OPEN TEXT CORP 10-Q

Item 1A. Risk Factors You should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended June 30, 2022. These are not the only risks and uncertainties facing us. Additional risks not currently known to us or that we currently believe are immaterial may also impair our operating results, financial condition and liquidity. Our business is also subject to general risks and uncertainties that affect many other companies. Risks Related to the Micro Focus Acquisition We may fail to consummate the Micro Focus Acquisition or may not consummate it on the terms described herein or in our other filings with the SEC It is currently anticipated that we will complete the Micro Focus Acquisition in the first quarter of calendar year 2023. Completion of the Micro Focus Acquisition is subject to regulatory approvals and other customary closing conditions for the acquisition of a UK public company, and we cannot provide assurance that such regulatory approvals will be obtained or that other customary closing conditions will be satisfied in a timely manner or at all. Even if all required consents and approvals are obtained and the other customary closing conditions are satisfied, no assurance can be given as to the terms, conditions and timing of the approvals. If we agree to any material requirements, limitations, costs, divestitures or restrictions in order to obtain any approvals required to consummate the Micro Focus Acquisition, these requirements, limitations, costs, divestitures or restrictions could adversely affect our ability to achieve the anticipated benefits of the Micro Focus Acquisition or result in a failure to consummate the Micro Focus Acquisition. As a result, the possible timing and likelihood of completion are uncertain and, accordingly, there can be no assurance that the Micro Focus Acquisition will be completed on the anticipated schedule or at all. If the Micro Focus Acquisition is not consummated, we could be subject to a number of risks that may adversely affect our business, including: • we will be required to pay costs relating to the Micro Focus Acquisition such as legal, accounting, financial advisory and printing fees, whether or not the Micro Focus Acquisition is consummated; • time and resources committed by our management to matters relating to the Micro Focus Acquisition could otherwise have been devoted to pursuing other beneficial opportunities; and • we would not realize the benefits we expect to realize from consummating the Micro Focus Acquisition. The Micro Focus Acquisition is subject to the receipt of governmental and regulatory approvals that may impose conditions that could have an adverse effect on us or, if not obtained, could prevent consummation of the Micro Focus Acquisition Consummation of the Micro Focus Acquisition is conditioned upon the receipt of governmental approvals, including certain antitrust and foreign investment approvals. There can be no assurance that these approvals will be obtained and that the other conditions to consummating the Micro Focus Acquisition will be satisfied. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions on the consummation of the Micro Focus Acquisition or require changes to the terms of the Micro Focus Acquisition or agreements to be entered into in connection with the Micro Focus Acquisition. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding consummation of the Micro Focus Acquisition or of imposing additional costs or limitations on us following consummation of the Micro Focus Acquisition, any of which might have an adverse effect on our business, financial condition and results of operations. We may fail to realize the benefits expected from the Micro Focus Acquisition, which could adversely affect our business and results of operations The anticipated benefits we expect from the Micro Focus Acquisition are, necessarily, based on projections and assumptions about our combined business with Micro Focus, which may not materialize as expected or which may prove to be inaccurate. Our business and results of operations could be adversely affected if we are unable to realize the anticipated benefits from the Micro Focus Acquisition on a timely basis or at all, including realizing the anticipated synergies from the Micro Focus Acquisition in the anticipated amounts or within the anticipated timeframes or cost expectations or at all. Achieving the benefits of the Micro Focus Acquisition will depend, in part, on our ability to integrate the business and operations of Micro Focus successfully and efficiently with our business. The challenges involved in this integration, which may be complex and time-consuming, include the following: • successfully managing relationships with our strategic partners, combined supplier and customer base; • coordinating and integrating independent research and development and engineering teams across technologies and product platforms to enhance product development while reducing costs; 69 Table of C ontents • coordinating sales and marketing efforts to effectively position the combined company’s capabilities and the direction of product development; • limitations or restrictions required by regulatory authorities on the ability of Micro Focus’ and our management to conduct planning regarding the integration of the two companies; • difficulties in integrating the systems and process of two companies with complex operations including multiple sites; • the increased scale resulting from the Micro Focus Acquisition; • retaining key employees; • obligations that we will have to counterparties of Micro Focus that arise as a result of the change in control of Micro Focus; and • the diversion of management attention from other important business objectives. If we do not successfully manage these issues and the other challenges inherent in integrating an acquired business of the size and complexity of Micro Focus, then we may not achieve the anticipated benefits of the Micro Focus Acquisition and our revenue, expenses, operating results and financial condition could be adversely affected. The use of cash and incurrence of substantial indebtedness in connection with the financing of the Micro Focus Acquisition may have an adverse impact on our liquidity, limit our flexibility in responding to other business opportunities and increase our vulnerability to adverse economic and industry conditions If the Micro Focus Acquisition is consummated, we will have a significant amount of indebtedness outstanding. As of September 30, 2022 we have $4.3 billion of total indebtedness. In connection with the Micro Focus Acquisition, we intend to draw down on our Acquisition Term Loan, which provides approximately $2.6 billion aggregate principal amount of availability, and, if we are not able to access the debt capital markets directly or through certain affiliates prior to the closing of the Micro Focus Acquisition sufficiently to finance the Micro Focus Acquisition, the Bridge Loan, which provides for commitments of up to $2 billion. Both the Acquisition Term Loan and the Bridge Loan are secured by a first charge on substantially all of the assets of the Company and certain subsidiary guarantors on a pari passu basis with the Revolver and Term Loan B. If we are able to access the debt capital markets directly or through certain affiliates prior to or following the closing of the Micro Focus Acquisition to reduce commitments or the borrowings under the Bridge Loan, any such debt is expected to also be secured. This level of indebtedness could have important consequences to our business, including, but not limited to: • increasing our debt service obligations, making it more difficult for us to satisfy our obligations; • limiting our ability to borrow additional funds for working capital, capital expenditures, acquisitions and other general purposes and increasing the cost of any such borrowing; • increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions; • expose us to fluctuations in the interest rate environment because the interest rates under Term Loan B and the Revolver are variable; • require us to dedicate a substantial portion of our cash flow from operations to make payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions, dividends and other general corporate purposes; • limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, which may place us at a competitive disadvantage compared to our competitors that have less debt; • placing us at a competitive disadvantage as compared to certain of our competitors that are not as highly leveraged; • increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing; and • restricting us from pursuing certain business opportunities, including other acquisitions. For more information on our indebtedness, see Note 11 “Long-Term Debt” to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. As a result of the Micro Focus Acquisition, we anticipate that the scope and size of our operations and business will substantially change and will result in certain incremental risks to us. We cannot provide assurance that our expansion in scope and size will be successful We anticipate that the Micro Focus Acquisition will substantially expand the scope and size of our business by adding substantial assets and operations to our existing business. The anticipated future growth of our business will impose significant added responsibilities on management, including the need to identify, recruit, train and integrate additional employees. Our 70 Table of C ontents senior management’s attention may be diverted from the management of daily operations to the integration of the assets acquired in the Micro Focus Acquisition. Our ability to manage our business and growth will require us to continue to improve our operational, financial and management controls, reporting systems and procedures. We may also encounter risks, costs and expenses associated with any undisclosed or other unanticipated liabilities and use more cash and other financial resources on integration and implementation activities than we expect. We may not be able to integrate the Micro Focus business into our existing operations on our anticipated timelines or realize the full expected economic benefits of the Micro Focus Acquisition, which may have a material adverse effect on our business, financial condition and results of operations. In addition, the consummation of the Micro Focus Acquisition may heighten the potential adverse effects on our business, operating results or financial condition described in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended June 30, 2022. We have incurred significant transaction costs in connection with the Micro Focus Acquisition that could adversely affect our results of operations Whether or not we complete the Micro Focus Acquisition, we have incurred, and will continue to incur, significant transaction costs in connection with the Micro Focus Acquisition, including payment of certain fees and expenses incurred in connection with the Micro Focus Acquisition and related transactions to obtain financing for the Micro Focus Acquisition that are expected to occur, including the entering of certain derivative transactions in connection with the Micro Focus Acquisition as further described herein. We anticipate mark-to-market valuation adjustments for the derivative transactions to continue, based on foreign currency fluctuations. For more information on our mark-to-market derivatives, see Note 17 “Derivative Instruments and Hedging Activities" and Note 22 “Other Income (Expense), Net” to our Condensed Consolidated Financial Statement and Item 2. Management's Discussion and Analysis of Financial condition and Results of Operations. Additional unanticipated costs may be incurred in the integration process. These could adversely affect our results of operations in the period in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid. Furthermore, we may incur severance expenses and restructuring charges in connection with the Micro Focus Acquisition, which may adversely affect our operating results following the closing of the Micro Focus Acquisition in which such expenses are recorded or our cash flow in the period in which any related costs are actually paid. 71 Table of C ontents Item 6. Exhibits The following documents are filed as a part of this report: Exhibit Number Description Report or Registration Statement Exhibit Reference 2.1 Rule 2.7 Announcement, dated August 25, 2022. Company’s Form 8-K, filed August 25, 2022 Exhibit 2.1 4.1 Form of Common Share C ertificate 4.2 Amended and Restated Shareholder Rights Plan Agreement between Open Text Corporation and Computershare Investor Services, Inc. dated September 15, 2022. Company’s Form 8-K, filed September 15, 2022 Exhibit 4.1 10.1 Co-operation Agreement, dated August 25, 2022, by and between the Company, Bidco and Micro Focus International plc. Company’s Form 8-K, filed August 25, 2022 Exhibit 10.1 10.2 Term Loan Credit Agreement, dated August 25, 2022, by and between the Company, the guarantors party thereto, Barclays Bank PLC, as administrative agent, and certain financial institution parties thereto. Company’s Form 8-K, filed August 25, 2022 Exhibit 10.2 10.3 Bridge Loan Agreement, dated August 25, 2022, by and between the Company, the guarantors party thereto, Barclays Bank PLC, as administrative agent, and certain financial institution parties thereto. Company’s Form 8-K, filed August 25, 2022 Exhibit 10.3 31.1 Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL instance document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL taxonomy extension schema. 101.CAL Inline XBRL taxonomy extension calculation linkbase. 101.DEF Inline XBRL taxonomy extension definition linkbase. 101.LAB Inline XBRL taxonomy extension label linkbase. 101.PRE Inline XBRL taxonomy extension presentation. 72 Table of C ontents SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OPEN TEXT CORPORATION Date: November 3, 2022 By: /s/ MARK J. BARRENECHEA Mark J. Barrenechea Vice Chair, Chief Executive Officer and Chief Technology Officer (Principal Executive Officer) /s/ MADHU RANGANATHAN Madhu Ranganathan Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ HOWARD ROSEN Howard Rosen Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) 73