On February 7, 2023, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) with B. Riley Securities, Inc. (“B. Riley” or the “Underwriter”), in connection with the previously announced underwritten public offering (the “Offering”) of (i) shares of the Series A convertible preferred stock (the “Series A Convertible Preferred Stock”), (ii) warrants to purchase shares of Series A Convertible Preferred Stock (“Preferred Stock Warrants”) and (iii) warrants to purchase the Company’s common stock (“Common Stock Warrants”). At the initial closing, the Company will issue (i) 23,685 shares of Series A Convertible Preferred Stock, (ii) 84,216 Preferred Stock Warrants and (iii) 95,387,533 Common Stock Warrants.
The Offering was consummated on February 7, 2023 (the “Closing Date”). The Company received gross proceeds of approximately $225 million on the Closing Date and may receive up to an additional approximately $800 million of gross proceeds in subsequent closings over up to ten months, subject to certain conditions to the receipt of the proceeds by the Company at each applicable closing, including that the Company’s common stock shall remain listed on a national securities exchange, that the Company has sufficient authorized common stock to issue the shares subject to such closing, that the Company has not filed for bankruptcy protection and that, to the extent the Company is in default under its material indebtedness, the Company has a valid and enforceable forbearance agreement. As such the Company cannot give any assurance that it will receive all of the proceeds of the Offering.
The Company intends to use the net proceeds from the initial closing of the Offering, along with $100 million to be drawn under its amended and upsized FILO Facility, to repay outstanding revolving loans under its ABL Facility in accordance with the terms of the Amendment. Under the Amendment, the Company will be required to use availability under its credit facilities to make the missed interest payment on its senior notes by March 3, 2023. Outstanding revolving loans repaid using net proceeds of the Offering may be reborrowed, subject to availability under the ABL Facility, and the Company expects to use those borrowings for general corporate purposes, including, but not limited to, rebalancing the Company’s assortment and building back the Company’s inventory. In addition, proceeds from the conversion of warrants to purchase shares of Series A Convertible Preferred Stock will be used to further repay outstanding amounts under the ABL Facility with 50% of such conversion amounts being applied against the borrowing base of the ABL Facility. Such repaid amounts may be reborrowed subject to availability under the ABL Facility.
The Underwriting Agreement contains customary representations, warranties and agreements by the Company, conditions to closing, termination provisions and indemnification obligations, including for liabilities under the Securities Act of 1933, as amended.
The Offering was made pursuant to the automatic shelf registration statement on Form S-3 (File No. 333-267173), initially filed on August 31, 2022, and related prospectus supplement that was filed by the Company with the Securities and Exchange Commission (“SEC”) on February 6, 2023.
The foregoing descriptions of the Underwriting Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Underwriting Agreement, which is attached as Exhibit 1.1 to this Current Report on Form 8-K and is incorporated by reference herein.
Kirkland & Ellis LLP has issued an opinion, dated February 7, 2023, regarding certain legal matters with respect to the Offering, a copy of which is filed as Exhibit 5.1 to this Current Report on Form 8-K.
Forward-Looking Statements
This Current Report on Form 8-K contains a number of forward-looking statements. Words such as “expect,” “will,” “working,” “plan” and variations of such words and similar future or conditional expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding the Company’s beliefs and expectations relating to the receipt of the full amount of gross proceeds of the Company’s previously announced financing transactions and the anticipated use of proceeds therefrom and the Company’s ability to execute its transformative plans. These forward-looking statements are not guarantees of future results and are subject to a number of risks and uncertainties, many of which are difficult to predict and beyond the Company’s control. Important factors that may cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, the uncertainties related to market conditions and the receipt of the full amount of gross proceeds from such financing transactions on the anticipated terms or at all, the Company’s ability to use proceeds from such financing transactions to pay down outstanding debt obligations and operate its business; risks related to the failure to receive the full amount of gross proceeds from such financing transactions, which the Company
