Item 1.01 Entry into a Material
Definitive Agreement.
On April 14, 2023 (the “Closing Date”),
SoundHound AI, Inc., a Delaware corporation (the “Company”), entered into a Senior Secured Term Loan Credit Agreement (the
“Credit Agreement”) with ACP Post Oak Credit II LLC, as Administrative Agent and Collateral Agent for the Lenders (the “Agent”),
and the lenders from time to time party thereto (the “Lenders”). The Credit Agreement provides for a term loan facility in
an aggregate principal amount of up to $100 million (the “Term Loan”), the entirety of which was funded on the Closing Date.
The Credit Agreement also permits the Company to request additional commitments of up to $25 million in the aggregate, with funding of
such commitments in the sole discretion of the Lenders, under certain circumstances and under the same terms as the Term Loan. On the
Closing Date, the Company also entered into that certain Guarantee and Collateral Agreement, dated as of April 14, 2023, by and among
the Company, the other grantors named therein and the Agent (the “Guarantee and Collateral Agreement”). In addition, on the
Closing Date, a collateral protection insurance policy was issued to the Lenders and a cash premium was paid on the Closing Date to the
insurance provider thereunder (the “Cash Premium”). Pursuant to the Credit Agreement, the Company is required to make certain
additional specified cash premium payments, based on single-digit percentages of the loans then outstanding, over a period of three years
from the Closing Date.
The Company will use the proceeds from the Term
Loan to (i) repay outstanding amounts equal to approximately $30 million under the Company’s existing loan facilities, (ii) fund
an escrow account on the Closing Date in the name of the Agent for an amount equal to the first four interest payments, (iii) pay certain
fees and expenses incurred in connection with entering into the Credit Agreement, and (iv) fund the Cash Premium, together with related
taxes, with the remaining proceeds to be used to fund growth investments and for general corporate purposes as permitted under the Credit
Agreement.
The outstanding principal balance of the Term
Loan bears interest at the applicable margin plus, at the Company’s election, either (i) the secured overnight financing rate (“SOFR”)
plus 0.15% or (ii) the alternate base rate (“ABR”), which is a per annum rate equal to the greatest of (a) the Prime Rate
(as defined in the Credit Agreement), (b) the NYFRB Rate (as defined in the Credit Agreement) plus 0.50% and (c) the Adjustable Rate (as
defined in the Credit Agreement) plus 1.00%. The applicable margin under the Credit Agreement is 8.50% per annum with respect to SOFR
loans, and 7.50% per annum with respect to ABR loans.
Subject to certain exceptions as set forth in
the Credit Agreement, interest on the Term Loan is payable quarterly in arrears on the last business day of each fiscal quarter. The Term
Loan is set to mature on April 14, 2027 (the “Maturity Date”). The Credit Agreement provides for no scheduled principal amortization
prior to the Maturity Date.
The Term Loan is secured by substantially all
of the assets of the Company and its subsidiaries other than the assets of Excluded Subsidiaries (as defined in the Credit Agreement)
and is guaranteed by the Company’s subsidiaries other than Excluded Subsidiaries. As set forth in more detail in the Credit Agreement,
the Company is required to make mandatory prepayments on the Term Loan in the event of certain specified events, including in the event
of certain capital raises by the Company and its subsidiaries. The Company may also prepay amounts under the Term Loan, subject to certain
costs and conditions specified in the Credit Agreement.
The Credit Agreement also contains customary representations
and warranties for a facility of this nature and affirmative and negative covenants. In particular, the Credit Agreement requires the
Company to have liquidity at least equal to the Interest Escrow Required Amount (as defined in the Credit Agreement) as of the last day
of each fiscal quarter. In addition, the Credit Agreement limits the Company’s and its subsidiaries’ ability to incur indebtedness,
make restricted payments, including cash dividends on its common stock, make certain investments, loans and advances, enter into mergers
and acquisitions, sell, assign transfer or otherwise dispose of its assets, enter into transactions with its affiliates and engage in
sale and leaseback transactions, among other restrictions.
The Credit Agreement includes customary events
of default, including, but not limited to, nonpayment of principal or interest, breaches of representations and warranties, failure to
perform or observe covenants, cross-defaults with certain other indebtedness, final judgments or orders, certain change of control events,
and certain bankruptcy-related events or proceedings. Upon the occurrence of an event of default (subject to notice and grace periods),
obligations under the Credit Agreement could be accelerated.
In connection with the Credit Agreement, on the
Closing Date the Company also issued a warrant to purchase up to 3,301,536 shares of the Company’s Class A common stock to the Agent
(the “Warrant”). The Warrant has a per share exercise price of $2.59 and may be exercised, including on a cashless basis,
by the holder at any time prior to the 10-year anniversary of the issue date. The Warrant will be automatically cashless exercised immediately
prior to a change in control of the Company.
The foregoing summary of the material terms of
the Credit Agreement, the Guarantee and Collateral Agreement and the Warrant does not purport to be complete and is qualified in their
entirety by reference to the full text of the Credit Agreement, the Guarantee and Collateral Agreement and the Warrant, copies of which
will be filed as exhibits to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2023.
Item 1.02 Termination of a Material Definitive
Agreement.
Concurrently with the Company’s entry into
the Credit Agreement, the Company used a portion of the proceeds to prepay in full all outstanding obligations under, and terminated,
the (i) Loan and Security Agreement, dated as of June 14, 2021, by and among Ocean II PLO LLC, Structural Capital Investments III, LP,
and SoundHound, Inc., a subsidiary of the Company (the “Structural Facility”), and (ii) Loan and Security Agreement, dated
as of March 31, 2021, by and among SoundHound, Inc., Silicon Valley Bank, and SVB Innovation Credit Fund VIII, L.P., (the “SVB
Facility”, together with the Structural Facility, the “Existing Facilities”). For a description of the Existing Facilities,
refer to Note 9 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year
ended December 31, 2022. In connection with the Structural Facility prepayment, the Company paid a total of approximately $11.7 million,
which consisted of (i) the remaining principal amount outstanding of approximately $11.0 million, (ii) a prepayment premium of approximately
$0.2 million, (iii) a final payment fee of approximately $0.5 million, and (iv) the remainder for transaction expenses. In connection
with the SVB Facility prepayment, the Company paid a total of approximately $18.5 million, which consisted of (i) the remaining principal
amount outstanding of $17.0 million, (ii) a prepayment premium of $0.3 million, (iii) a final payment fee of approximately $1.1 million,
(iv) approximately $0.1 million of accrued and unpaid interest, and (v) the remainder for transaction expenses. There were no material
relationships between the Company or its affiliates and the other parties to the Existing Facilities other than in respect of such agreement.