| Item 1.01 | Entry into a Material Definitive Agreement. |
Term Loan Agreement
On January 26, 2022, Root, Inc. (the “Company”) entered into that certain Term Loan Agreement (the “Term Loan Agreement”), by and among the Company, Caret Holdings, Inc., as borrower, the other loan parties party thereto, the lenders party thereto (the “Lenders”) and Acquiom Agency Services LLC, as the administrative agent for the Lenders. The Term Loan Agreement provides for senior secured term loans of $300 million, with funding to occur on January 27, 2022.
Borrowings under the Term Loan Agreement accrue interest at a rate per annum equal to the Adjusted Term SOFR (as defined in the Term Loan Agreement) plus 9.00% or the Base Rate (as defined in the Term Loan Agreement) plus 8.00%, as the case may be. Borrowings under the Term Loan Agreement mature on January 27, 2027 and are secured by substantially all of the assets of the Company and the Subsidiary Loan Parties (as defined in the Term Loan Agreement).
The Term Loan Agreement contains customary representations, warranties, events of default and covenants, including limitations on the incurrence of indebtedness and liens, restricted payments and investments, mergers and financial covenants, including testing, at all times, of minimum Liquidity (as defined in the Term Loan Agreement) and quarterly testing of minimum Regulated Subsidiary Equity (as defined in the Term Loan Agreement).
In connection with the Term Loan Agreement, the Company entered into that certain Board Observation Side Letter, dated January 26, 2022 (the “Observer Letter”), by and between the Company and GCO II Aggregator 2 L.P. (the “BlackRock GCO Lender”), pursuant to which the BlackRock GCO Lender may designate and appoint two representatives (each, an “Observer”), and any one Observer may attend special and regular meetings of the Board of Directors of the Company, subject to the terms and provisions of the Observer Letter. The Observer Letter will automatically terminate if, among other things, the BlackRock GCO Lender, together with its affiliates and approved funds, collectively hold less than 50% of the aggregate principal amount of term loans outstanding at any time.
Warrants
In connection with the Term Loan Agreement, on January 26, 2022, the Company issued to the Lenders (or one or more of their designated affiliates or other designees) Warrants (the “Tranche 1 Warrants”) to purchase 5,664,193 shares of Class A Common Stock, par value $0.0001 per share, of the Company (the “Common Stock”), which represent a number of shares of Common Stock equal to 2.0% of all issued and outstanding shares of Common Stock on a fully diluted basis as of January 26, 2022 (subject to adjustment), at an exercise price of $9.00 per share. The Tranche 1 Warrants have an expiration date of the earlier of (i) January 27, 2027 and (ii) the date on which all obligations under the Term Loan Agreement are repaid in full in cash and all commitments are terminated thereunder.
The Term Loan Agreement also provides that, upon the Minimum Liquidity Step-Down Date (as defined in the Term Loan Agreement), the Company will issue the Lenders (or one or more of their designated affiliates or other designees) additional warrants (the “Tranche 2 Warrants”), substantially in the form attached to the Term Loan Agreement, to purchase a number of shares of Common Stock equal to 1.0% of the issued and outstanding shares of Common Stock as of the Minimum Liquidity Stepdown Date (subject to adjustment), at an exercise price equal to the average volume weighted average trading price per share of Common Stock for the thirty trading day period ending on the trading day immediately prior to the issuance date of the Tranche 2 Warrants. The Tranche 2 Warrants will have an expiration date of the earlier of (i) the first anniversary of the issuance date of the Tranche 2 Warrants, (ii) January 27, 2027 and (iii) the date on which all obligations under the Term Loan Agreement are repaid in full in cash and all commitments are terminated thereunder.
In connection with the issuance of the Tranche 1 Warrants, the Company entered into a Registration Rights Agreement, dated January 26, 2022 (the “Registration Rights Agreement”), with each of the initial holders of the Tranche 1 Warrants, pursuant to which each such holder was granted customary piggyback registration rights, subject to the terms and conditions set forth in the Registration Rights Agreement.
The foregoing description of the Term Loan Agreement, Observer Letter, Registration Rights Agreement, Tranche 1 Warrants and Tranche 2 Warrants does not purport to be complete and is qualified in its entirety by reference to the full text of the Term Loan Agreement, Observer Letter, Registration Rights Agreement, Tranche 1 Warrants and Tranche 2 Warrants, which are filed as Exhibits 10.1, 10.2, 10.3, 4.1 and 4.2, respectively, to this Form 8-K and are incorporated herein by reference.
| Item 3.02 | Unregistered Sales of Equity Securities. |
The information contained in Item 1.01 is incorporated herein by reference.
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