Item 1.01
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Entry into a Material Definitive Agreement.
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On December 28, 2020 (the “
Closing Date”), Town Sports International Holdings, Inc. (the “
Company”), entered into a credit agreement (the “
Credit Agreement”) with the several lenders party thereto (the “
Lenders”)
and Alter Domus (US) LLC, as administrative agent (the “
Administrative Agent”) pursuant to which the Lenders agreed to
provide senior secured first lien term
loans in an aggregate principal amount of up to $100.0 million to the Company consisting of (a) initial senior secured first lien term loans in an aggregate principal amount of $5.0 million (the “
Initial
Loans”), which Initial Loans were drawn at closing, and (b) senior secured first lien delayed draw term loans in an aggregate principal amount of up to $95.0 million (the “
Delayed Draw
Term Loans” and, together with the Initial Loans, the “
Loans”), in each case, subject to the terms and conditions set forth in the Credit Agreement. The proceeds of the Loans are
to be used for general corporate purposes.
In order to incur any of the Delayed Draw Term Loans, the Company must satisfy certain conditions, including, but not limited to, the following: (i) if the incurrence of such Delayed Draw Term Loans
occurs on or prior to June 30, 2021, (a) unless made in connection with any acquisition approved by the majority of the Board, the proceeds of such Delayed Draw Term Loans must be used in compliance with the Approved Budget (as defined in the Credit
Agreement), and (b) the Unrestricted Cash (as defined in the Credit Agreement) of the Company and its subsidiaries immediately prior to such incurrence may not exceed $5.0 million and, (ii) if the incurrence occurs after June 30, 2021, the
Consolidated Total Leverage Ratio (as defined in the Credit Agreement) for the prior four fiscal quarter period may not exceed 4.00 to 1.00 after giving pro forma effect to the incurrence of such Delayed Draw Term Loans.
The Company’s obligations under the Credit Agreement are guaranteed by certain subsidiaries of the Company (collectively with the Company, the “Guarantors”).
On the Closing Date, the Company, the Guarantors and the Administrative Agent entered into a guarantee and collateral agreement (the “Guarantee and Collateral Agreement”) pursuant to which
the Guarantors guaranteed the debt under the Credit Agreement and the Company and the Guarantors granted a first-priority lien on substantially all of their assets (subject to certain exceptions) in favor of the Administrative Agent and the Lenders.
On the Closing Date, the Company paid in-kind in the form of additional term loans a closing fee equal to $10.0 million, representing 10.0% of the aggregate principal
amount of the commitments provided by the Lenders as of the Closing Date. Borrowings under the Credit Agreement accrue interest at a rate of either 10.0% per annum payable in cash or 12.0% per annum payable in-kind. The Credit Agreement will mature
on December 28, 2025 (or, if such day is not a business day, the immediately precedent business day). Prior to the second anniversary of the Closing Date, the Loans may be prepaid at their principal amount plus a make whole premium. On or after the
second anniversary of the Closing
Date, the Company may prepay the Loans
, in whole or in part, at any time, subject to a prepayment premium equal to (a) 10.0% of the
principal amount prepaid if prepaid before the third anniversary of the Closing Date and (b) 5.0% of the principal amount prepaid if prepaid after the third anniversary of the Closing Date but prior to the fourth anniversary of the Closing Date.
Thereafter, no prepayment premium is applicable.
The Credit Agreement also provides that PW Partners Capital Management LLC may elect to provide, on or prior to January 29, 2021, up to $10.0 million of additional commitments to lend Delayed Draw
Term Loans, subject to the terms and conditions set forth in the Credit Agreement, including the payment by the Company of a closing fee representing 10.0% of such additional commitments to be paid in-kind in the form of additional term loans and the
issuance of shares of Common Stock.
The Credit Agreement contains customary covenants, including, but not limited to, restrictions on the Company’s ability to incur indebtedness, grant liens or
security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets, or enter into transactions with affiliates.
Additionally, the Credit Agreement provides that, upon the occurrence of certain events of default, the Company’s obligations thereunder may be accelerated and the lending
commitments with respect to the Delayed Draw Term Loans terminated. Such events of default include payment defaults to the Lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material
indebtedness, voluntary and involuntary bankruptcy proceedings, material money judgments, certain change of control events and other customary events of default.
As compensation for agreeing to provide the Loans and related commitments, on the Closing Date, affiliates of Kennedy Lewis Investment Management, LLC (“KLIM”) received approximately 41.5 million shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”), equal to 51% of the fully diluted
outstanding Common Stock as of the Closing Date (such shares, the “Consideration Shares”). After giving effect to the receipt of the Consideration Shares, KLIM beneficially owned 45,735,483
shares of Common Stock, representing approximately 56.2% of the Common Stock outstanding after the issuance. The borrowing of the Loans pursuant to the Credit Agreement together with the issuance of the Consideration Shares is referred to herein as
the “Transactions”.
In connection with the issuance of Consideration Shares to KLIM, on the Closing Date, the Company entered into a registration
rights agreement (the “Registration Rights Agreement”) with certain affiliates of KLIM and
Patrick Walsh, the Company’s chief executive officer, under which the Company agreed to register the Common Stock held by the Company stockholders party to the Registration Rights Agreement and Mr. Walsh with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended. The Company also agreed to provide certain piggy-back and
demand registration rights to the parties to the Registration Rights Agreement in respect of the Common Stock held by each of them.
In connection with the entry into the Credit Agreement, the Company amended, effective as of the Closing Date, the Town Sports
International Holdings, Inc. 2006 Stock Incentive Plan (“the “
Incentive Plan”) to reserve an additional 10,180,265 shares of Common Stock for issuance as awards under the Plan. In addition,
the Company approved a grant, on the Closing Date, of 8,144,212 shares of restricted Common Stock to Patrick Walsh and 2,036,053 shares of restricted Common Stock to Phillip Juhan under the Incentive Plan. The awards of Common Stock are generally on
the same terms as the Company’s standard form of restricted award, provided that the awards shall vest as to 1/3 of the granted shares of restricted Common Stock on each of the Closing Date, December 31, 2021, and December 31, 2022, subject to
continued service through each vesting date. The awards will also fully vest on a “change in control”, subject to continued service through the date of such change in control. In the event of a termination without “cause” or for “good reason” prior
to the awards fully vesting, and subject to the executive’s execution of a release of claims, the awards shall vest in the next tranche scheduled to vest and prior to the awards fully vesting, the awards shall vest in the next tranche scheduled to
vest and any non-compete or non-solicit obligations shall be shortened in duration to nine months post termination.
The foregoing description of the Credit Agreement and Registration Rights Agreement is qualified in its entirety by the full text of the Credit Agreement and Registration Rights Agreement which are each attached as Exhibits 10.1 and 4.1, respectively, to this Current Report on Form 8-K and are
incorporated herein by reference.