Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. DUPONT FABROS TECHNOLOGY, INC. (1407739) 10-Q published on Jul 27, 2017 at 10:17 am
Reporting Period: Jun 29, 2017
The Company, the Operating Partnership, the directors and several affiliated entities, as well as Digital Realty and certain of its affiliates, have been named as defendants in one putative shareholder class action lawsuit, and the Company and the directors have been named as defendants in two additional putative shareholder class action lawsuits, filed in connection with the Mergers (collectively, the “Lawsuits”). The first case is styled Louis Scarantino v. DuPont Fabros Technology, Inc. et al., Case No. 1:17-cv-01428 (D.D.C.) and was filed on July 18, 2017 in the United States District Court for the District of Columbia. The second case was styled William Lawrence v. DuPont Fabros Technology, Inc. et al., Case No: 1:17-cv-02042 and was filed, incorrectly, on July 21, 2017 in the United States District Court for the District of Maryland. On July 24, 2017, that action was terminated and the complaint was re-filed in the United States District Court for the District of Columbia and styled Lawrence v. DuPont Fabros Technology, Inc., Case No. 1:17-cv-1465 (D.D.C.). The third case is styled Daniel Canchola v. DuPont Fabros Technology, Inc. et al., Case No: 1:17-cv-01481 (D.D.C.) and was filed on July 24, 2017 in the United States District Court for the District of Columbia. The Lawsuits allege violations of the Securities and Exchange Act of 1934 (the “Exchange Act”) arising in connection with the filing of DLR’s Registration Statement on Form S-4 (the "Registration Statement") that was filed in connection with the proposed Mergers. The plaintiffs in the Lawsuits seek, among other things, damages, an order enjoining consummation of the Mergers, changes to the Registration Statement, an award of attorney's fees and declaratory relief stating that the defendants violated the Exchange Act.
On June 8, 2017, the Company and Goldman Sachs Bank USA (“Goldman Sachs”) entered into a commitment letter under which Goldman Sachs has committed to provide financing for working capital and certain other general corporate purposes to the Operating Partnership in the form of an unsecured bridge loan in an aggregate principal amount of up to $200 million (the “Bridge Facility”), subject to certain customary closing conditions, including entering into definitive loan documents for the Bridge Facility. Goldman Sachs’ commitment to provide the Bridge Facility will terminate on November 30, 2017 if the closing of the Bridge Facility does not occur prior to such date. In addition, the commitment letter appoints Goldman Sachs to act as sole lead arranger, sole bookrunner and sole syndication agent, and as administrative agent, in connection with the Bridge Facility. The Company has not notified Goldman Sachs of its intent to draw on the Bridge Facility.
The commitment letter also provides that amounts outstanding under the Bridge Facility would bear interest at a per annum rate equal to LIBOR plus a margin of 15,000 basis points, which margin increases by an additional 50 basis points every three months following the date on which funds are drawn under the Bridge Facility. If the Company were to draw on the Bridge Facility, it would mature on the earlier of (a) the date on which the Mergers contemplated by the Merger Agreement are consummated or (b) the date that is 364 days after the date of initial funding. Subject to exceptions to be agreed to in the definitive loan documents, proceeds from (i) the incurrence of indebtedness by us or any of our subsidiaries, (ii) the issuance of equity securities by the Company and (iii) non-ordinary course asset sales, including of any of our facilities, in each case, would be required to be used to prepay amounts outstanding under the Bridge Facility. Any outstanding amounts under the Bridge Facility would be guaranteed by the same Subsidiary Guarantors as those that guarantee the Amended and Restated Credit Agreement, the Unsecured Notes due 2021 and the Unsecured Notes due 2023.
The Merger Agreement is subject to many conditions which must be satisfied or waived in order to complete the Mergers. The mutual conditions of the parties include, among others: (i) the approval by the our stockholders of the Company Merger and the other transactions contemplated by the Merger Agreement; (ii) the approval by DLR stockholders of the issuance of DLR common stock to our stockholders; (iii) the absence of any law, order or injunction that would prohibit, restrain or make illegal the Mergers; (iv) the approval for listing on the NYSE of DLR common stock to be issued in the Company Merger; and (v) the effectiveness of the registration statement on Form S-4 to be filed by DLR for purposes of registering the DLR common stock to be issued in connection with the Company Merger. In addition, each party’s obligation to consummate the Mergers is subject to certain other conditions, including, among others: (a) the accuracy of the other party’s representations and warranties (subject to customary materiality qualifiers and other customary exceptions); (b) the other party’s compliance with its covenants and agreements contained in the Merger Agreement (subject to customary materiality qualifiers); (c) the absence of any change, event, circumstance or development arising during the period from the date of the Merger Agreement until the effective time of the Company Merger that has had or is reasonably likely to have a material adverse effect on the other party; (d) the receipt of an opinion of counsel of the other party to the effect that such party has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT; and (e) the receipt of an opinion of counsel of each party to the effect that the Company Merger will qualify as a reorganization within the meaning of Section 368(a) of the Code.
The Merger Agreement contains provisions that, subject to limited exceptions necessary to comply with the duties of our Board of Directors, restrict our ability to solicit, initiate or knowingly facilitate any third party proposals to acquire beneficial ownership of at least 20% of the assets of, equity interest in, or businesses of, us. Prior to receiving our stockholder approval of the Company Merger, we may negotiate with a third party after receiving an unsolicited written proposal if our Board of Directors determines in good faith, after consultation with its financial advisors and outside legal counsel, that the unsolicited proposal could reasonably be likely to result in a transaction that is more favorable to our stockholders from a financial point of view than the Mergers. Once a third party proposal is received, we must notify DLR within 24 hours following receipt of the proposal and keep DLR informed of the status and terms of the proposal and associated negotiations. In response to such a proposal, we may, under certain circumstances, withdraw or modify its recommendation to our stockholders with respect to the Company Merger, and enter into an agreement to consummate a competing transaction with a third party, if our Board of Directors determines in good faith, after consultation with outside legal counsel, that the competing proposal is more favorable to our stockholders from a financial point of view and that failure to take such action would be inconsistent with its duties under applicable law, and we pay the $150 million termination fee to DLR.
We and DLR have operated in a manner that we believe has allowed us, and it believes has allowed it, to qualify as a REIT for U.S. federal income tax purposes under the Code and intend to continue to do so through the time of the Company Merger. DLR intends to continue operating in such a manner following the Company Merger. We and DLR have not requested nor plan to request a ruling from the IRS that we qualify, and it qualifies, as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury Regulations is greater in the case of a REIT, like us and DLR, that holds assets through a partnership. The determination of various factual matters and circumstances not entirely within our control or DLR’s control may affect our ability, and its ability, to qualify as a REIT. In order to qualify as a REIT, we and DLR must satisfy a number of requirements, including requirements regarding the ownership of our stock, and its stock, and the composition of our gross income and assets, and its gross income and assets. Also, a REIT must make distributions to stockholders aggregating annually at least 90% of its net taxable income, excluding any net capital gains.