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Item 1.01.
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Entry into a Material Definitive Agreement.
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On October 16, 2020, GTT
Communications, Inc., a Delaware corporation (the “Company”), entered into a Sale and Purchase Agreement
(the “Purchase Agreement”) by and among: (1) the Company; (2) its subsidiaries Global Telecom and Technology
Holdings Ireland Limited (“GTT Holdings Ireland”), Hibernia NGS Limited (“NGS Limited”) and
GTT Holdings Limited (together, with the Company, GTT Holdings Ireland and NGS Limited, the “Sellers”);
and (3) Cube Telecom Bidco Limited, a company controlled by funds managed and/or advised by I Squared Capital Advisors (US) LLC
(the “Buyer”), pursuant to which the Buyer agreed to acquire from the Sellers the Company’s
business of providing Pan-European, North American, sub-sea and trans-Atlantic fiber network and data center infrastructure
services to customers (the “Infrastructure Business”).
Transaction Overview
Historically, the Company’s subsidiaries
have been organized based on a geographic or purpose-specific basis, and the assets and liabilities that comprise the Infrastructure
Business have been intermingled with assets and liabilities of the Company’s other businesses. In anticipation of the transactions
contemplated by the Purchase Agreement (the “Transaction”), the Company has engaged on a project to realign
its subsidiaries in order to separate the assets and liabilities to be transferred as part of the Infrastructure Business into
subsidiaries separate from the Company’s subsidiaries that will hold the assets to be retained by the Company (the “Reorganization”).
Subject to satisfaction of the terms and conditions of the Purchase Agreement, the Reorganization is expected to be substantially
completed prior to the closing of the Transaction, and the Transaction is structured as the acquisition by the Buyer of those subsidiaries
of the Company holding the assets and liabilities of the Infrastructure Business after the completion of the Reorganization.
The Transaction
Purchase Price. Upon
the terms and conditions set forth in the Purchase Agreement, the Company has agreed to sell the Infrastructure Business to the
Buyer for an aggregate base cash purchase price of $2.02 billion (the “Base Purchase Price”) and a potential
additional payment of up to $130.0 million (the “Earnout”). The Base Purchase Price is subject to an estimated
adjustment at the closing and a final adjustment after the closing, in each case for:
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net income before interest,
income taxes, depreciation and amortization (as calculated in accordance with the Purchase Agreement, “EBITDA”),
subject to certain adjustments and limitations, if below a certain threshold for the first six months of calendar year 2021 (which
would be taken into account as part of the post-closing adjustment if the closing occurs prior to July 1, 2021),
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all with respect to the Infrastructure Business as more fully
set forth in the Purchase Agreement. The Earnout, if any, will be based on the achievement of EBITDA targets for the “near-net”
business of the Infrastructure Business (as described in the Purchase Agreement) over the five year period following the closing
under the Purchase Agreement, and performance payments, if any, resulting from the Earnout will be more heavily weighted for performance
in the later years of the Earnout period.
Payment of the Purchase Price. Under
the Purchase Agreement, at the closing the Buyer will pay the Base Purchase Price to the Company, as adjusted, less a $75.0
million holdback (the “Holdback”) to serve as a source of recovery for (1) any payment to the Buyer of
post-closing purchase price adjustments or (2) payments to which the Buyer may become entitled under the Purchase Agreement
or a Master Services Agreement to be entered into between the Company and the Buyer at the closing under the Purchase
Agreement (the “Master Services Agreement”). The Company expects to apply the closing payment received by
it to pay off outstanding indebtedness of the Sellers and to pay any transaction-related expenses of the Sellers remaining
unpaid as of the closing. The Holdback will be in place for a period of five years, with $37.5 million being released once
the final adjustment of the purchase price has been determined (unless, and to the extent, any outstanding claims by the
Buyer then exceed $37.5 million) and the remainder being released at the end of such five year period; provided the
Holdback is subject to earlier release to the Company if the Company exceeds certain payment thresholds under the Master
Services Agreement or the Company achieves certain financial metrics based upon its debt-to-EBITDA leverage ratio, in each
case subject to retention of any amounts that are subject to claims by Buyer against the Holdback at the applicable Holdback
release date, which shall be retained in the Holdback until such claims are settled.
Representations and Warranties.
