VIASAT INC 10-Q

Item 1A. Risk Factors In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, which factors could materially affect our business, financial condition, liquidity or future results. Except as set forth below, there have been no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021. The risks described in our reports on Forms 10-K and 10-Q are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, liquidity or future results. Risks Relating to the Transaction The Consideration Payable under the Share Purchase Agreement Is Fixed and Will Not Be Adjusted Based on the Performance of Viasat or Inmarsat. Under the Share Purchase Agreement, the total consideration payable by us consists of $850.0 million in cash, subject to adjustments, and approximately 46.36 million unregistered shares of our common stock. The purchase price will not be adjusted for changes in the market price of our common stock or the economic performance of Viasat or Inmarsat. If the economic performance of Inmarsat relative to Viasat declines (or the economic performance of Inmarsat relative to Viasat improves), the consideration will not be adjusted to account for any such changes or any effective increase in the value of the shares of our common stock issued to the Sellers under the Share Purchase Agreement. 59 Viasat and Inmarsat Will Be Subject to Business Uncertainties and Contractual Restrictions, Including the Risk of Litigation, While the Transaction Is Pending That May Cause Disruption and May Make It More Difficult to Maintain Relationships with Employees, Suppliers or Customers. Uncertainty about the effect of the Transaction on employees, suppliers and customers may have an adverse effect on Viasat and/or Inmarsat, which uncertainties may impair our or Inmarsat’s ability to attract, retain and motivate key personnel until the Transaction is completed and for a period of time thereafter, and could cause customers, suppliers and others that deal with Viasat or Inmarsat to seek to change existing business relationships with either of us. Employee retention and recruitment may be challenging before the completion of the Transaction, as employees and prospective employees may experience uncertainty about their future roles following the Transaction. Key employees may depart or prospective key employees may fail to accept employment with us or Inmarsat because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the Transaction, any of which could have a material adverse effect on our business, financial condition and results of operations. The pursuit of the Transaction and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on our business, financial condition and results of operations. Until the Completion of the Transaction or the Termination of the Share Purchase Agreement in Accordance with its Terms, We Are Prohibited From Entering Into Certain Transactions and Taking Certain Actions that Might Otherwise Be Beneficial to Us and Our Stockholders. During the period between the date of the Share Purchase Agreement and completion of the Transaction (which could be as long as 18 months (or up to 24 months, if we elect to extend the long-stop date in order to satisfy regulatory conditions under the Share Purchase Agreement)), the Share Purchase Agreement restricts us from taking specified actions or from pursuing what might otherwise be attractive business opportunities or making other changes to our business, in each case without the consent of certain of the Sellers. These restrictions may prevent us from taking actions during the pendency of the Transaction that would have been beneficial. Adverse effects arising from these restrictions during the pendency of the Transaction could be exacerbated by any delays in consummation of the Transaction or termination of the Share Purchase Agreement. The Transaction May Not Be Completed and the Share Purchase Agreement May Be Terminated in Accordance with its Terms, and We May Be Required to Pay a Termination Fee Upon Termination. The Transaction is subject to customary closing conditions that must be satisfied or waived prior to the completion of the Transaction, including receipt of regulatory approvals and clearances and approval by our stockholders of the issuance of shares in the Transaction and an amendment to our certificate of incorporation to increase the number of shares of common stock authorized for issuance. Many of the closing conditions are not within our control. No assurance can be given that the required regulatory approvals and clearances and stockholder approvals will be obtained or that the required conditions to closing will be satisfied in a timely manner or at all. Any delay in completing the Transaction could cause the combined company not to realize, or to be delayed in realizing, some or all of the benefits that we expect to achieve if the Transaction is successfully completed within its expected time frame. Additionally, either we or Inmarsat may terminate the Share Purchase Agreement under certain circumstances, including, among other reasons, if the Transaction is not completed by the long-stop date. In addition, if the Share Purchase Agreement is terminated under specified circumstances, we may be obligated to pay a termination fee of either $150.0 million or $200.0 million or to reimburse certain out-of-pocket expenses of certain Sellers up to $40.0 million. Moreover, if the Transaction is not completed for any reason, including because required regulatory approvals and clearances or our stockholder approvals are not obtained, our ongoing businesses may be adversely affected and, without realizing any of the expected benefits of having completed the Transaction, we would be subject to a number of risks, including the following: • we may experience negative reactions from the financial markets, including negative impacts on our stock price; • we may experience negative reactions from our customers, suppliers, distributors and employees; • we will be required