareholders’ Agent”). CMW is a privately held company with a portfolio of products primarily used for underground construction purposes.
The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the merger, Merger Sub will merge with and into CMW, with CMW continuing as the surviving entity and a wholly-owned subsidiary of Toro (the “Merger”). Subject to the terms and conditions of the Merger Agreement, Toro has agreed to pay $700 million in cash, subject to certain working capital, net debt and other adjustments as set forth in the Merger Agreement (the “Merger Consideration”). At the closing of the Merger, Toro will deposit up to $26.13 million of the Merger Consideration with an escrow agent to fund payment obligations with respect to the working capital and other adjustments and potential post-closing indemnification obligations of CMW’s former shareholders.
Toro, CMW and Merger Sub have made customary representations, warranties, covenants and indemnities in the Merger Agreement. Subject to certain limitations, Toro and CMW have agreed to indemnify the other party for certain matters, including breaches of representations, warranties and covenants. To supplement the potential post-closing indemnification obligations for breaches of CMW’s representations and warranties and certain other matters, Toro has obtained a representation and warranty insurance policy, the costs and expenses of which will be shared equally by Toro and CMW. The policy is subject to a retention amount, exclusions, policy limits and certain other terms and conditions.
The Merger Agreement and the transactions contemplated thereby, including the Merger, have been approved by the Boards of Directors of Toro and CMW, and subsequent to the execution of the Merger Agreement, by the requisite approval of the CMW shareholders.
The completion of the Merger is subject to customary closing conditions, including, among others: (1) the absence of certain legal impediments to the consummation of the Merger; (2) the expiration or termination of the applicable waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended, and the receipt of all consents, approvals or waivers required under other applicable antitrust laws; and (3) the accuracy of representations and warranties made by Toro and CMW, respectively.
The Merger is not subject to any financing condition. Toro plans to fund the Merger Consideration and transaction expenses with cash on hand, borrowings from Toro’s unsecured senior revolving credit facility, and/or other potential additional financing arrangements that Toro may pursue, including a potential new term loan or loans and/or private placement of debt securities.
The Merger Agreement contains customary termination rights for the parties thereto, including (1) the right of Toro or CMW to terminate if the Merger is not consummated on or before October 31, 2019 and (2) the right of Toro or CMW to terminate (subject to certain conditions) if the other party is in breach of the Merger Agreement and the breach would cause the applicable closing condition related to accuracy of that party’s representations and warranties or the performance of that party’s obligations under the Merger Agreement to not be met.
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The foregoing description of the Merger Agreement is a summary of the material terms of such agreement, does not purport to be complete and is qualified in its entirety by reference to the complete text
of the agreement, a copy of which is filed as Exhibit 2.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The Merger Agreement and related description are intended to provide information regarding the terms of the Merger Agreement and are not intended to modify or supplement any factual disclosures about Toro in its reports filed with the Securities and Exchange Commission (the “SEC”). In particular, the Merger Agreement and related description are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to Toro or CMW. The representations and warranties have been negotiated with the principal purpose of not establishing matters of fact, but rather as a risk allocation method establishing the circumstances under which a party may have the right not to consummate the Merger if the representations and warranties of the other party prove to be untrue due to a change in circumstance or otherwise. As is customary, the assertions embodied in the representations and warranties made by CMW in the Merger Agreement are qualified by information contained in confidential disclosure schedules that CMW has delivered to Toro in connection with the signing of the Merger Agreement. The representations and warranties also may be subject to a contractual standard of materiality different from those generally applicable under the securities laws. Shareholders of Toro are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Toro or CMW. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement.