Sphere 3D Corporation (TSX-V:ANY) (OTCQX:SPIHF) ("Sphere 3D" or the
"Company") today announced that it has entered into a definitive
merger agreement (the "Merger Agreement") with Overland Storage,
Inc. ("Overland"), a Nasdaq-listed company, pursuant to which
Overland and a wholly-owned subsidiary of Sphere 3D would combine
to create a leading global virtualization and data management
software solutions company (the "Transaction"). The combined
company will become a wholly-owned subsidiary of Sphere 3D and the
name of the combined company will remain Overland.
Under the terms of the Merger Agreement, Sphere 3D will issue a
total of 9,443,882 common shares ("Common Shares") on closing,
subject to adjustment, for all of the outstanding share capital of
Overland ("Overland Shares") on the basis of one Overland Share for
0.510594 Common Shares of Sphere 3D (the "Exchange Ratio"). In
addition, Sphere 3D will issue 1,467,906 warrants, 143,325 options
and 505,321 restricted share units, or equivalents, in exchange for
the outstanding convertible securities of Overland, calculated on
the basis of the Exchange Ratio. All issued and outstanding stock
appreciation rights of Overland will terminate on closing. The
average exercise price of the options and warrants are US$22.62 and
US17.28, respectively. At current pricing, the Company believes it
is unlikely that any of these options and warrants will be
exercised.
After completion of the Transaction, it is expected that current
holders of Overland securities will own approximately 28.8% of
Sphere 3D, on a fully diluted basis, as a result of their exchange
of securities in the Transaction.
On May 14, 2014, the last trading day prior to the announcement
of the transaction, the closing price of the Overland Shares, on
the NASDAQ, was US$2.90 and the closing price of the Common Shares
of Sphere 3D, on the TSX Venture Exchange (the "TSXV"), was C$9.46
(or US$8.68). Based on the closing price of the Common Shares of
Sphere 3D on May 14, 2014, the total consideration payable to
holders of Overland shareholders has an implied value of
approximately US$81.13 million or approximately US$4.43 per
Overland Share.
The acquisition price represents a premium of approximately 53%
over the closing price of the Overland Shares on the NASDAQ on the
last trading day immediately preceding the announcement of the
Transaction and a premium of approximately 27% over the weighted
average trading price of the Overland Shares on the NASDAQ for the
30 trading days immediately preceding the announcement of the
Transaction.
Overland is a trusted global provider of unified data management
and data protection solutions designed to enable small and medium
enterprises, distributed enterprise, and small and medium
businesses to anticipate and respond to data storage requirements.
By providing an integrated range of technologies and services for
primary, nearline, offline, and archival data storage, Overland
makes it easy and cost effective to manage different tiers of
information over time, whether distributed data is across the hall
or across the globe. Overland SnapServer, RDX removable disk-based
technology, SnapScale, SnapServer, SnapSAN, NEO Series and REO
Series solutions are available through a global channel of
value-added resellers and system integrators.
Sphere 3D and Overland have been working in tandem to develop an
integrated application virtualization and data storage platform, as
well as a virtual desktop infrastructure (VDI) solutions, which are
already installed at select strategic customers and partners. The
application virtualization platform allows native third party
applications to be delivered in the cloud or on premise on a
multitude of endpoint devices independent of their operating
system. The VDI market, a key segment of the virtualization market,
is estimated to be over $5 billion and growing 20% annually,
according to Frost & Sullivan. Through the combination, Sphere
3D will have greater financial and operational scale, and a large
and well established worldwide distribution network and tier one
OEM partnerships.
The combination of Sphere 3D's Glassware 2.0 virtualization
solution and Overland's data storage solutions will enable mobile
device users the full functionality of any software program or
application on any device, anywhere, eliminating the application
limitations, data management and security problems for enterprises
created by the BYOD (Bring Your Own Device) phenomenon. Mobile
users that need productivity applications such as word processing,
spreadsheets, presentations and collaborations, specialized
software for computer-aided design (CAD), magnetic resonance
imaging (MRI), software development, video production or customized
legacy applications can now experience full application
functionality via the cloud or in the data center.
Following the closing of the Transaction, the board of directors
of Sphere 3D will consist of seven members, of which five will be
existing Sphere 3D directors and two will be nominees of Overland,.
The two board nominees of Overland will be determined and appointed
prior to closing of the Transaction, subject to receipt of all
regulatory requirements.
For the three and nine months ended March 31, 2014, Overland had
revenue of US$20,240,000 and US$41,482,000, respectively and
incurred a loss of US$6,633,000 and US$15,539,000, respectively.
