Item 1.01
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Entry into a Material Definitive Agreement.
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Private Exchange of Convertible Notes
On February 12, 2018, Iconix Brand Group, Inc. (the Company) entered into separate, privately negotiated exchange
agreements (the Exchange Agreements) with certain holders of the Companys outstanding 1.50% Convertible Senior Subordinated Notes due 2018 (the 2018 Convertible Notes). Pursuant to the terms of these agreements, the
Company intends to exchange new convertible senior subordinated secured notes (the New Convertible Notes) to be issued by the Company pursuant to an indenture to be entered into by the Company (the Indenture) and cash
payments in an aggregate amount of approximately $700,000 representing accrued but unpaid interest on the 2018 Convertible Notes, for up to $110 million aggregate principal amount of the 2018 Convertible Notes (the Exchange). On or
prior to the settlement of the Exchange, the Company may enter into agreements with one or more holders of 2018 Convertible Notes to increase the principal amount of 2018 Convertible Notes participating in the exchange from $110 million to up
to $125 million.
The 2018 Convertible Notes will be exchanged for the New Convertible Notes at an exchange ratio of $1,000 principal
amount of New Convertible Notes for each $1,000 principal amount of 2018 Convertible Notes.
The Exchange will satisfy one of the
conditions to the availability of the Second Delayed Draw Term Loan (the Second Delayed Draw Term Loan) under that certain Credit Agreement, dated August 2, 2017, by and among IBG Borrower LLC, the Companys wholly-owned direct
subsidiary (IBG Borrower), as borrower, Cortland Capital Market Services LLC, as administrative agent and collateral agent, and the lenders party thereto from time to time (as amended by that certain Limited Waiver and Amendment
No. 1 to Credit Agreement, dated as of October 27, 2017, and as further amended by that certain Second Amendment, Consent and Limited Waiver, dated as of November 24, 2017, the Existing Senior Credit Facility) that the
Company achieve a reduction in the outstanding principal amount of the 2018 Convertible Notes of at least $100.0 million. In addition, the Company believes that it should be able to satisfy the remaining conditions to the availability of the
Second Delayed Draw Term Loan, which include (i) the Company being in financial covenant compliance, on a pro forma basis as of the time of the requested borrowing and on a projected basis for the succeeding 12 months based on projections
reasonably acceptable to the lenders, and (ii) there not existing a default or event of default under the Existing Senior Credit Facility as of the time of the borrowing. The Company intends to use the proceeds of the Second Delayed Draw Term
Loan to retire the remaining 2018 Convertible Notes at maturity in March 2018.
The New Convertible Notes are expected to be issued in
exchange for the 2018 Convertible Notes in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the Securities Act), under Section 4(a)(2) thereof. The principal terms of the New
Convertible Notes are expected to be as follows:
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Interest Rate
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5.75%.
Interest may be paid in cash, shares of the Companys common stock, or a combination of both, at the Companys election, subject to the Aggregate
Share Cap (as described below). If the Company elects to pay all or a portion of an interest payment in shares of common stock, the number of shares of common stock payable will be equal to the applicable interest payment divided by the average of
the 10 individual volume-weighted average prices for the
10-trading
day period ending on and including the trading day immediately preceding the relevant interest payment date.
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Security
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Second lien on the same assets that secure the obligations of IBG Borrower under the Existing Senior Credit Facility.
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Guarantors
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IBG Borrower and same guarantors as those under the Existing Senior Credit Facility, other than the Company.
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Maturity
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August 15, 2023.
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Priority
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Contractually subordinated in right of payment to the Companys and the guarantors obligations under the Existing Senior Credit Facility.
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Conversion Settlement Method
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Cash, shares of the Companys common stock, or a combination of both, at the Companys election, subject to the Aggregate Share Cap.
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Aggregate Share Cap
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Unless and until the Company obtains requisite stockholder approval to increase the number of its authorized shares of common stock (the
Aggregate Share Cap), upon conversion of the New Convertible Notes or payment of interest or the Conversion Make-Whole Payment (as described below), the aggregate number of shares of common stock deliverable by the Company will be
subject to the Aggregate Share Cap.
The Company will not be obligated to make
payments in cash in lieu of shares of common stock until April 15, 2019.
