| | | The Reporting Persons acquired the Common Stock covered by this Schedule 13D for investment purposes, in the ordinary course of business. The Reporting Persons will routinely monitor a wide variety of investment considerations, including, without limitation, current and anticipated future trading prices for the Common Stock, the Issuer’s operations, assets, prospects, business development, markets and capitalization, the Issuer’s management and personnel, Issuer-related competitive and strategic matters, general economic, financial market and industry conditions, as well as other investment considerations. The Reporting Persons expect to discuss their investment in the Issuer and the foregoing investment considerations with the Issuer’s Board of Directors (“Board”), management, other investors, industry analysts and others. These considerations, these discussions and other factors may result in the Reporting Persons’ consideration of various alternatives with respect to their investment, including possible changes in the present Board of Directors and/or management of the Issuer or other alternatives to increase stockholder value. The Reporting Persons may also enter into confidentiality or similar agreements with the Issuer and, subject to such an agreement or otherwise, exchange information with the Issuer. In addition, the Reporting Persons may acquire additional Issuer securities in the public markets, in privately negotiated transactions or otherwise or may determine to sell, trade or otherwise dispose of all or some holdings in the Issuer in the public markets, in privately negotiated transactions or otherwise, or take any other lawful action they deem to be in their best interests.
Shareholder Approval
Under the Indenture governing the Notes (the “Indenture”), the Issuer is required to submit two matters for stockholder approval at its 2022 Annual Meeting of Stockholders: (a) an amendment to increase the number of shares of the Issuer’s common stock authorized under its certificate of incorporation to 250,000,000 shares; and (b) the issuances of the Issuer’s Common Stock upon conversion of the Notes based on each of (i) the conversion rate increase from 197.23866 Shares per $1,000 principal amount of Notes (representing a conversion price of $5.07 per share) to 221.72949 Shares per $1,000 principal amount of Notes (representing a conversion price of $4.51 per share), (ii) the issuance by the Issuer of additional Notes, if and when issued by the Issuer, (iii) the conversion of all Notes (including PIK Notes) without any limitation of the “Pre-Approval Conversion Ratio” (as defined in the Indenture) and (iv) the issuance of Common Stock upon conversion of Notes in connection with a “Qualified Merger Conversion” (as defined in the Indenture) to the extent the number of shares issuable upon such conversion would exceed the number of shares of common stock issuable at the otherwise then-current conversion rate (with the requisite stockholder approval of such proposals referred to as the “Shareholder Approval”). Following Shareholder Approval, the Issuer will have the right, at its option, to PIK interest under the Notes for the entire term of the Notes, and the PIK interest rate will reduce from SOFR plus 14.0% to SOFR plus 9.5%.
Preemptive Rights
Subject to the terms and conditions of the Indenture, as long as the Reporting Persons have at least $25 million in aggregate principal amount of the Notes, they have the right to purchase their pro rata share of the number of equity interests which the Issuer may sell and issue in a “Major Dilutive Issuance” (as defined in the Indenture).
Note Holders Optional Right to Convert All or Part of the Notes
Subject to limitations under the Indenture, the Reporting Persons may convert their Notes at any time following the issue date of the Notes until the close of business on the second trading day immediately before March 18, 2026. The limitations on such conversions include that if the Issuer calls any Note for redemption in connection with a permitted redemptions up to $50 million of Notes during an 18-month period following the issue date of the Notes, then the holder of such Note may not convert such Note after the close of business on the business day on which the applicable redemption notice is sent in accordance with the Indenture (unless the Issuer fails to pay the redemption price due on the redemption date for such Note in full in accordance with the Indenture); for the avoidance of doubt, any Note not called for redemption may be converted during such period.
The initial conversion rate is 197.23866 shares of Common Stock per $1,000 principal amount of Notes (representing a conversion price of $5.07 per share). Following the applicable shareholder approval described above, the conversion rate will be increased to 221.72949 shares of Common Stock per $1,000 principal amount of Notes (reflecting a decrease in the conversion price to $4.51 per share).
-Limitation on Holders’ Right to Convert Notes if Conversion Would Result in Beneficial Ownership of More Than 9.9% or 19.9% of the Issuer’s Outstanding Common Stock Following Conversion
Under the Indenture, a holder is not entitled to receive shares of the Issuer’s Common Stock upon conversion of any Notes to the extent to which the aggregate number of shares that may be acquired by such holder upon conversion of Notes, when added to the aggregate number of shares of Common Stock deemed beneficially owned, directly or indirectly, by any affiliate of the holder and any other person subject to aggregation of the Common Stock with such holder under Section 13 or Section 16 of the Exchange Act and the rules promulgated thereunder at such time (other than by virtue of the ownership of securities or rights to acquire securities that have limitations on such beneficial owner’s or such person’s right to convert, exercise or purchase similar to this limitation), as determined pursuant to the rules promulgated under Section 13(d) of the Exchange Act, would exceed 9.9% (the “Restricted Ownership Percentage”) of the total issued and outstanding shares of Common Stock (the “Section 16 Conversion Blocker”); provided that any holder has the right to elect for the Restricted Ownership Percentage to be 19.9% with respect to such holder, (x) at any time, in which case, such election will become effective sixty-one (61) days following written notice thereof to the Issuer or (y) in the case of a holder acquiring Notes on the Issue Date, in the Subscription Agreement.
In lieu of any shares of Common Stock not delivered to the Reporting Persons by operation of the Section 16 Conversion Blocker, the Issuer will deliver to the Reporting Persons pre-funded warrants (“Pre-Funded Warrants”) in respect of any equal number of Shares; provided that such Pre-Funded Warrants will contain restricted ownership limitations substantially similar Section 16 Conversion Blocker.
-Pre-Approval Conversion Ratio prior to Shareholder Approval
Under the Indenture, the conversion of the Notes prior to the shareholder approval described above is subject to a “Pre-Approval Conversion Ratio” of 75%. Any Pre-Funded Warrants issued in lieu of Shares in connection with a conversion of Notes prior to shareholder approval would also not be exercisable in accordance with the terms of the Pre-Funded Warrants prior to shareholder approval.
-Registration Rights
Under the Indenture, the Issuer has agreed that within 30 business days following the Issue Date, the Issuer will submit to or file with the SEC a registration statement for a shelf registration on Form S-1 or Form S-3 (if the Issuer is then eligible to use a Form S-3 shelf registration), in each case, registering the resale of the shares of common stock issuable upon conversion of the Notes (including any shares of common stock issuable upon exercise of any Pre-Funded Warrants delivered upon conversion of any Note) which are eligible for registration. The Issuer has also agreed to use its commercially reasonable efforts to have the Registration Statement declared effective as soon as practicable after the filing thereof, but no later than 180 days after March 18, 2022. The registration rights also include customary rights regarding underwritten offerings and piggyback registration rights. The Issuer will be obligated to pay additional interest if it fails to comply with its obligations to register the resale of the shares of common stock within the specified time periods.
Under the Fee Letter, the Issuer has agreed to reciprocal resale registration obligations with respect to the Issuer’s shares of common stock issued pursuant to the Fee Letter, including liquidated damages if the Issuer fails to comply with its obligations to register the resales of the shares of common stock within the specified time periods.
Issuer’s Right to Redeem Notes
During the first six months immediately following issuance of the Notes, the Issuer has the right to redeem up to $25 million principal amount of Notes at 105% plus accrued interest; and during the period between the first six months and 18 months from the Notes issue date, the Issuer has the right to redeem up to an additional $25 million of Notes at 104% plus accrued interest. Redemptions are required to be made from proceeds from sales of the Issuer’s common stock at a price equal to at least the conversion price under the Notes. The Issuer also may elect to convert all, but not less than all, of the Notes in connection with a “Qualified Merger,” as detailed in the Indenture.
