Purple Innovation, Inc. current report, 02 November 2017

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Business Context and Reporting Period

Company: Global Partner Acquisition Corp. (GPAC), a Special Purpose Acquisition Company (SPAC), reporting on behalf of its proposed acquisition of Purple Innovation, LLC ("Purple").

Date of Report: November 3, 2017 (Event Date: November 2, 2017).

Transaction: GPAC entered into a definitive Merger Agreement to acquire Purple. Upon consummation, GPAC will change its name to Purple Innovation, Inc. The transaction involves a merger of a GPAC subsidiary with Purple, with Purple surviving as a wholly-owned subsidiary of the combined company.

Key Financial Metrics and Deal Structure

  • Enterprise Value: Purple's agreed-upon enterprise value is $900 million.
  • Consideration Structure: InnoHold (Purple's sole equity holder) will receive a mix of cash ("Cash Consideration") and equity ("Equity Consideration"). The Equity Consideration consists of newly issued Class B common stock of GPAC and Class B membership units of Purple.
  • Cash Consideration Formula: Calculated based on GPAC's "Net Parent Cash" (Trust Account proceeds minus redemptions and expenses) and Purple's remaining cash. The formula targets a minimum of $40 million in cash to InnoHold, with potential additional cash up to $10 million depending on GPAC's cash position exceeding $100 million.
  • GPAC Liquidity: GPAC intends to fund redemptions, cash consideration, and transaction expenses primarily from approximately $121.7 million held in its Trust Account.
  • Debt and Financing: On November 2, 2017, GPAC borrowed $600,000 under a promissory note from its Sponsor (Global Partner Sponsor I LLC). The note has a principal limit of $1.0 million, bears no interest, and is convertible into common stock at $10.00 per share.
  • Tax Receivable Agreement (TRA): GPAC will pay InnoHold 80% of the cash tax savings realized from the step-up in tax basis of Purple's assets. GPAC retains 20%.

Material Changes and Capital Structure

The filing details a significant restructuring of GPAC's capital and governance:

  • New Stock Classes: GPAC will create Class A common stock (economic rights, 1 vote) and Class B common stock (voting rights only, no economic rights). Existing GPAC shareholders will receive one Class A share for each existing share.
  • Ownership Post-Closing: InnoHold will hold a majority of the voting power of the combined company and a majority of the economic interests in Purple.
  • Sponsor Forfeiture: The Sponsor will forfeit 33.3% of its founder shares (1,293,750 shares) and subject another 33.3% to vesting based on stock price performance over eight years.
  • Warrant Transfer: The Sponsor will transfer 12,815,000 warrants (exercisable for 6,407,500 shares) to InnoHold.
  • Escrow: 500,000 shares of Class B Stock and 500,000 Class B Units will be held in escrow for up to three years to secure indemnification obligations.

Conditions to Closing

  • Approval by GPAC stockholders.
  • Net Parent Cash of at least $100 million.
  • Net tangible assets of at least $5,000,001.
  • Receipt of required antitrust and governmental approvals.
  • Retention of key employees (Sam Bernards, Tony Pearce, Terry Pearce).

Outlook, Risks, and Contingencies

Management Commentary: The transaction is expected to close two business days after conditions are satisfied. The combined company will operate under the name Purple Innovation, Inc.

Key Risks and Contingencies:

  • Redemption Risk: The amount of cash available for the transaction depends on the number of GPAC public shareholders who redeem their shares. If redemptions reduce Net Parent Cash below $100 million, the deal may fail to close.
  • Tax Receivable Agreement Impact: Payments under the TRA could be substantial and may materially adversely affect the combined company's financial condition and ability to pay dividends.
  • Lock-Up Period: InnoHold is restricted from selling its securities for one year or until the stock price exceeds $12.00 per share for 20 trading days within a 30-day period (after 150 days post-closing).
  • Non-Competition: Sellers are restricted from competing in the comfort technology business for three years post-closing.
  • Termination: The agreement may be terminated if closing does not occur by January 31, 2018, or if stockholder approval is not obtained. There are no termination fees.

Investor Verification Checklist

  • Redemption Levels: Verify the final number of GPAC shareholder redemptions to confirm if the $100 million Net Parent Cash condition is met.
  • Proxy Statement: Review the definitive proxy statement for detailed financial projections of Purple and the specific terms of the Tax Receivable Agreement.
  • Stock Price Performance: Monitor GPAC's stock price relative to the $12.00 lock-up threshold and the $12.50 sponsor vesting trigger.
  • Regulatory Approvals: Confirm receipt of all necessary antitrust and governmental clearances.
  • Key Personnel: Verify that key executives (Bernards, T. Pearce, T. Pearce) remain employed and have not notified the company of intent to leave.