The Sellers, jointly and severally, have made certain limited representations and warranties to the Buyer in the Purchase Agreement
with respect to the Sellers’ organization and standing, authority to enter into the Transaction, valid and binding nature
of the Purchase Agreement and other transaction documents to which one or more of the Sellers will become parties, and title to
the equity interests of the Company subsidiaries being transferred to the Buyer as part of the Transaction (collectively, the “Title
Warranties”). In addition, the Company has made customary representations and warranties to the Buyer in the Purchase
Agreement related to the Sellers, their assets, liabilities, business and operations, as well as certain other matters (collectively,
the “Business Warranties”). The Buyer has also made certain limited representations and warranties to the Sellers
in the Purchase Agreement.
The Buyers’ recourse against the Sellers
for any breaches of the Business Warranties is limited to one euro (€ 1) in the aggregate, subject to customary exceptions
for fraud. The Buyer will be entitled to indemnification from the Sellers with respect to any breach of the Title Warranties, as
described below.
Covenants. The Purchase Agreement
contains several covenants of the parties related to the Transaction, the Reorganization and the transactions contemplated by the
Purchase Agreement and the Reorganization, including, among others, and subject to certain exceptions:
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for the Sellers to carry on their business, to the extent related to the Infrastructure Business, in the ordinary course, and
to not take certain specified actions without the prior consent of the Buyer, in each case during the period between the execution
of the Purchase Agreement and the closing under the Purchase Agreement;
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for the Sellers to use their reasonable efforts to cause the Reorganization to be completed prior to the closing under the
Purchase Agreement;
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for each of the parties to use its best efforts to satisfy the conditions to the closing under the Purchase Agreement with
respect to compliance with competition laws and regulatory approvals;
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for the Company to procure from its lenders, subject to certain exceptions, all consents, if any, necessary to consummate the
Reorganization and the Transaction and to release, from and after the closing under the Purchase Agreement, the liens of such lenders
on the assets held by the subsidiaries of the Company to be transferred to the Buyer at the closing under the Purchase Agreement;
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for the Company to provide periodic updates and certain notices to the Buyer with respect to the Company’s business,
breaches of the Sellers’ representations, warranties, covenants and agreements and certain other matters, in each case during
the period between the execution of the Purchase Agreement and the closing under the Purchase Agreement; and
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for each of the Sellers and the Buyer to provide to the other access to certain of its books and records and officers and employees.
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Conditions to Closing. The
closing under the Purchase Agreement is subject to the satisfaction or waiver of various conditions. In addition to conditions
related to the delivery of common closing documents, these conditions include, among others:
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delivery by the Company to the Buyer of its audited financial statements for the fiscal year ended December 31, 2020, which
must (1) be accompanied by an audit opinion from the Company’s independent public accountant, (2) show the Infrastructure
Business as “discontinued operations” in accordance with generally accepted accounting principles, and (3) have been
made available to the Buyer (the “Financial Statements Condition”);
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the approval or waiver of any prohibition, whether by notice, the passage of time, the expiration of objection periods or otherwise,
of the Transaction under the competition laws in certain jurisdictions;
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the approval or waiver of any prohibition, whether by notice, the passage of time, the expiration of objection periods or otherwise,
of the Transaction under the regulatory laws in certain jurisdictions;
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the substantial completion of the Reorganization;
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delivery by the Company of all consents, if any, required to be obtained from (a) lenders under
that certain Credit Agreement, dated as of May 31, 2018 (as amended, restated, amended and restated, supplemented or otherwise
modified, the “Credit Agreement”) by and among the Company and GTT Communications B.V., as borrowers, KeyBank
National Association, as administrative agent and letter of credit issuer, and the lenders and other financial institutions party
thereto from time to time, (b) holders of the Company’s outstanding 7.875% Senior Notes due 2024 or replacements or refinancings
thereof (the “Notes”) issued under that certain Indenture, dated as of December 22, 2016 (as amended, supplemented,
otherwise modified, replaced, or refinanced, the “Indenture”), by and between the Company, as successor by merger
to GTT Escrow Corporation, and Wilmington Trust, National Association, as Trustee (the “Trustee”), and (c) certain
other lenders, that may be necessary for consummation of the Reorganization and the Transaction;
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delivery by the Company of evidence of the release of certain liens and encumbrances on the assets
held by the subsidiaries of the Company to be transferred to the Buyer at the closing under the Purchase Agreement; and
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either (1) delivery by the Company of evidence that (a) certain insurance policies of the Sellers with respect to certain
potential tax liabilities in Germany have been assigned to the Buyer or (b) a replacement insurance policy in Buyer’s
name with respect to such potential tax liabilities has been obtained by the Sellers or by the Buyer (at the Sellers’
expense) or (2) the Sellers elect for the Buyer to withhold an amount equal to 90 million euros from the Base Purchase Price
to serve as addition security to the Buyer for its indemnification rights with respect to such potential tax liabilities. Any
amount so withheld by the Buyer would be released to the Sellers at the earlier of six months after the resolution of all
such potential tax liabilities or the expiration of the staute of limitations with respect to such potential tax liabilities,
in each case less any amounts to which the Buyer becomes entitled as a result of its indemnification rights with respect to
such potential tax liabilities.