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Conversion Rate
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To be determined based on a conversion premium of 17.5% of the price per share of common stock equal to the average of the five individual volume-weighted average prices for the five-trading day period beginning on
February 12, 2018; provided that, for purposes of such calculation, the price per share of common stock shall not be more than $1.656 or less than $0.844 (representing a 32.5% collar around $1.25, the closing price of the Companys shares
of common stock on February 9, 2018).
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Mandatory Conversion
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Subject to certain conditions and limitations, the Company may cause all or part of the New Convertible Notes to be automatically converted.
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Conversion Make-Whole Payment
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Holders converting their New Convertible Notes (including in connection with a Mandatory Conversion) shall also be entitled to receive a
payment from the Company equal to the aggregate amount of interest payments that would have been payable on such converted New Convertible Notes from the last day through which interest was paid on the New Convertible Notes (or from the issue date
if no interest has been paid on the New Convertible Notes or from the next succeeding interest payment date if such conversion occurs after a regular record date and on or before the next succeeding interest payment date), through and including the
maturity date (determined as if such conversion did not occur).
If the Company
elects to pay all or a portion of a Conversion Make-Whole Payment in shares of common stock, the number of shares of common stock payable will be equal to the applicable Conversion Make-Whole Payment divided by the average of the 10 individual
volume-weighted average prices for the
10-trading
day period immediately preceding the applicable conversion date.
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Optional Redemption
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Subject to certain limitations pursuant to the Existing Senior Credit Facility, from and after the
one-year
anniversary of the closing of the Exchange, the Company may redeem for cash all
or part of the New Convertible Notes at any time by providing at least 30 days prior written notice to holders of the New Convertible Notes.
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Fundamental Change Repurchase Right of Holders
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If the Company undergoes a fundamental change prior to maturity, each holder will have the right, at its option, to require the Company to repurchase for cash all or a portion of such holders New Convertible Notes at a
fundamental change purchase price equal to 100% of the principal amount of the New Convertible Notes to be repurchased, together with interest accrued and unpaid to, but excluding, the fundamental change purchase date.
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Restrictive Covenants
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The Company will be subject to certain restrictive covenants pursuant to the Indenture, including limitations on (i) liens, (ii) indebtedness, (iii) asset sales, (iv) restricted payments and investments,
(v) prepayments of indebtedness and (vi) transactions with affiliates.
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Events of Default
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Customary for secured convertible notes of this kind and substantially consistent with the Existing Senior Credit Facility.
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On January 26, 2018, pursuant to Listing Rule 5635(f), The NASDAQ Stock Market LLC
(Nasdaq) granted the Companys request for a financial viability exception to the stockholder approval requirements that would otherwise apply to the Exchange. The Audit Committee of the Companys Board of Directors, which is
comprised solely of independent,
non-executive
directors, approved the Companys reliance on the Nasdaq financial viability exception. In accordance with Nasdaq requirements, the Company will mail a
letter to stockholders notifying them of its intention to close the Exchange without obtaining approval from its stockholders (the Stockholder Letter). Accordingly, subject to the satisfaction or waiver of the other closing conditions
specified in the Exchange Agreements, the settlement of the Exchange is expected to occur ten days after the date that the stockholder letter is mailed or made available to the Companys stockholders, or as soon thereafter as practical.
The form of Exchange Agreement will be filed as an exhibit to the Companys next quarterly report on
Form 10-Q.
Third Amendment to Existing Senior Credit Facility
On February 12, 2018, the Company, through IBG Borrower, entered into a Third Amendment, Consent and Limited Waiver to Credit Agreement
and Other Loan Documents (the Amendment) to its Existing Senior Credit Facility. Capitalized terms used in this Current Report and not otherwise defined herein shall have the meanings ascribed to them in the Existing Senior Credit
Facility (as amended) and/or the Amendment, in each case as the context may require. The full text of the Amendment is annexed hereto as Exhibit 10.1 and incorporated herein by reference.
The Amendment provides for, among other things, amendments to certain restrictive covenants and other terms set forth in the Existing Senior
Credit Facility to permit (i) IBG Borrower to enter into the Indenture and the related intercreditor agreement that is anticipated to be executed and (ii) the Exchange. In connection with the Amendment, Deutsche Bank AG, New York Branch
was granted additional pricing flex in the form of price protection upon syndication of the loan
(Flex)
. After giving effect to the additional Flex provided in the Amendment, the Company estimates that it could be responsible for
payments on account of Flex in an aggregate total amount of up to $6.1 million.
The foregoing description of the Amendment does not
purport to be complete and is qualified in its entirety by reference to the full text of the Amendment.