to pay our costs relating to the Transaction, such as financial advisory, legal, financing and accounting costs and associated fees and expenses, whether or not the Transaction is completed; • the Share Purchase Agreement places certain restrictions on the conduct of our business prior to completion of the Transaction and such restrictions, the waiver of which are subject to the consent of certain of the Sellers, may have prevented us from taking actions during the pendency of the Transaction that would have been beneficial; and 60 • matters relating to the Transaction (including integration planning) will require substantial commitments of time and resources by management, which could otherwise have been devoted to day-to-day operations or to other opportunities that may have been beneficial to us as an independent company. We Must Obtain Certain Regulatory Approvals and Clearances to Consummate the Transaction, which, if Delayed, Not Granted or Granted with Burdensome or Unacceptable Conditions, Could Prevent, Substantially Delay or Impair Consummation of the Transaction, Result in Additional Expenditures of Money and Resources or Reduce the Anticipated Benefits of the Transaction. The completion of the Transaction is subject to customary closing conditions, including receipt of regulatory approvals and clearances in various jurisdictions. Governmental and regulatory authorities in various jurisdictions may impose conditions on approvals and clearances as they deem necessary or desirable in the public interest, including, but not limited to, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or to not engage in certain types of conduct, or seeking to enjoin the completion of the Transaction. Any conditions imposed in connection with regulatory approvals or clearances could have a material adverse effect on the combined company or reduce the anticipated benefits of the Transaction. The Transaction Will Involve Substantial Costs. We have incurred and expect to incur non-recurring costs associated with the Transaction and combining the operations of the two companies, as well as transaction fees and other costs related to the Transaction. These costs and expenses include fees paid to financial, legal and accounting advisors, facilities and systems consolidation costs, severance and other potential employment-related costs, including severance and retention payments that may be made to certain Inmarsat employees, filing fees, printing expenses and other related charges. Some of these costs are payable by us regardless of whether the Transaction is completed. The combined company will also incur restructuring and integration costs in connection with the Transaction. The costs related to restructuring will be expensed as a cost of the ongoing results of operations of either us or the combined company. There are processes, policies, procedures, operations, technologies and systems that must be integrated in connection with the Transaction and the integration of Inmarsat’s business. Although we expect that the elimination of duplicative costs, strategic benefits, and additional income, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction related and restructuring costs over time, any net benefit may not be achieved in the near term or at all. Many of these costs will be borne by us even if the Transaction is not completed. While we have assumed that certain expenses would be incurred in connection with the Transaction, there are many factors beyond our control that could affect the total amount or the timing of such expenses. Lawsuits May Be Filed Against Us, or Against Our Directors, Challenging the Transaction, and an Adverse Ruling in Any Such Lawsuit May Prevent the Transaction from Becoming Effective or from Becoming Effective within the Expected Time Frame. Transactions like the one proposed here are frequently subject to litigation or other legal proceedings, including actions alleging that our board of directors breached their fiduciary duties to our stockholders by entering into the Share Purchase Agreement. We cannot provide assurance that such litigation or other legal proceedings will not be brought. If litigation or other legal proceedings are in fact brought against us, or against our board of directors, we will defend against it, but might not be successful in doing so. An adverse outcome in such matters, as well as the costs and efforts of a defense even if successful, could have a material adverse effect on the business, results of operation or financial position of us or the combined company, including through the possible diversion of company resources or distraction of key personnel. Risks Relating to the Combined Company We Will Incur Significant Additional Indebtedness in Connection with the Transaction, and the Combined Company’s Debt May Limit its Financial Flexibility. In addition to our existing indebtedness under the Credit Facilities and the Notes, we have obtained financing commitments for $2.3 billion of new debt facilities in connection with the Transaction and plan to assume $2.1 billion in principal amount of Inmarsat senior secured bonds and $1.7 billion outstanding under Inmarsat’s $2.4 billion senior secured credit facilities. We have also obtained commitments of $3.2 billion to backstop certain amendments required under the Credit Facilities and Inmarsat’s $2.4 billion senior secured credit facilities. The combined company’s level of indebtedness following completion of the Transaction could have important consequences. For example, it could: 61 • increase our vulnerability to general adverse economic and industry conditions; • impair our ability to obtain additional debt or equity financing in the future for working capital, capital expenditures, product development, satellite construction, acquisitions or general corporate or other purposes; • require us to dedicate a material portion of our cash flows to the payment of principal and interest on our indebtedness, thereby