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Termination Rights. The Purchase
Agreement may be terminated by the mutual agreement of the Company and the Buyer at any time, and, unless mutually agreed to the
contrary by the Sellers and the Buyer, the Purchase Agreement will automatically terminate on October 16, 2021 if the closing conditions
have not been satisfied prior to such date; provided that the Buyer may extend the termination date until not later than
December 16, 2021 if all conditions have been satisfied other than the Financial Statements Condition. In addition, each of the
Sellers, on the one hand, and the Buyer, on the other hand, has a termination right that arises if the other parties fail to satisfy
certain of the conditions to the closing under the Purchase Agreement and such failure is not cured within five business days.
The Purchase Agreement provides several
additional termination rights in favor of the Buyer that can be exercised prior to the scheduled closing under the Purchase Agreement,
subject to certain procedural requirements and limitations, including the following, among others:
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if there exists any state of facts, circumstance, development, change or effect that, individually or in the aggregate, is
having, or would reasonably be expected to have, a materially adverse effect on the operations, results of operations or, financial
condition of the Infrastructure Business, taken as a whole;
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if the Company fails to obtain, on or before 6:00 p.m. (New York time) on October 28,
2020, the agreement of (a) lenders holding at least a majority of the outstanding loans and revolving commitments under the Credit
Agreement to amend or waive certain provisions of the Credit Agreement with respect to the failure of the Company to provide its
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020 (the “Late SEC Report”) on a timely
basis or forbear from exercising remedies with respect thereto and (b) beneficial owners of at least a majority of the outstanding
aggregate principal amount of the Notes, to amend or waive certain provisions of the Indenture with respect to the failure of the
Company to provide the Late SEC Report on a timely basis or forbear from exercising remedies with respect thereto or, in each case,
once such an amendment, waiver or forbearance is obtained, if the Company fails to provide the Late SEC Report within a specified
period before the same is required to be delivered under the terms of such amendment, waiver or forbearance or, if applicable,
any extension thereof;
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if all consents, if any, required to be obtained from lenders under the Credit Agreement,
holders of the Notes and certain other lenders that may be necessary for consummation of the Reorganization or the Transaction
have not been obtained by December 31, 2020;
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if an insolvency event occurs with respect to any Seller, or any subsidiary of any Seller,
or if certain actions are taken in contemplation of an insolvency event regarding any Seller or any subsidiary of any Seller;
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if the Company fails to comply with the financial covenant related to a its maximum permitted
net secured debt leverage ratio set forth in Section 7.07(a) of the Credit Agreement (or the financial covenants in a successor
or replacement agreement relating to Company debt), when the Company is required to comply with such financial covenant;
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if a court of competent jurisdiction has issued a judgment to enjoin, prohibit or restrict the consummation of the closing
under the Purchase Agreement and such judgment has not been vacated or reversed within 30 business days;
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if any Seller is or becomes prohibited by law
from performing its obligations under the Purchase Agreement (including its obligations at the closing under the Purchase Agreement);
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if the Company fails to timely achieve certain milestones related to the Reorganization;
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if the Company fails to deliver, on or before January 31, 2021, an updated vendor due diligence report prepared by KPMG in
respect of the Infrastructure Business and the subsidiaries to be conveyed to the Buyer with respect to 2019, or if such updated
report deviates in certain respects from the original vendor due diligence report delivered by KPMG;
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if any Seller makes a deliberate and intentional
default in performing or observing any of its material obligations under the Purchase Agreement; or
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if an event of default occurs under the terms
of the Credit Agreement, the Indenture or certain other indebtedness, unless the applicable requisite lenders or holders of Notes
have agreed to waive or have agreed to forbear from exercising remedies in respect thereof within five business days after any
Seller receives a notice of such event of default.
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Indemnification. Both
the Sellers and the Buyer has agreed, following the closing, to indemnify the other for losses arising from certain breaches of
the Purchase Agreement and for certain other liabilities, subject to certain limitations.
Other Terms of the Transaction
Ancillary
Agreements. Simultaneous with the closing of the Transaction, the parties will enter into certain ancillary agreements
including, among others:
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a Transition Services Agreement pursuant to which the Sellers will provide to the Buyer, for up to two years, customary transition
services that are currently provided by Seller to the Infrastructure Business; provided that the obligation to provide services
in support of certain customer contracts will extend until such contracts terminate or are renewed;
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a Transition Services Agreement pursuant to which the Buyer will provide to the Sellers, for up to two years, customary transition
services that are currently provided by Seller to the Infrastructure Business; provided that the obligation to provide services
in support of certain customer contracts will extend until such contracts terminate or are renewed;
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a Master Services Agreement pursuant to which the Sellers will provide to the Buyer network services to customers of the Infrastructure
Business for a period of up to five years following the closing of the Transaction, subject to annual renewals thereafter; and
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the Master Services Agreement, pursuant to which the Buyer will provide to the Sellers network services to customers of the
Company’s retained business for a period of up to five years following the closing of the Transaction, subject to annual
renewals thereafter. The Sellers will commit to purchase at least $23.1 million of services during the first year of the Master
Services Agreement and at least $15 million of services in each subsequent year during the initial term of the Master Services
Agreement, and an aggregate of at least $100 million of services over the initial term of the Master Services Agreement, subject
to certain exceptions.
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Governing Law. The Purchase
Agreement, and any dispute or claim arising out of or in connection with the Purchase Agreement or its subject matter, is governed
by, and will be construed in accordance with, the law of England and Wales.
Anticipated Closing Date.
The Transaction is expected to close during the first half of calendar year 2021.
Cautionary Statement
The foregoing description of the Purchase
Agreement, related documents and the transactions contemplated thereby does not purport to be complete and is qualified in its
entirety by reference to the text of the Purchase Agreement, which is filed as Exhibit 2.1 to
this Current Report on Form 8-K and is incorporated herein by reference.
The Purchase Agreement has been included
to provide investors with information regarding its terms. It is not intended to provide any other factual information about the
parties to the Purchase Agreement or the businesses of such parties. The representations and warranties and covenants and agreements
contained in the Purchase Agreement (1) were made by the parties only for purposes of the Purchase Agreement, (2) were made
solely for the benefit of the parties to the Purchase Agreement, (3) may be subject to limitations agreed upon by the contracting
parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution
of the Purchase Agreement (such disclosures include information that has been included in public disclosures, as well as additional
non-public information), (4) may have been made for the purposes of allocating contractual risk between the parties to the Purchase
Agreement instead of establishing these matters as facts and (5) may be subject to standards of materiality applicable to the
contracting parties that differ from those applicable to investors. Accordingly, the Purchase Agreement is included with this
filing only to provide investors with information regarding the terms of the Purchase Agreement, and not to provide investors
with any other factual information regarding the Company, the other Sellers or the Buyer or their respective businesses. Investors
are not third party beneficiaries under the Purchase Agreement and should not rely on the representations, warranties, covenants
or agreements in the Purchase Agreement or any descriptions thereof as characterizations of the actual state of facts or condition
of the Company, the other Sellers, the Buyer or any of their respective subsidiaries or affiliates. Additionally, the representations,
warranties, covenants, agreements and other terms of the Purchase Agreement may be subject to subsequent waiver or modification.
Moreover, information concerning the subject matter of the representations, warranties, covenants and agreements in the Purchase
Agreement may change after the date of the Purchase Agreement, which subsequent information may or may not be fully reflected
in the Company’s public disclosures.