| Item 1.01 | Entry into a Material Definitive Agreement |
On July 31, 2023, Conn’s, Inc. (the “Company”), as parent and guarantor, Conn Appliances, Inc., Conn Credit I, LP and Conn Credit Corporation, Inc., as borrowers (the “Borrowers”), entered into a delayed draw term loan and security agreement (the “Term Loan Agreement”) with Stephens Investments Holdings LLC (“Stephens Investments”) and Stephens Group, LLC and the other lenders party thereto from time to time (the “Lenders”), and Stephens Investments, as administrative agent. The Term Loan Agreement provides for an aggregate commitment of $50.0 million, of which the total commitment is available to be funded in one or a series of borrowings until February 20, 2026, with the Term Loan Agreement to mature on May 22, 2026.
Outstanding loans under the Term Loan Agreement will bear interest at an aggregate rate per annum equal to the Term SOFR Rate (as defined in the Term Loan Agreement), subject to a 5.00% floor, plus a margin of 10.00%, which shall be payable monthly in arrears in cash except to the extent such payment in cash would result in a default or event of default under any of the Senior Loan Agreements (as defined below), in which case such portion may be paid-in-kind and added to the outstanding principal amount of the term loans. Amounts under the Term Loan Agreement that remain undrawn are subject to a commitment fee payable monthly based on the undrawn portion of the Term Loan Agreement at a rate of 5.00% per annum. The obligations of the Borrowers under the Term Loan Agreement are guaranteed by the Company and certain of the Borrowers’ subsidiaries. The Borrowers are not required to make any amortization or other payments (whether voluntary or mandatory) of principal under the Term Loan Agreement until the maturity date. The Term Loan Agreement is secured by liens (subject, in the case of priority, to the liens under the Fifth Amended and Restated Loan and Security Agreement, dated as of March 29, 2021, among the Company, the Borrowers, the guarantors party thereto, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders party thereto (as amended to date, the “First-Lien Loan Agreement”); and the second-lien term loan and security agreement, dated as of February 21, 2023, among the Company, the Borrowers and Pathlight Capital LP, as administrative agent and collateral agent (the “Second-Lien Loan Agreement” and, together with the First-Lien Loan Agreement, the “Senior Loan Agreements”)) on substantially all of the assets of the Borrowers and their subsidiaries, other than certain excluded collateral and subject to customary exceptions. The Borrowers may elect to prepay all or any portion of the amounts owed under the Term Loan Agreement, without a premium or penalty, subject to certain conditions, including pro forma compliance with a fixed charge coverage ratio test and reduction of the outstanding principal amount under the Second-Lien Loan Agreement to an amount equal to $40,000,000.
Proceeds from borrowings made under the Term Loan Agreement may be used by the Borrowers for working capital and other lawful corporate purposes.
The Term Loan Agreement contains customary covenants regarding the Borrowers and their subsidiaries that are generally based upon and are comparable to those contained in the Senior Loan Agreements including, without limitation: financial covenants, such as a maximum leverage ratio; and negative covenants, such as limitations on indebtedness, liens, mergers, asset transfers, certain investing activities and other matters customarily restricted in such agreements. Most of these restrictions are subject to certain minimum thresholds and exceptions and, where applicable, cushions to the Senior Loan Agreements. The Term Loan Agreement also contains customary events of default, including, without limitation, payment defaults, material inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency proceedings, cross-acceleration to the Senior Loan Agreements, cross-defaults to the Warrants (as defined below) and certain other agreements (other than the Senior Loan Agreements), and change of control.
Furthermore, in connection with the funding of each delayed draw term loan under the Term Loan Agreement, but subject to the Share Cap (as defined below), the Company will issue to each Lender (or its affiliate or other designee) warrants (“Warrants”) to purchase a number of shares of common stock of the Company equal to 20% of the aggregate principal amount of such delayed draw term loan funded by a such Lender divided by the exercise price. The exercise price for a Warrant issued under the Term Loan Agreement is the lower of (a) the closing price per share of common stock of the Company as of the close of market on the trading day immediately preceding the date of an advance of a delayed draw term loan or (b) the lesser of (x) the Nasdaq Official Closing Price (as reflected on Nasdaq.com) of the common stock of the Company immediately preceding the date of the Term Loan Agreement or (y) the average Nasdaq Official Closing Price of the common stock of the Company (as reflected on Nasdaq.com) for the five trading days immediately preceding the date of the Term Loan Agreement. The Warrants may be exercised on a cashless basis and will be exercisable for a term beginning on the date of issuance and ending on the ten-year anniversary of the issuance date. The number of shares for which each Warrant is exercisable and the associated exercise price are subject to certain customary proportional adjustments for fundamental events, including stock splits and reverse stock splits, as set forth in the Warrants. No Warrants will be issued to any Lender, or any affiliate or other designee of a Lender, if the total number of shares of common stock of the Company issuable upon exercise of a Warrant would cause a such Lender, affiliate or other designee and its respective affiliates and any other person whose beneficial ownership of common stock of the Company would be aggregated with such Lender’s affiliate’s or designee’s for purposes of
