Aterian, Inc. (formerly Mohawk Group Holdings, Inc.) — Form 8-K Summary
Reporting date: April 8, 2021; filed April 9, 2021. The filing reports material financing, debt restructuring and related securities transactions. It does not provide quarterly or annual operating results.
Business Context and Transaction
The company entered into a Securities Purchase and Exchange Agreement with High Trail Investments SA LLC and High Trail Investments ON LLC. In a private placement, the company issued $110.0 million of senior secured promissory notes and warrants to purchase up to 2,259,166 common shares.
- The investors paid $57.7 million in cash and exchanged previously issued notes with original principal amounts of $43.0 million and $16.5 million.
- The new notes bear interest at 8% annually, mature April 8, 2024, and have no scheduled amortization payments.
- The company used $14.8 million of net proceeds to repay and terminate its MidCap credit facility. Remaining proceeds are intended for potential acquisitions, working capital and general corporate purposes.
- The company also issued 130,000 restricted shares to High Trail SA and amended certain prior securities purchase agreements and warrants.
Key Financial Metrics and Capital Structure
| Item | Reported terms |
|---|---|
| New senior secured notes | $110.0 million principal; 8% annual interest; due April 8, 2024 |
| Annual cash interest at stated rate | Approximately $8.8 million, assuming the full principal remains outstanding |
| Cash proceeds | $57.7 million |
| MidCap facility repayment | $14.8 million, plus fees described below |
| Warrants issued | Up to 2,259,166 common shares; $31.74 exercise price; five-year term |
| Restricted shares issued | 130,000 shares to High Trail SA |
| Prior notes exchanged and terminated | 2020 Note with $43.0 million original principal and 2021 Note with $16.5 million original principal |
The filing does not provide revenue, net income, operating cash flow, margins, cash balance, or liquidity ratios for the reporting period.
Material Changes Versus Prior Arrangements
- The $25.0 million MidCap revolving credit facility was fully repaid and terminated. Its liens on company assets, excluding intellectual property, were released.
- The company paid a prepayment fee and payoff-letter preparation fee totaling 4.3% of the outstanding principal balance under the MidCap facility.
- The prior 2020 and 2021 notes were exchanged for the new $110.0 million notes and then terminated.
- The transaction increased the company’s senior secured debt obligations and added up to 2,259,166 potentially dilutive warrant shares, in addition to the 130,000 restricted shares issued.
Terms, Outlook and Risks
- The notes contain covenants restricting additional indebtedness, liens, investments, dividends and distributions, and require specified earnings and minimum cash levels.
- The investors may require redemptions following certain equity financings, subject to conditions and a $5.5 million aggregate cap per financing.
- Optional redemption premiums are 110% before April 8, 2022, 108% from April 8, 2022 through April 7, 2023, and 104% thereafter.
- Upon an event of default, investors may require repayment at 115% of principal plus accrued interest, with default interest accruing at 15% annually. If cash payment is not made, repayment may be made partly or entirely in common stock at a discounted valuation.
- Investors may require redemption at 105% of principal plus accrued interest following a fundamental change.
- Until the later of October 8, 2022 or full repayment, investors generally have participation rights in specified debt, preferred stock and equity-linked financings, and limited participation rights in common-stock financings.
- The company must file a resale registration statement by June 30, 2021 for specified shares, including warrant shares and the 130,000 restricted shares.
- The securities were issued without registration under applicable private-placement exemptions and may not be resold absent registration or an available exemption.
Important Facts for Investors to Verify
- Whether the company satisfied the notes’ minimum cash, earnings and other financial covenants.
- The actual cash balance and remaining availability after the $14.8 million MidCap repayment and related fees.
- The effective interest expense, fees, discounts and accounting treatment associated with the new notes and exchanged obligations.
- Whether the resale registration statement was filed by June 30, 2021 and became effective.
- The fully diluted share count, including the 130,000 restricted shares, 2,259,166 new warrant shares and other outstanding warrants.
- Potential dilution or forced redemptions arising from future equity financings, defaults or fundamental changes.
- The company’s operating results, cash flow, acquisition plans and ability to comply with the new secured-debt covenants, none of which are quantified in this filing.