Audited revenue for the twelve months ended June 30, 2013 was
US$48,020,000 and a loss of US$19,647,000. As at March 31, 2014,
Overland's assets were US$91,788,000 and had liabilities of
US$50,696,000. As at June 30, 2013, Overland's assets were
US$31,403,000 and had liabilities of US$41,699,000. Overland's
financial documents are available at no charge under Overland's
profile on EDGAR at www.sec.gov.
Financing
Sphere 3D has entered into an agreement with a syndicate of
investment dealers led by Cormark Securities Inc., and including
Jacob Securities Inc. and Paradigm Capital Inc. (collectively, the
"Underwriters") pursuant to which the Underwriters have agreed to
purchase, on a bought deal basis, 1,176,500 special warrants of the
Company ("Special Warrants") at a price of $8.50 per Special
Warrants (the "Issue Price"), resulting in gross proceeds of
$10,000,250 to the Company (the "Offering"). Each Special Warrant
is exercisable into one unit of the Company (a "Unit") with each
Unit being comprised of one Common Share of the Company and
one-half of a Common Share purchase warrant of the Company (a
"Warrant"). Each whole Warrant is exercisable at an exercise price
of $11.50 for a period of two yearsfrom the closing date.
The Underwriters will have the option (the "Underwriters'
Option") to arrange for the purchase of up to an additional 15% of
Special Warrants (being up to 176,475 Special Warrants) sold under
the Offering at the Issue Price. The Underwriters' Option shall be
exercisable, in whole or in part, until the time of closing. The
Underwriters shall be entitled to the same commission provided for
below in respect of any Special Warrants issued and sold upon
exercise of the Underwriters' Option.
The Underwriters are entitled to receive a cash commission equal
to 6% of the gross proceeds of the Offering. The Company will
also reimburse the Underwriters for reasonable fees and expenses
incurred in connection with the Offering.
The Offering is scheduled to close on or before June 3, 2014.
All securities issued in connection with the Offering are subject
to a four-month hold period from the issuance date in accordance
with the policies of the TSXV and applicable Canadian securities
laws. The Offering is subject to all required regulatory approvals,
including the approval of the TSXV.
Sphere 3D intends to file a short-form prospectus in each of the
Provinces of British Columbia, Alberta and Ontario (and such other
provinces and territories of Canada as may be agreed to by Cormark
Securities Inc. and the Corporation) qualifying the Units issuable
upon exercise or deemed exercise of the Special Warrants by July
31, 2014, failing which the holder would be entitled to receive
1.05 Units upon exercise or deemed exercise of the Special
Warrants.
The completion of the Offering is integral to the consummation
of the Merger Agreement. A minimum of $5,000,000 of the
Offering will initially be advanced to Overland as contemplated by
the Merger Agreement. In addition, subject to further board
approval, the Company may advance further funds to support
Overland's working capital requirements.
The offered securities pursuant to the Offering will not be
registered under the U.S. Securities Act of 1933 (the "Securities
Act") and may not be offered or sold within the United States or
to, or for the account or benefit of, U.S. persons except in
certain transactions exempt from the registration requirements of
the Securities Act.
Approvals
Both companies' boards of directors have unanimously approved
the Merger Agreement. The Transaction is subject customary closing
conditions, shareholder approval of Overland and receipt of all
necessary regulatory approvals, including the approval of the TSXV.
The Transaction is expected to close in the third calendar quarter
of 2014. Upon the completion of the Transaction, Overland's common
stock will cease trading on the NASDAQ and Sphere 3D shares will
continue to trade on the TSXV. Sphere has previously announced that
it has filed an application to list its common shares on the NASDAQ
Capital Market.
Pursuant to the Merger Agreement, Overland is subject to
customary non-solicitation covenants. In the event a superior
proposal is made and if in response, Overland's board of directors
changes its recommendation of the transaction to the Overland
shareholders or terminates the Transaction under certain
circumstances, Overland has agreed to pay Sphere 3D a termination
fee of US$3.5 million.
The Transaction has received the unanimous support of the boards
of directors and management of both Sphere 3D and Overland. Certain
significant shareholders of Overland, including Cyrus Capital
Partners and its affiliates ("Cyrus"), who hold 11,048,049 common
shares of Overland, representing approximately 63.2% of the
outstanding shares of Overland, have entered into voting agreements
with Sphere 3D pursuant to which they have agreed to vote the
Overland Shares beneficially owned by them, in favor of the
Transaction, subject to the terms and conditions set forth in the
voting agreements.
Upon Closing of the Transaction, Cyrus will become an insider of
Sphere 3D. Cyrus does not currently hold any shares of Sphere
3D, but has a right to acquire 666,667 shares pursuant to the
exercise of its rights to convert, at US$7.50, under a US$5,000,000
convertible debenture. As a result, upon Closing of the
Transaction, Cyrus will hold 5,641,068 or 16.6% of the outstanding
shares of Sphere 3D and 6,307,734 common shares of Sphere 3D or
approximately 18.2% on a partially diluted basis.
