Item 1.01. Entry into a Material Definitive Agreement.
Convertible Note Offering
On January 10, 2024, Guess?, Inc. (the “Company”) completed its previously announced separate, privately negotiated exchange and subscription agreements (the “Exchange and Subscription Agreements”) with a limited number of holders of its 2.00% convertible senior notes due 2024 (the “2024 Notes”) pursuant to exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to the Exchange and Subscription Agreements, the Company exchanged approximately $67.1 million in aggregate principal amount of the 2024 Notes for approximately $64.8 million in aggregate principal amount of additional 3.75% convertible senior notes due 2028 (the “Additional 2028 Notes”) (collectively, the “Exchange Transactions”). The Additional 2028 Notes will have the same terms, constitute a single series with, and have the same CUSIP number as the currently outstanding 2028 Notes.
Convertible Note Hedge Transaction and Warrant Transaction
On January 5, 2024, the Company entered into a convertible note hedge transaction (the “Hedge Transaction”) with a financial institution (the “Option Counterparty”). The Hedge Transaction is expected to reduce the potential dilution with respect to the Company’s common stock upon conversion of the Additional 2028 Notes or offset any cash payment the Company is required to make in excess of the principal amount of converted Additional 2028 Notes.
The Hedge Transaction includes call options covering, subject to anti-dilution adjustments substantially similar to those applicable to the Additional 2028 Notes, approximately 2.7 million shares of the Company’s common stock, which is equal to the number of shares of the Company’s common stock that will initially underlie the Additional 2028 Notes. Separately, the Company also entered into a privately negotiated warrant transaction (the “Warrant Transaction”) with the Option Counterparty relating to, subject to anti-dilution adjustments, approximately 2.7 million shares of the Company’s common stock, with a strike price of approximately $41.37 per share. Such Warrant Transaction may have a dilutive effect with respect to the Company’s common stock to the extent that the market price per share of its common stock exceeds the strike price of the warrants. The Hedge Transaction and Warrant Transaction are separate transactions, entered into by the Company with the Option Counterparty, and are not part of the terms of the Additional 2028 Notes. Holders of the Additional 2028 Notes will not have any rights with respect to the Hedge Transaction or Warrant Transaction.
The Option Counterparty or its respective affiliates may enter into or unwind various over-the-counter derivatives and/or purchase or sell the Company’s common stock in open market and/or privately negotiated transactions prior to maturity of the Additional 2028 Notes, and are likely to do so during any observation period for the settlement of conversions of Additional 2028 Notes. This activity could also cause or avoid an increase or a decrease in the market price of the Company’s common stock or the Additional 2028 Notes, which could affect the ability to convert the Additional 2028 Notes, and, to the extent the activity occurs during any observation period related to a conversion of Additional 2028 Notes, it could affect the number of shares and value of the consideration that will be received upon conversion of the Additional 2028 Notes.
The foregoing description of the Hedge Transaction and the Warrant Transaction does not purport to be complete and is qualified in its entirety by reference to the forms of the Call Option Confirmation and the Warrant Confirmation executed by the Company and the Option Counterparty on January 5, 2024, which are attached hereto as Exhibit 10.1 and 10.2, respectively, and are incorporated herein by reference
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 1.01 is incorporated by reference into this Item 2.03.
Item 3.02. Unregistered Sales of Equity Securities.
The Additional 2028 Notes were sold in reliance on the exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act for resale to qualified institutional buyers pursuant to Rule 144A of the Securities Act. The Company does not intend to file a shelf registration statement for the resale of the Additional 2028 Notes or any common stock issuable upon conversion of the Additional 2028 Notes. Any shares of common stock that may be issued upon conversion of the Additional 2028 Notes will be issued in reliance upon Section 3(a)(9) of the Securities Act as involving an exchange by the Company exclusively with its security holders. The Additional 2028 Notes are initially convertible into a maximum of 3,447,445 shares of common stock, based on the initial maximum conversion rate of 52.6315 shares of common stock per $1,000 principal amount of the Additional 2028 Notes (which includes Additional Shares, if any, issuable in connection with a
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