Business Context and Reporting Period
Company: Purple Innovation, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: January 28, 2019
Event: Entry into a Material Definitive Agreement (Amendment to Credit Agreement).
On January 28, 2019, Purple Innovation, LLC (the operating subsidiary) entered into a First Amendment to its Credit Agreement with existing lenders (Coliseum Capital Partners, Blackwell Partners, and Coliseum Co-Invest Debt Fund). This amendment paves the way for an Amended and Restated Credit Agreement contingent upon stockholder approval.
Key Financial Metrics and Debt Structure
The filing details a significant restructuring of the company's debt and equity obligations rather than reporting operational financial results (revenue, profit, or cash flow) for a specific period.
- Incremental Loan: $10.0 million in new indebtedness.
- Total Indebtedness: Increased to $35.0 million upon closing.
- Interest Rate: 12.0% per annum base rate.
- Interest Penalties: Up to an additional 4.0% if EBITDA thresholds are not met; an additional 2.0% if not in material compliance with Sarbanes-Oxley.
- Prepayment Penalties: Make-whole payment in Year 1; 6.0% (Year 2), 4.0% (Year 3), and 2.0% (Year 4).
- Additional Loan Capacity: Option to request up to $10.0 million in additional loans subject to specific approval conditions.
- Capital Expenditure Limit: Restricted to $20 million.
- Capital Lease Limit: Restricted to $10 million.
Material Changes and Equity Implications
The transaction represents a material change in the company's capital structure and governance requirements.
- Stockholder Approval Required: Because the lenders are deemed "interested stockholders" under Delaware General Corporation Law (Section 203), stockholder approval is mandatory before the agreement can close.
- Warrant Issuance (Incremental Loan): Upon approval, the company will issue warrants to purchase 2,613,241 shares of Class A Stock at an exercise price of $5.74 per share.
- Warrant Issuance (Additional Loans): If additional loans are drawn, up to 15,000,000 additional warrants may be issued with an exercise price of the lower of $5.74 or the 10-day VWAP (minimum $1.00).
- Lender Ownership: Post-transaction, lenders will beneficially own 5,958,772 shares and warrants to purchase 6,926,630 shares. Full exercise of all potential warrants could result in lender ownership of up to 21,926,630 shares.
- Collateral: The agreement requires a security interest in substantially all assets of the Company and Purple LLC, including intellectual property.
Guidance, Risks, and Contingencies
Contingencies: The transaction is subject to closing conditions, including stockholder approval at a special meeting and the absence of a material adverse change in the company's financial condition.
Risks and Covenants:
- EBITDA Thresholds: Failure to meet specific EBITDA thresholds triggers higher interest rates.
- Dividend Restrictions: The company is restricted from paying dividends or making distributions on capital stock.
- Redemption Rights: The company may redeem warrants if the stock price exceeds $24.00 per share for 20 trading days within a 30-day period.
- Anti-Dilution: Warrants include adjustments for stock splits, dividends, and fundamental transactions (e.g., mergers, change of control).
Investor Verification Checklist
- Verify the outcome of the special stockholder meeting required to approve the Amended and Restated Credit Agreement.
- Confirm the current EBITDA status to assess the risk of the 4.0% interest rate penalty.
- Review the full text of the Amended and Restated Credit Agreement (Exhibit 10.2) for specific EBITDA thresholds and covenant definitions.
- Monitor the potential dilution impact if the $10 million additional loan is drawn and warrants are exercised at the $1.00 minimum price.
- Check for any subsequent filings regarding the registration statement for the warrants (due by March 29, 2019).