Issuer’s Mandatory Obligation to Offer to Redeem Notes
The Issuer is required to offer to repurchase the amount of Notes as follows: $5,000,000 on each of June 30, September 30 and December 31, 2023; $3,500,000 on each of March 31, June 30, September 30 and December 31, 2024, and March 31, June 30, September 30 and December 31, 2025. Such mandatory offer amounts, in chronological order, will be reduced (but not below $0) by any principal amount of Notes redeemed pursuant to the Issuer’s right to redeem the Notes (if any such redemptions are made). The mandatory offer price for any Note to be repurchased upon a mandatory offer is an amount in cash equal to the principal amount of such Note plus accrued and unpaid interest on such Note to, but excluding, the mandatory offer Date for such mandatory offer, subject to certain record date adjustments
Voting and Support Agreement
In connection with the Subscription Agreement, GCM entered into a Voting and Support Agreement (the “Voting Agreement”) with the Issuer and the Other Noteholders and certain of its affiliates. The parties to the Voting Agreement have, among other things, agreed with the Issuer (but not any of the other stockholders) to vote the shares of the Issuer’s common stock held by each such stockholder (1) in favor of an amendment of the Issuer’s certificate of incorporation to increase the number of authorized shares of the Issuer’s common stock from 50,000,000 shares to 250,000,000 shares (the “Charter Amendment Proposal”), (2) in favor of the issuance of the shares of the Issuer’s common stock pursuant to the Indenture, including shares issuable at the amended conversion rate, and upon conversion under PIK Notes or up to $7.5 million of Additional Notes, or at the Issuer’s option in connection with a Qualified Merger (the “Share Issuance Proposal”), and (3) in favor of an amendment to increase the authorized shares of the Issuer’s common stock under the Issuer’s long-term incentive plan by 4,300,000 shares (the “Incentive Plan Proposal”). The Voting Agreement expressly disclaimed that the Reporting Persons and the Other Noteholders are affiliates or acting as a “group” of beneficial owners.
The Issuer plans to submit each of the Charter Amendment Proposal, the Share Issuance Proposal and the Incentive Plan Proposal for approval at the Issuer’s 2022 Annual Meeting of Stockholders.
Investor’s Rights Agreement
In connection with the Subscription Agreement and the issuance of the Notes on March 18, 2022, GCM entered into an Investor’s Rights Agreement with the Issuer, pursuant to which the Issuer granted GCM the right to designate one director to the Issuer’s newly expanded Board. As long as GCM and its affiliates continues to own at least $25 million principal amount of Notes (the “Sunset Date”), GCM will have the right to nominate one director to the slate of nominees recommended by the Board for election as directors at each applicable annual or special meeting of the Issuer’s stockholders at which directors are to be elected, subject to applicable law and approval by the Issuer’s nominating and governance committee. The Issuer also entered into an Investor’s Rights Agreement with the Other Noteholders that permitted them to designate, and permits them to nominate, one director on the same terms. As long as each of GCM and the Other Noteholders have the right to appoint such Board representatives, the two holder representatives will have the right to nominate one additional director to the Board, subject to review by the Issuer’s nominating and governance committee, provided that the third director nominee must be an independent director unless GCM’s or the Other Noteholders’ representatives is not independent for NYSE purposes. Following the Sunset Date for the applicable party, GCM will cause its designee to offer to tender his or her resignation, unless otherwise requested by the Issuer’s Board, and the third representative may be removed by the Issuer’s Board.
Pursuant to the Investor Rights Agreement, GCM designated Vincent J. Cebula to serve as a director of the Issuer’s Board of Directors. Mr. Cebula is not an officer, director, principal, managing partner or employee of the Reporting Persons and will receive no compensation from the Reporting Persons or any of their affiliates in connection with his service on the Issuer’s Board.
The foregoing summary descriptions of the Subscription Agreement, the Indenture, the Investor’s Rights Agreement, the Voting Agreement and the Fee Letter, and the transactions contemplated thereby, are subject to and qualified in their entirety by reference to the texts of the actual agreements, copies of which are attached as Exhibits 10.1, 10.2, 10.5, 10.6, and 10.7, respectively, to the Issuer’s Current Report on Form 8-K filed with the SEC on March 21, 2022, the terms of which are incorporated herein by reference.
Except as set forth in this Item 4, no Reporting Person has any present plans or proposals that relate to or would result in: (a) the acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Issuer or of any of its subsidiaries; (d) any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of such directors or to fill any existing vacancies on such board; (e) any material change in the present capitalization or dividend policy of the Issuer; (f) any other material change in the Issuer’s business or corporate structure; (g) changes in the Issuer’s charter, by-laws or instruments corresponding thereto or other actions that may impede the acquisition of control of the Issuer by any person; (h) causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Exchange Act; or (j) any action similar to any of those enumerated in subparagraphs (a)-(i) above. There is no assurance that the Reporting Persons will develop any plans or proposals with respect to any of these matters. However, the Reporting Persons reserve the right to formulate plans or proposals which would relate to or result in the transactions described in subparagraphs (a) through (j) of this Item 4. |
