UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 8, 2024 (July 03, 2024) |
KLDiscovery Inc.
(Exact name of Registrant as Specified in Its Charter)
Delaware | 001-38789 | 61-1898603 | ||
(State or Other Jurisdiction | (Commission File Number) | (IRS Employer | ||
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9023 Columbine Road |
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Eden Prairie, Minnesota |
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(Address of Principal Executive Offices) |
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Registrant’s Telephone Number, Including Area Code: 888 811-3789 |
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(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
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N/A |
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 1.01 Entry into a Material Definitive Agreement.
The Restructuring
On July 3, 2024, KLDiscovery Inc. and its direct and indirect affiliated entities (collectively, the “Company”) entered into a Transaction Support Agreement (including the exhibits, term sheets, and schedules thereto, the “TSA”) with: (1) the holders of all of the Company’s convertible debentures due January 10, 2025 (the “Debentures”): an affiliate of Ontario Teachers’ Pension Plan Board (“OTPP”) and certain affiliates of MGG Investment Group LP (“MGG”) that hold Debentures (collectively, the “Debenture Holders”); (2) the Company’s term loan lenders and revolving credit facility lender under the Credit Agreement (defined below); and (3) certain holders of equity interests in the Company including, among others: affiliates of Carlyle Equity Opportunity GP, L.P. (“Carlyle”), Pivotal SPAC Funding LLC and Christopher Weiler, that collectively with OTPP and certain MGG affiliates hold over 62% of the Company’s outstanding common stock, par value $0.0001 (the “Existing Common Stock”) (all parties to the TSA other than the Company, collectively, the “Consenting Stakeholders”). The TSA contemplates a series of transactions (the “Transactions”) that, upon the satisfaction of applicable conditions to closing, will effectuate a financial restructuring of the Company’s capital structure and reduce the Company’s indebtedness (the “Restructuring”).
On July 3, 2024, as contemplated by the TSA, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with the Debenture Holders pursuant to which the Debenture Holders agreed to exchange the Debentures for an aggregate number of new shares of the Company’s common stock representing 96% of the Fully-Diluted Shares (as defined in the Exchange Agreement) (such exchange, the “Debenture Exchange”). As a condition to the Debenture Exchange, the Company agreed to hold a special meeting of its stockholders (the “Special Stockholders Meeting”) as soon as practicable following the date of the Exchange Agreement, at which Company stockholders will vote on a proposal to amend and restate the Company’s Second Amended and Restated Certificate of Incorporation (the “Current Certificate” and, as so amended and restated, the “New Certificate”). As described further below, the New Certificate will, among other things, increase the number of authorized shares of the Company’s common stock so that the Company may issue the shares contemplated by the Debenture Exchange. The Company intends to hold the Special Stockholders Meeting no later than August 12, 2024.
In addition to the actions described above, the TSA, the Exchange Agreement and the Restructuring contemplate, among other things, the following transactions, agreements and changes to the Company’s capital structure and corporate governance:
The TSA
The TSA requires the Company to provide to Broadridge Financial Solutions, Inc. (“Broadridge”) on or prior to July 20, 2024, materials regarding the stockholder approval to be sought at the Special Stockholder Meeting for distribution to the Company’s stockholders, and the Company to obtain such approval on or prior to the twentieth business day following such date (each of these events, a “Milestone”). The Company also agreed to certain customary covenants in the TSA including, among others, to:
The Milestones also contemplate, and the TSA requires, that the Closing occur:
The Consenting Stakeholders agreed to certain customary covenants in the TSA including, among others, to:
The TSA and the Exchange Agreement both require the Company to conduct its businesses and operations in the ordinary course and refrain from taking certain enumerated actions prior to the Closing. In addition, while the TSA is in effect and following its termination (other than as a result of the occurrence of the Closing), the Company agreed to be bound by certain restrictive covenants that limit the Company’s ability to take certain actions without the consent of its lenders under the Company’s Credit Agreement, including, among others:
The TSA provides that, notwithstanding anything to the contrary therein, it does not require the Company’s Board of Directors (the “Board”), any Board committee, or any director or officer of the Company, after consultation with counsel, to take or refrain from taking any action inconsistent with its, his or her fiduciary duties to the Company (the “Fiduciary Out”).
The consummation of the Transactions (the “Closing”) is subject to the satisfaction or waiver of certain customary conditions set forth in the TSA, including, among others, the Company’s payment of the transaction fees and expenses of the Consenting Stakeholders and their advisors, and of the Company’s advisors, in connection with the Transactions.
The TSA may be terminated by parties other than the Company with respect to themselves or in its entirety, in each case, as described in the TSA, upon the occurrence of certain events, including, among others:
The Company may terminate the TSA in its entirety upon the occurrence of certain events as described therein, including, among others:
The Exchange Agreement
The Exchange Agreement requires the Company to conduct its businesses and operations in the ordinary course and refrain from taking certain enumerated actions prior to the Closing. Like the TSA, the Exchange Agreement provides that, notwithstanding anything to the contrary therein, it does not require the Board, any Board committee, or any director or officer of the Company, after consultation with counsel, to take or refrain from taking any action inconsistent with its, his or her fiduciary duties to the Company.
Closing of the transactions contemplated by the Exchange Agreement, including the Debenture Exchange, is subject to:
The Exchange Agreement may be terminated by either the Company or the Debenture Holders upon the occurrence of certain events as described therein, including, among others:
The other agreements and documents referred to above are described in more detail below.
Mutual Release Agreement
The Mutual Release Agreement will be entered into at the Closing. It includes customary mutual releases provided by the parties thereto in favor of the Company, the Consenting Stakeholders, and each of their respective related parties of any claims arising before or on the Closing date relating to any act or omission, agreement or event existing immediately prior to the Closing in connection with the management, ownership, or operation of the Company, the purchase or sale of any Company security, the subject matter of, or the events giving rise to, any claim or equity interest that is treated in the transactions contemplated by the TSA, the business or contractual arrangements among the parties thereto, the Company’s restructuring efforts, intercompany transactions, the TSA and any restructuring transaction, contract, instrument, release, or other agreement or document created or entered into in connection with the TSA, with customary exceptions for, among other things:
Financing Term Sheets
In connection with the TSA, the Company and the Consenting Stakeholders agreed to the Credit Agreement Term Sheet.
The Credit Agreement Term Sheet contemplates, inter alia, the following terms:
Additionally, the Company and the Consenting Stakeholders also agreed to the Second Lien Term Sheet.
The Second Lien Term Sheet contemplates, inter alia, the following terms:
New Stockholders Agreement
The Stockholders Agreement will be entered into as of the Closing by the Company, OTPP and certain affiliates of MGG that hold Common Stock (collectively, the “MGG Stockholders,” and together with OTPP, the “Major Stockholders,” and each, a “Major Stockholder”). It provides, among other things, that, effective as of the Closing:
New Certificate
The New Certificate will materially amend the Current Certificate as follows:
The number of authorized shares of all classes of stock of the Company will be increased from 201,000,000 to 4,501,000,000, including 2,500,000,000 shares of Class A Common Stock, par value $0.0001 per share (the “Class A Common Stock”), 1,000,000,000 shares of Class B-1 Common Stock, par value $0.0001 per share (the “Class B-1 Common Stock”), 1,000,000,000 shares of Class B-2 Common Stock, par value $0.0000001 per share (the “Class B-2 Common Stock”, and together with the Class A Common Stock and Class B-1 Common Stock, the “Common Stock”), and 1,000,000 shares of Preferred Stock, par value $0.0001 per share.
The Existing Common Stock will be reclassified into three classes under the New Certificate:
Subject to the rights of any holders of any outstanding shares of Preferred Stock, in the event of any liquidation, dissolution or winding up of the Company, the Company shall distribute its assets to holders of shares of Common Stock as follows:
Shares of Class A Common Stock will be convertible by the holder thereof at any time into an equal number of shares of Class B-1 Common Stock and an equal number of shares of Class B-2 Common Stock if, at such time, such holder of Class A Common Stock is the record owner of shares of Class B-1 Common Stock or Class B-2 Common Stock. Shares of Class B-1 Common Stock will be convertible at any time by the holder thereof into an equal number of shares of Class A Common Stock if, contemporaneously with such conversion, an equal number of shares of Class B-2 Common Stock are redeemed by the Company for nominal consideration.
The establishment of the Class B-1 Common Stock and Class B-2 Common Stock is necessary to facilitate OTPP’s compliance with certain regulations under the Pension Benefits Act Regulations (Ontario) that restrict OTPP from directly or indirectly investing in securities of a corporation that carry more than 30% of the votes that may be cast for the election of directors of the corporation. At the Closing, the Company will issue OTPP a combination of Class A Common Stock and Class B-1 Common Stock such that, following the Closing, OTPP holds (i) Class A Common Stock representing no more than 30% of the total number of shares of Class A Common Stock and Class B-1 Common Stock then outstanding, and (ii) the remainder of its ownership in shares of Class B-1 Common Stock. The Company does not expect that there will be any holders of Class B-1 Common Stock as of the Closing other than OTPP.
A third party designated by OTPP will be issued a number of shares of Class B-2 Common Stock equal to the number of shares of Class B-1 Common Stock issued to OTPP at the Closing.
The New Certificate will provide that the management of the business and the conduct of the affairs of the Company shall be vested in the Board and shall be conducted in accordance with the New Bylaws and, prior to the termination of the New Stockholders Agreement, the New Stockholders Agreement. The New Certificate will also provide that notwithstanding anything in the New Certificate to the contrary, prior to the termination of the New Stockholders Agreement, the Company may not engage in any act or activity that would breach the Stockholders Agreement and any such act or activity shall be void ab initio unless such act or activity is approved, or ratified after such act or activity occurs, by the consent of the Major Stockholders.
The Current Certificate classifies the Board into three classes of directors, which each class serving a term of three years. The New Certificate will declassify the Board. The New Certificate will provide that vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled only by stockholders and not by directors.
The Current Certificate does not permit the Company stockholders to take action by written consent of stockholders in lieu of a meeting of stockholders. The New Certificate will provide that any action that is required or permitted to be taken by the Company stockholders at any annual or special meeting of stockholders may be effected by written consent in lieu of a meeting of stockholders.
The New Certificate will exempt each Major Stockholder and its affiliates, successors, directly or indirectly managed funds or vehicles, partners, principals, directors, officers, members, managers and employees, including any of the foregoing who serve as officers or directors of the Company (collectively, the “Exempted Persons”), from the doctrine of corporate opportunity, or any other analogous doctrine. To the fullest extent permitted by law, the Exempted Persons shall not have any fiduciary duty to refrain from and shall not be liable to the Company or its stockholders for breach of any fiduciary duty solely by, engaging, directly or indirectly, in the same or similar business activities as the Company or in business with a competitor of the Company or otherwise competing with the Company. In addition, the New Certificate will provide that a corporate opportunity shall not be deemed to belong to the Company if it is a business opportunity that the Company is not financially or legally able or contractually permitted to undertake, or that is, from its nature, not in the line of the Company’s business or is of no practical advantage to it or that is one in which the Company has no interest or reasonable expectancy.
The New Certificate also incorporates various other updates and technical, clarifying and conforming changes.
New Bylaws
The New Bylaws will, among other things, provide that:
The New Bylaws also incorporate various other updates and technical, clarifying and conforming changes.
The foregoing descriptions of the TSA and Exchange Agreement are not complete and are qualified in their entirety by reference to the full text of the TSA and the Exchange Agreement, copies of which are attached hereto as Exhibits 10.1 and 10.2, respectively. The foregoing descriptions of the Mutual Release Agreement, Amended Credit Agreement Term Sheet and Second Lien Credit Agreement Term Sheet are not complete and are qualified in their entirety by reference to the full text of the Mutual Release Agreement included as Schedule 3 to the TSA, and the Amended Credit Agreement Term Sheet and the Second Lien Term Sheet included as Annex A and Annex B, respectively, to the Transaction Term Sheet attached as Exhibit A to the TSA, a copy of which is attached hereto as Exhibit 10.1. The foregoing descriptions of the forms of New Stockholders Agreement, New Certificate and New Bylaws, are not complete and are qualified in their entirety by reference to the forms thereof which are attached as Exhibits to the Exchange Agreement, a copy of which is attached hereto as Exhibit 10.2.
Item 7.01 Regulation FD Disclosure.
On July 8, 2024, the Company issued a press release announcing that the Company had entered into the TSA. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
10.1 | |
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10.2 | |
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99.1 |
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 hereunto duly authorized.
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| KLDiscovery Inc. |
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Date: | July 8, 2024 | By: | /s/ Dawn Wilson |
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| Name: Title: | Dawn Wilson |