Eric Kelly, a director and the President and Chief Executive
Officer of Overland, is also the Chairman of the Board of Sphere 3D
and accordingly declared his conflict and recused himself all board
discussions and abstained from casting any vote with respect to the
Transaction. Mr. Kelly has a non-material share ownership in both
Overland and Sphere 3D. No collateral benefit has been paid to Mr.
Kelly in connection with the consummation of the Transaction. The
Overland board of directors formed a special committee of
independent directors to review and evaluate the proposed
transaction. Sphere 3D appointed Glenn Bowman, the Chairman of
the Audit Committee, as its lead director with respect to the
evaluation of this Transaction.
Cormark Securities Inc. has provided a fairness opinion to the
board of directors of Sphere 3D and shall be entitled to fees
customary for such advisory and transaction services.
Management Comments
Commenting on behalf of Sphere 3D, Peter Tassiopoulos, Chief
Executive Officer stated: "This transformational deal allows us to
immediately gain the scale, infrastructure and resources required
to become a leading global virtualization company and strengthens
Sphere's ability to service and support partners and customers
globally. In addition, this transaction provides greater certainty
in leveraging Overland's existing global distribution network as
well as their significant Tier One OEM relationships."
Eric Kelly, President and Chief Executive Officer of Overland,
said, "This merger brings together next generation technologies for
virtualization and cloud coupled with end-to-end scalable storage
offerings enabling us to address the larger and growing
virtualization and cloud markets. This along with Overland's
global network of services and reseller partners and our worldwide
manufacturing capabilities gives us a clear path for growth and
profitability to create significant value for shareholders of both
companies."
Investor Conference Call
Sphere 3D will host an investor conference call on Tuesday, May
20, 2014 at 5:00 pm EDT. To access the call dial
1-855-845-0180 and when prompted provide the pass code
1343#. In addition, a live and archived webcast of the
conference call will be available at www.sphere3d.com in the
Investor Relations section and over the Internet at
https://onecast.thinkpragmatic.com/ses/PM2-OC_vQ4LS4Iqg34sP6g~~
until 11:59 pm on August 20, 2014.
About Sphere 3D Corporation
Sphere 3D Corporation (TSX-V:ANY) (OTCQX:SPIHF) is a
virtualization technology solution provider. Sphere 3D's Glassware
2.0™ platform delivers virtualization of many of the most demanding
applications in the marketplace today; making it easy to move
applications from a physical PC or workstation to a virtual
environment either on premise and/or from the cloud. Sphere
3D's V3 Systems division supplies the industry's first purpose
built appliance for virtualization as well as the Desktop Cloud
Orchestrator management software for VDI. Sphere 3D maintains
offices in Mississauga, Ontario, Canada and in Salt Lake City,
Utah, U.S. For additional information visit www.sphere3d.com or
access the Company's public filings at www.sedar.com.
Forward-Looking Statements
Certain statements contained in this press release include
"forward-looking statements" that involve a number of risks and
uncertainties, and actual results or events may differ materially
from those projected or implied in those statements. Examples
include the parties' ability to consummate the proposed Transaction
and timing thereof, the benefits and impact of the proposed
Transaction, including tax effects to shareholders, the combined
company's ability to achieve synergies and value creation that are
contemplated by the parties, Sphere 3D's ability to promptly and
effectively integrate Overland's business and the diversion of
management time on Transaction-related issues.
Forward-looking statements, without limitation, may contain the
words believes, expects, anticipates, estimates, intends, plans, or
similar expressions. Forward-looking statements are not guarantees
of future performance. They involve risks, uncertainties and
assumptions and actual results could differ materially from those
anticipated. Forward-looking statements are based on the opinions
and estimates of management at the date the statements are made,
and are subject to a variety of risks and uncertainties and other
factors that could cause actual events or results to differ
materially from those projected in the forward-looking
statements.
Sphere 3D cautions you that you should not rely unduly on these
forward-looking statements, which reflect their current beliefs and
are based on information currently available. Sphere 3D does not
undertake any obligation to update or revise any forward-looking
statements as of any future date. Additional information concerning
these statements and other factors can be found in Sphere 3D's
filings with securities regulatory authorities in Canada at SEDAR
(www.sedar.com).
Neither TSXV nor its Regulation Services Provider (as
that term is defined in policies of the TSXV) accepts
responsibility for the adequacy or accuracy of this
release.
Not for distribution in the United States or
through United States wire services
CONTACT: Sphere 3D Contact:
Sphere 3D Corporation
Peter Tassiopoulos Chief Executive Officer
416-749-5999
Peter.Tassiopoulos@Sphere3D.com
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