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LLC v. Digi International, Inc.

United States District Court, W.D. North Carolina, Charlotte Division

May 9, 2019

7M SECURITIES, LLC, Plaintiff,
v.
DIGI INTERNATIONAL, INC., Defendant.

          ORDER

          GRAHAM C. MULLEN UNITED STATES DISTRICT JUDGE.

         This matter is before the Court upon Defendant's Motion for Summary Judgment. This matter is fully briefed and ripe for disposition.

         I. FACTUAL BACKGROUND

         The facts are largely undisputed. Plaintiff 7M Securities, LLC (“7M”) is a consulting firm that provides advisory services to clients regarding corporate mergers and acquisitions, private capital transactions, and market insight. In early 2015, Defendant Digi International, Inc. (“Digi”), a communications technology firm, sought 7M's services in relation to Digi's efforts to divest itself of a corporate subsidiary, Etherios, Inc. (the “CRM Division”). On March 23, 2015, the parties executed an engagement letter (the “Agreement”) confirming Digi's engagement of 7M's services in connection with the sale of the CRM Division to a third party (the “Transaction”).

         The Agreement obligated Digi to pay 7M a transaction fee (the “Transaction Fee”) at the closing of the Transaction equal to:

a. $250, 000 (the “Floor Transaction Fee”) payable at the time of closing; plus, potentially:
b. In the event the Aggregate Consideration that is paid to [Digi] at closing is:
i. between $6, 625, 000 and $8, 000, 000, 4% of the Aggregate Consideration less the amount of the Floor Transaction Fee, or
ii. if Aggregate Consideration is greater than $8, 000, 000 or less than $9, 500, 000, 5% of the Aggregate Consideration less the amount of the Floor Transaction Fee, or
iii. if Aggregate Consideration is greater than $9, 500, 000, 6% of the Aggregate Consideration less the amount of the Floor Transaction Fee;

(Doc. No. 19-1, p.2) “Aggregate Consideration” is defined in the Agreement as follows:

“Aggregate Consideration” shall mean the cumulative value of the Transaction representing the total value of the CRM Division by the sum of all cash paid or payable and the fair market value of all property or securities transferred or transferable directly or indirectly, in connection with [the] Transaction including (i) cash amounts paid or securities issued . . . (ii) the total amount of indebtedness for borrowed money repaid, retired, extinguished or assumed in connection with [the] Transaction; (iii) the value of any performance payments, equity incentives, cash bonus plans or other similar arrangements established in connection with [the] Transaction and assumed by the buyer in the Transaction (other than ordinary course base salary and bonuses consistent with past practice and any amounts payable to employees of the CRM Division); and (iv) amounts paid by the Company to repurchase any of its securities outstanding on the date hereof in connection with [the] Transaction.

Id. (emphasis added).

         On October 23, 2015, Digi entered into a Stock Purchase Agreement with West Monroe Partners, LLC (the “Buyer”). Under the Stock Purchase Agreement, the Buyer agreed to purchase the CRM Division for a purchase price (the “Purchase Price”) of $9, 000, 000.00 (the “Base Amount”), plus a working capital adjustment payment of $96, 352.00 (the “Working Capital Adjustment Payment”) and certain other cash, minus certain other amounts and ...


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