The Company’s proxy statement for its 2019 Annual Meeting of Shareholders describes any arrangements or understandings with the Purchasers with respect to the election of directors and others matters under “Certain Relationships and Related Transactions—Interested Transactions” and that disclosure is hereby incorporated into this Item 1.01 by reference. The Purchasers will fund the purchase of the Notes from funds of Southeastern’s investment advisory clients.
In connection with the issuance and sale of the Notes, the Company and the Subsidiary Guarantors intend, at or prior to the closing of the issuance and sale of the Notes, to enter into an amendment (the “ABL Amendment”) to the Amended and Restated Credit Agreement, dated as of May 26, 2016, among the Company, the Subsidiary Guarantors, the lenders party thereto, Bank of America, N.A., as administrative and collateral agent (the “Agent”), and Bank of America, N.A. and JPMorgan Chase Bank, N.A., as joint lead arrangers and joint bookrunners (the “ABL Credit Agreement”), with the Agent and the Required Lenders as such term is defined in the ABL Credit Agreement. The ABL Amendment is expected to amend the ABL Credit Agreement to, among other things, permit the incurrence of the Notes.
Form of the Convertible Notes
The Notes will bear interest at a rate of 5.00% per annum, which will be payable in cash on their maturity date and, at the option of the Company, in either cash or additional shares of Common Stock on any conversion date. The maturity date of the Notes will initially be November 1, 2021, which may be extended at the Company’s option by up to three years in the event that the Series A Preferred Stock is refinanced with debt or equity or the mandatory redemption date of the Series A Preferred Stock is extended.
The Notes will be guaranteed by all of the subsidiaries of the Company that currently guarantee the Term Loan Agreement and the ABL Credit Agreement (the “Subsidiary Guarantors”), and will be secured by a second priority lien on certain receivables, inventory and other assets of the Company and the Subsidiary Guarantors in which the lenders under the ABL Credit Agreement have a first priority security interest.
Holders of the Notes will have the right to elect at any time to convert their Notes into shares of Common Stock at a conversion rate equal to 314.9785 shares of Common Stock per each $1,000 principal amount of Notes (based on a conversion price equal to $3.17482 per share of Common Stock (the “Conversion Price”), which represents a 10% premium to the volume weighted average price of the shares of Common Stock for the five day trading period ended on April 9, 2019) (the “Conversion Rate”). The Conversion Rate and Conversion Price will be subject to certain customary anti-dilution adjustments.
If the closing price of the Common Stock equals or exceeds 150% of the then-effective Conversion Price for 45 trading days within any period of 60 consecutive trading days, with the last trading day of such 60 day period ending on the trading day immediately preceding the business day on which the Company issues a press release announcing the mandatory conversion, the Company may elect to convert all outstanding Notes into shares of Common Stock at the Conversion Rate then in effect.
In the event of certain fundamental transactions, the Purchasers will have the right, within a period of 30 days following the occurrence of such transaction (“Holder Fundamental Transaction Election Period”), to elect to either convert all or a portion of the Notes into shares of Common Stock at the Conversion Rate then in effect, or to receive the shares of a successor entity, if any, or the Company, and any additional consideration receivable as a result of such fundamental transaction. In addition, the Company will have the option, for a period of 30 days after the expiration of the Holder Fundamental Transaction Election Period, to repay all of the remaining outstanding Notes at par, plus accrued and unpaid interest.
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