reducing the availability of our cash flows to fund working capital needs, capital expenditures, product development, satellite construction, acquisitions and other general corporate purposes; • expose us to variable interest rate risk to the extent we make borrowings under our Revolving Credit Facility; • limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; • place us at a disadvantage compared to our competitors that have less indebtedness; and • limit our ability to adjust to changing market conditions. Any of these risks could materially impact our ability to fund our operations or limit our ability to expand the combined business, which could have a material adverse effect on the combined business, financial condition and results of operations. Combining the Businesses of Viasat and Inmarsat May be More Difficult, Costly or Time-Consuming than Expected and the Combined Company May Fail to Realize the Anticipated Benefits of the Transaction, Which May Adversely Affect the Combined Company’s Business Results and Negatively Affect the Value of the Combined Company’s Common Stock. Viasat and Inmarsat have operated and, until the completion of the Transaction will continue to operate, independently. The success of the Transaction will depend on, among other things, the ability of Viasat and Inmarsat to combine their businesses in a manner that facilitates growth opportunities and realizes expected cost savings. We have entered into the Share Purchase Agreement because we believe that the transactions contemplated by the Share Purchase Agreement are fair to and in the best interests of our stockholders and that combining the businesses of Viasat and Inmarsat will produce benefits and cost savings. Following the closing of the Transaction, Viasat and Inmarsat must successfully combine their respective businesses in a manner that permits these benefits to be realized. For example, the following issues, among others, must be addressed in integrating the operations of the two companies in order to realize the anticipated benefits of the Transaction: • combining the companies’ operations and corporate functions; • combining the businesses of Viasat and Inmarsat and meeting the capital requirements of the combined company, in a manner that permits the combined company to achieve any cost savings or other synergies anticipated to result from the Transaction, the failure of which would result in the anticipated benefits of the Transaction not being realized in the time frame currently anticipated or at all; • integrating personnel from the two companies; • integrating the companies’ technologies and technologies licensed from third parties; • integrating and unifying the offerings and services available to customers; • identifying and eliminating redundant and underperforming functions and assets; • harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes; • maintaining existing agreements with customers, suppliers, distributors and vendors, avoiding delays in entering into new agreements with prospective customers, suppliers, distributors and vendors, and leveraging relationships with such third parties for the benefit of the combined company; • addressing possible differences in business backgrounds, corporate cultures and management philosophies; • consolidating the companies’ administrative and information technology infrastructure; • coordinating distribution and marketing efforts; • managing the movement of certain positions to different locations; • coordinating geographically dispersed organizations; and • effecting actions that may be required in connection with obtaining regulatory or other governmental approvals. 62 It is possible that the integration process could result in the loss of key Viasat or Inmarsat employees, the loss of customers, the disruption of either company’s or both companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. In addition, the actual integration may result in additional and unforeseen expenses. If the combined company is not able to adequately address integration challenges, we may be unable to successfully integrate operations and the anticipated benefits of the integration plan may not be realized. In addition, the combined company must achieve the anticipated growth and cost savings without adversely affecting current revenues and investments in future growth. If the combined company is not able to successfully achieve these objectives, the anticipated benefits of the Transaction may not be realized fully, or at all, or may take longer to realize than expected. Additionally, Viasat may inherit from Inmarsat legal, regulatory, and other risks that occurred prior to the Transaction, whether known or unknown to Viasat, which may be material to the combined company. Actual growth and cost savings, if achieved, may be lower than what we expect and may take longer to achieve than anticipated. Moreover, at times the attention of the combined company’s management and resources may be focused on the integration of the businesses of the two companies and diverted from day-to-day business operations or other opportunities that may have been beneficial to such company, which may disrupt the combined company’s ongoing business. An inability to realize the full extent of the anticipated benefits of the Transaction, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock of the combined company. The Combined Company May Not Be Able to Retain Customers, Suppliers or Distributors, or Customers, Suppliers or Distributors May Seek to Modify Contractual Relationships with the Combined Company, Which Could Have an Adverse Effect on the Combined Company’s Business and Operations. Third Parties May Terminate or Alter Existing Contracts or Relationships with the Combined Company. As a result of the Transaction, the combined company may experience impacts on relationships with customers, suppliers and distributors that may harm the combined company’s business and results of operations. Certain customers, suppliers or distributors may seek to terminate or modify contractual obligations following the Transaction whether or not contractual rights are triggered as a result of the Transaction. There can be no guarantee that customers, suppliers and distributors will remain with or continue to have a relationship with the combined company or do so on the same or similar contractual terms following the Transaction. If any customers, suppliers or distributors seek to terminate or modify contractual obligations or discontinue the relationship with the combined company, then the combined company’s business and results of operations may be harmed. Furthermore, the combined company will not have long-term arrangements with many of its significant suppliers. If the combined company’s suppliers were to seek to terminate or modify an arrangement with the combined company, then the combined company may be unable to procure necessary supplies from other suppliers in a timely and efficient manner and on acceptable terms, or at all. We and Inmarsat also have contracts with third parties which may require consent from these parties in connection with the Transaction, or which may otherwise contain limitations applicable to such contracts following the Transaction. If these consents cannot be obtained, the combined company may suffer a loss of potential future revenue, incur costs and lose rights that may be material to the combined company’s business. In addition, third parties with whom we or Inmarsat currently have relationships may terminate or otherwise reduce the scope of their relationship in anticipation of the Transaction. Any such disruptions could limit the combined company’s ability to achieve the anticipated benefits of the Transaction. The adverse effect of any such disruptions could also be exacerbated by a delay in the completion of the Transaction or by a termination of the Share Purchase Agreement. Future Sales of Our Common Stock Could Lower Our Stock Price. At the closing of the Transaction, we will issue approximately 46.36 million unregistered shares of our common stock, and will enter into a registration rights agreement which will require us to file with the SEC a registration statement on Form S-3 registering for resale the shares issued to certain of the Inmarsat shareholders in the Transaction. We will also be required to conduct certain underwritten offerings upon request and to provide certain of the Inmarsat shareholders with certain piggyback registration rights. Sales of substantial amounts of our common stock, or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock. Certain of Inmarsat’s Shareholders Will Have Significant Influence Over the Combined Company After Completion of the Transaction. Upon completion of the Transaction, Inmarsat’s shareholders will, collectively, beneficially own approximately 39% of our outstanding common stock. As long as those Inmarsat shareholders own or control a significant percentage of our 63 outstanding voting power, they may have the ability to significantly influence corporate actions requiring stockholder approval, including approval of any merger or significant corporate transaction. In addition, certain of Inmarsat’s shareholders have entered into a stockholders agreement with us which grants them the right to nominate up to two directors to the combined company’s board of directors. Their right to designate directors is subject to their ownership percentage of the total outstanding shares of our common stock. The interests of these shareholders may not align with our interests or the interests of our other stockholders. 64 Item 6. Exhibits Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed or Furnished Herewith 2.1* Share Purchase Agreement, dated as of November 8, 2021, by and among Viasat, Inc. and the shareholders of Connect Topco Limited party thereto 8-K 000-21767 2.1 11/08/2021 10.1 Voting and Support Agreement, dated as of November 8, 2021, by and among Viasat, Inc., Baupost Group Securities, L.L.C. and the shareholders of Connect Topco Limited party thereto 8-K 000-21767 10.1 11/08/2021 10.2 Form of Voting and Support Agreement (executive officers and directors) 8-K 000-21767 10.2 11/08/2021 10.3* Stockholders Agreement, dated as of November 8, 2021, by and among Viasat, Inc. and the shareholders of Connect Topco Limited party thereto 8-K 000-21767 10.3 11/08/2021 10.4** 1996 Equity Participation Plan of Viasat, Inc. (As Amended and Restated Effective September 2, 2021) 8-K 000-21767 10.1 09/03/2021 10.5** Viasat, Inc. Employee Stock Purchase Plan (As Amended and Restated Effective September 2, 2021) 8-K 000-21767 10.2 09/03/2021 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X 32.1 Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X 101.INS Inline 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. X 101.SCH Inline XBRL Taxonomy Extension Schema X 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase X 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase X 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase X 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase X 65 Incorporated by Reference Exhibit Number Exhibit Description Form File No. Exhibit Filing Date Filed or Furnished Herewith 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) X * Certain schedules to this Exhibit omitted pursuant to Regulation S-K Item 601(b)(2) or 601(a)(5) (as applicable). The registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request; provided, however, that the registrant may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any document so furnished. ** Indicates management contract, compensatory plan or arrangement. 66 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VIASAT, INC. November 9, 2021 /s/ R ICHARD B ALDRIDGE Richard Baldridge President and Chief Executive Officer (Principal Executive Officer) /s/ S HAWN D UFFY Shawn Duffy Senior Vice President and Chief Financial Officer (Principal Financial Officer) 67