What changed in this filing

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Item 1A. Risk Factors

2023-02-02 compared with 2022-11-03 · 51 added, 41 removed, 68 unchanged (57% of the section changed)

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.

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 and our Quarterly Report on Form 10-Q for the three months ended September 30, 2022.

These are not the only risks and uncertainties facing us.

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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

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• coordinating and integrating independent research and development and engineering teams across technologies and product platforms to enhance product development while reducing costs;

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• coordinating sales and marketing efforts to effectively position the combined company’s capabilities and the direction of product development;

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• retaining key employees;

• implementing expected cost synergies of $400 million;

• obligations that we will have to counterparties of Micro Focus that arise as a result of the change in control of Micro Focus;

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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.

We have a significant amount of indebtedness outstanding following closing the Micro Focus Acquisition.

As of December 31, 2022 we had $5.3 billion of total indebtedness.

In connection with the financing of the Micro Focus Acquisition, on January 27, 2023, we drew down on our Revolver for $450 million, and on January 31, 2023 we drew down the entire amount of our Acquisition Term Loan, less original issuance discount and other fees.

The Acquisition Term Loan and Senior Secured Notes 2027 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.

This level of indebtedness could have important consequences to our business, including, but not limited to:

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• restricting us from pursuing certain business opportunities, including other acquisitions.

In addition, a breach of the restrictive covenants could result in an event of default with respect to the indebtedness, which, if not cured or waived, could result in the indebtedness becoming immediately due and payable and could have a material adverse effect on our business, financial condition or operating results.

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.

As a result of the Micro Focus Acquisition, the scope and size of our operations and business has substantially changed 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 Micro Focus Acquisition substantially expands 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.

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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 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.

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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.

We may also encounter risk, costs and expenses associated with preparing periodic reporting and consolidated financial statements following the closing of the Micro Focus Acquisition.

The expansion of effective internal controls over financial reporting and adequate disclosure controls and procedures over the Micro Focus business will be necessary to provide reliable financial reports and reporting.

Micro Focus identified a material weakness in its internal controls over financial reporting for the fiscal year ended October 31, 2021, which was subsequently remediated.

In the course of applying our internal controls framework to the Micro Focus business we may identify other material weaknesses, significant deficiencies or other deficiencies, which could result in our determining we have a material weakness in internal controls over financial reporting which could result in an adverse reaction in the financial markets and could have a material adverse effect on our business, financial condition, results of operation and prospects.

Also, Micro Focus’ historical financial statements were prepared in accordance with IFRS and have not been prepared in accordance with U.S.

Micro Focus provides public financial statements semi-annually, with a fiscal year end of October 31.

Given such differences, it may be difficult for us to integrate systems in a timely fashion to produce financial statements following the closing of the Micro Focus Acquisition.

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.

We have incurred 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, including entering into certain derivative transactions in connection with the Micro Focus Acquisition as further described herein.

We anticipate mark-to-market valuation adjustments for certain derivative transactions, 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 Statements 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.

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.

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Furthermore, we have incurred and may continue to 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.

Micro Focus’ provision for income taxes and any ultimate tax liability may differ from the amounts initially recorded and such differences could have an adverse effect on the combined company’s financial condition and results of operations.

As disclosed in Micro Focus’ Current Report on Form 6-K for the six months ended April 30, 2022 and Annual Report on Form 20-F for the year ended October 31, 2021, U.K.

tax authorities have challenged certain historic tax filing positions of Micro Focus.

Based on Micro Focus’ assessment of the value of the underlying tax benefit under dispute, and as supported by external professional advice, it believes that it has no liability in respect of these matters and therefore no tax charge was recorded in current or previous periods.

Although Micro Focus believes its assessment is reasonable, no assurance can be made regarding the ultimate outcome of these matters.

Micro Focus is also subject to income taxes in numerous jurisdictions and significant judgment has been applied in determining its worldwide provision for income taxes.

The provision for income taxes may be impacted by various internal and external factors that could have favorable or unfavorable effects, including changes in tax laws, regulations and/or rates, results of audits, changing interpretations of existing tax laws or regulations, changes in estimates of prior years' items, the impact of transactions completed, the structuring of activities undertaken, the application of complex transfer pricing rules, changes in the valuation of deferred tax assets and liabilities, and changes in overall mix and levels of income before taxes.

Further, due to Micro Focus’ complex acquisitive history, it could become subject to additional tax audits in jurisdictions in which it has not historically been subject to examination.

As a result, Micro Focus’ worldwide provision for income taxes and any ultimate tax liability may differ from the amounts initially recorded and such differences could have an adverse effect on the combined company’s financial condition and results of operations.

For more information on certain Micro Focus tax matters, see Note 10 (Taxation) to the condensed consolidated interim financial statements of Micro Focus for the six months ended April 30, 2022, included in its Current Report on Form 6-K furnished to the SEC on June 22, 2022, and Item 3.D (Risk Factors) and Note 7 (Taxation) to the consolidated financial statements of Micro Focus as of October 31, 2021, each included in the Annual Report on Form 20-F of Micro Focus for the year ended October 31, 2021.

Following completion of the Acquisition, we may inherit litigation that could materially adversely affect us.

From time to time and in the ordinary course of our business, Micro Focus has and may become involved in various legal proceedings, including commercial, product liability, employment, class action and other litigation and claims, as well as governmental and other regulatory investigations and proceedings.

Such matters can be time consuming and expensive, could divert Micro Focus' and our management's attention away from their regular business and, if such legal proceedings are adversely resolved against Micro Focus, such result could have a material adverse effect on our combined business, operating results or financial condition following completion of the Acquisition.

See Micro Focus' Current Report on Form 6-K for the six months ended April 30, 2022 and Annual Report on Form 20-F for the year ended October 31, 2021 for further information on certain Micro Focus litigation matters.

The following documents are filed as a part of this report:

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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

Company’s Form 8-K/A, filed August 29, 2022 Exhibit 2.1

Form of Common Share Certificate

Company’s Form 10-Q, filed November 3, 2022

Amended and Restated Shareholder Rights Plan Agreement between Open Text Corporation and Computershare Investor Services, Inc.

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Company’s Form 8-K, filed September 15, 2022 Exhibit 4.1

Indenture governing the Company’s 6.90% senior secured notes due 2027, dated as of December 1, 2022, among the Company, the subsidiary guarantors party thereto, The Bank of New York Mellon, as U.S.

trustee and Notes collateral agent, and BNY Trust Company of Canada, as Canadian trustee.

Company’s Form 8-K, filed December 1, 2022 Exhibit 4.1

Form of the Company’s 6.90% senior secured notes due 2027 (included in Exhibit 4.1).

Company’s Form 8-K, filed December 1, 2022 Exhibit 4.2

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

Company’s Form 8-K/A, filed August 29, 2022 Exhibit 10.1

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

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

Company’s Form 8-K/A, filed August 29, 2022 Exhibit 10.2

First Amendment to Credit Agreement, dated December 1, 2022, by and among the Company, the guarantors party thereto, Barclays Bank PLC, as administrative agent and collateral agent, and certain financial institution parties thereto.

Company’s Form 8-K, filed December 1, 2022 Exhibit 10.1

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.

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101.PRE Inline XBRL taxonomy extension presentation.

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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

November 3, 2022

February 2, 2023

Vice Chair, Chief Executive Officer and Chief Technology Officer

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(Principal Financial Officer)

/s/ HOWARD ROSEN

/s/ COSMIN BALOTA

Cosmin Balota

Senior Vice President and Chief Accounting Officer

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors