Item 1.01.
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Entry into a Material Definitive Agreement.
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Indenture and Notes
On February 9, 2021, SmileDirectClub,
Inc. (the “Company”) entered into an indenture (the “Indenture”), between the Company and
Wilmington Trust, National Association, as trustee (the “Trustee”), pursuant to which the Company issued $650,000,000
principal amount of the Company’s 0.00% Convertible Senior Notes due 2026 (the “Notes”). The Company
has also granted the initial purchasers of the Notes an option to purchase, for settlement within a 13-day period beginning on,
and including, the date on which the Notes were first issued, up to an additional $97,500,000 aggregate principal amount of the
Notes (“Option Notes”). On February 9, 2021, the initial purchasers exercised their
option to purchase $70,000,000 aggregate principal amount of the Option Notes.
The Notes will be the Company’s senior,
unsecured obligations and will be (i) equal in right of payment with the Company’s existing and future senior, unsecured
indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated
to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of
the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness
and other liabilities, including our credit facility and trade payables, and (to the extent the Company is not a holder thereof)
preferred equity, if any, of the Company’s subsidiaries.
The Notes will not bear regular interest,
and the principal amount of the Notes will not accrete. The Notes will mature on February 1, 2026, unless earlier repurchased,
redeemed or converted. Before August 1, 2025, noteholders will have the right to convert their Notes only upon the occurrence
of certain events. From and after August 1, 2025, noteholders may convert their Notes at any time at their election until the
close of business on the second scheduled trading day immediately before the maturity date. The Company will settle conversions
by paying or delivering, as applicable, cash, shares of its Class A common stock or a combination of cash and shares of its Class
A common stock, at the Company’s election. The initial conversion rate is 55.3710 shares of Class A common stock per $1,000
principal amount of Notes, which represents an initial conversion price of approximately $18.06 per share of Class A common stock.
The conversion rate and conversion price will be subject to customary adjustments upon the occurrence of certain events in accordance
with the terms of the Indenture. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change”
(as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period
of time.
The Notes will be redeemable, in whole
or in part, at the Company’s option at any time, and from time to time, on or after February 6, 2024 and on or before the
40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the
Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date, but only if the
last reported sale price per share of the Company’s Class A common stock exceeds 130% of the conversion price on (i) each
of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading
day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the
date the Company sends such notice. In addition, calling any Note for redemption will constitute a Make-Whole Fundamental Change
with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain
circumstances if it is converted after it is called for redemption.
If certain corporate events that constitute
a “Fundamental Change” (as defined in the Indenture) occur, then, then noteholders may require the Company to repurchase
their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid special
interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain
business combination transactions involving the Company and certain de-listing events with respect to the Company’s Class
A common stock.
The Notes will have a customary
provision relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the
following: (i) a default by the Company in the payment when due (whether at maturity, upon redemption or repurchase upon
fundamental change or otherwise) of the principal of, or the redemption price or fundamental change repurchase price for, any
Note (ii) a default by the Company for 30 days in the payment when due of special interest, if any, on any Note; (iii) the
Company’s failure to send certain notices under the Indenture within specified periods of time; (iv) a default by the
Company in its obligation to convert a Note in accordance with the Indenture upon the exercise of the conversion right with
respect thereto, if such default is not cured within three business days after its occurrence; (v) the Company’s
failure to comply with certain covenants in the Indenture relating to the Company’s ability to consolidate with or
merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all or
substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (vi) a default by
the Company in its other obligations or agreements under the Indenture or the Notes (other than a default set forth in
clauses (i), (ii), (iii), (iv) or (v) above) if such default is not cured or waived within 60 days after written notice is
given in accordance with the Indenture; (vii) certain defaults by the Company or any of its significant subsidiaries with
respect to indebtedness for borrowed money of at least $50,000,000; and (viii) certain events of bankruptcy, insolvency and
reorganization involving the Company or any of the Company’s significant subsidiaries.
If an Event of Default involving bankruptcy,
insolvency or reorganization events with respect to the Company (and not solely with respect to a significant subsidiary of the
Company) occurs, then the principal amount of, and all accrued and unpaid special interest, if any, on, all of the Notes then outstanding
will immediately become due and payable without any further action or notice by any person. If any other Event of Default occurs
and is continuing, then, the Trustee, by notice to the Company, or noteholders of at least 25% of the aggregate principal amount
of Notes then outstanding, by written notice to the Company and the Trustee, may declare the principal amount of, and all accrued
and unpaid special interest, if any, on, all of the Notes then outstanding to become due and payable immediately. However, notwithstanding
the foregoing, the Company may elect, at its option, that the sole remedy for an Event of Default relating to certain failures
by the Company to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders
to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50% on the principal
amount of the Notes.
The above description of the Indenture
and the Notes is a summary and is not complete. A copy of the Indenture and the form of the certificate representing the Notes
are filed as exhibits 4.1 and 4.2, respectively, to this Current Report on Form 8-K, and the above summary is qualified by reference
to the terms of the Indenture and the Notes set forth in such exhibits.
Capped Call Transactions
On February 4, 2021, in connection
with the pricing of the Notes, the Company entered into privately negotiated capped call transactions (the “Base Capped
Call Transactions”) with certain of the initial purchasers of the Notes and/or their respective affiliates and/or other
financial institutions (the “Option Counterparties”). In addition, on February 9, 2021, in connection with the
initial purchasers' exercise of their option to purchase $70,000,000 aggregate principal amount of the Option Notes, the
Company entered into additional capped call transactions (the “Additional Capped Call Transactions,” and,
together with the Base Capped Call Transactions, the “Capped Call Transactions”) with each of the Option
Counterparties. The Capped Call Transactions cover, subject to anti-dilution adjustments substantially similar to those
applicable to the Notes, the number of shares of Class A common stock initially underlying the Notes. The Capped Call
Transactions are expected generally to reduce potential dilution to the Class A common stock upon any conversion of the Notes
and/or offset any potential cash payments the Company is required to make in excess of the principal amount of such converted
Notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the Capped Call Transactions
will initially be approximately $25.80 per share of Class A common stock, which represents a premium of 100.0% over the last
reported sale price of the Class A common stock of $12.90 per share on February 4, 2021, and is subject to certain customary
adjustments under the terms of the Capped Call Transactions.
The Capped Call Transactions are separate
transactions entered into by the Company with each Option Counterparty, and are not part of the terms of the Notes and will not
affect any noteholder’s rights under the Notes. Noteholders will not have any rights with respect to the Capped Call Transactions.
The Option Counterparties and their respective
affiliates are financial institutions engaged in various activities, which may include sales and trading, commercial and investment
banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other
financial and non-financial activities and services. Certain of the Option Counterparties and their respective affiliates have
provided certain commercial banking, financial advisory, investment banking and other services for the Company and its affiliates
in the ordinary course of their business in the past and may do so in the future, for which they have received and may continue
to receive customary fees and commissions. Certain of the Option Counterparties or their respective affiliates are initial purchasers
of the Notes.
The foregoing description of the Capped
Call Transactions is not complete and is qualified in its entirety by reference to the full text of the Form of Capped Call Confirmation,
which is filed herewith as Exhibit 10.1 and is incorporated into this Item 1.01 by reference.