ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
Issuance of 8.500% Senior Notes due 2025
On August 28, 2017 (the “Closing Date”), Arch Merger Sub Inc., a Delaware corporation (the “Escrow Issuer” or “Merger Sub”), formed by funds managed by Sycamore Partners Management, L.P. (“Sycamore”) in connection with the previously announced proposed acquisition of Staples, Inc. (the “Company”) by such funds, pursuant to the Agreement and Plan of Merger, dated as of June 28, 2017 (the “Merger Agreement”), by and among the Company, Arch Parent Inc., a Delaware corporation (the “Parent”), and Merger Sub, in which Merger Sub will merge with and into the Company with the Company continuing as the surviving corporation (the “Merger”), issued $1.0 billion aggregate principal amount of 8.500% Senior Notes due 2025 (the “Notes”). The Notes were sold in the United States to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A and outside the United States to non-U.S. persons in reliance on Regulation S. The Notes have not been registered under the Securities Act of 1933, as amended (the “Securities Act”) or any state securities laws and, unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
The net proceeds of this issuance
, together with borrowings under certain new senior secured credit facilities (the “New Senior Secured Credit Facilities”) and the cash equity contributions of certain funds managed by Sycamore, will be used to finance the consummation of the portion of the Merger attributable to the acquisition of the North American Delivery business of the Company and to pay related fees, costs and expenses.
Merger Sub deposited the gross proceeds from the offering of the Notes, plus an amount sufficient to fund a special mandatory redemption of the Notes, including accrued interest on the Notes through September 30, 2017, into a segregated escrow account with Wells Fargo Bank, National Association, as escrow agent. If the Merger is not consummated on or prior to December 28, 2017 or if the Merger Agreement is otherwise terminated, the Notes will be subject to a special mandatory redemption. The special mandatory redemption price will be equal to 100% of the initial issue price of the notes, plus accrued and unpaid interest to, but not including, the date of such special mandatory redemption. Upon consummation of the Merger, Merger Sub will be merged with and into the Company, the Company will assume all of the obligations of Merger Sub under the Notes and each of the Company’s existing and future wholly-owned domestic restricted subsidiaries that guarantee the New Senior Secured Credit Facilities will guarantee the Notes.
In connection therewith, the Escrow Issuer has entered into the following agreements:
Indenture
On the Closing Date, the Escrow Issuer entered into an indenture with Wells Fargo Bank, National Association, as trustee (the “Trustee”), providing for the issuance of the Notes and the terms thereof (the “Indenture”). The Indenture provides, among other things, that the Notes are general unsecured obligations of the Escrow Issuer. Interest is payable on the Notes on each March 15 and September 15, commencing March 15, 2018. At any time and from time to time prior to September 15, 2020, the Escrow Issuer may redeem the outstanding Notes in whole or in part at a redemption price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, on such Notes to the redemption date, plus a make-whole premium determined in accordance with the Indenture. On or after September 15, 2020, the Escrow Issuer may redeem some or all of the outstanding Notes at redemption prices set forth in the Indenture. In addition, at any time prior to September 15, 2020, the Escrow Issuer may redeem up to 40% of the aggregate principal amount of the Notes using net proceeds from certain equity offerings at a redemption price equal to 108.500% of the principal amount of such Notes, plus accrued and unpaid interest and special interest, if any, to the redemption date, provided that certain conditions are met.
The terms of the Indenture, among other things, limit the ability of the Escrow Issuer to incur additional debt and issue preferred stock; pay dividends or make other restricted payments; make certain investments; grant liens; allow restrictions on the ability of certain of their subsidiaries to pay dividends or make other payments; sell assets; merge or consolidate with other entities; and enter into transactions with affiliates.
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Subject to certain limitations, in the event of a Change of Control (as defined in the Indenture), the Escrow Issuer will be required to make an offer to purchase all of the Notes at a price equal to 101% of the aggregate principal amount of the Notes repurchased, plus accrued and unpaid interest and special interest, if any, to the date of repurchase thereof.
The Indenture provides for customary events of default, which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest; breach of other covenants or agreements in the Indenture; failure to pay certain other indebtedness; failure to pay certain final judgments; failure of certain guarantees to be enforceable; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs, the Trustee or the holders of at least 30% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.
Escrow Agreement
In connection with the issuance and sale of the Notes, the Escrow Issuer, Wells Fargo Bank, National Association, as escrow agent (the “Escrow Agent”), and the Trustee entered into an escrow agreement dated August 28, 2017 (the “Escrow Agreement”). Pursuant to the Escrow Agreement, the Escrow Issuer deposited into a segregated escrow account the gross proceeds from the offering of the Notes, together with an amount sufficient to pay accrued and unpaid interest from the issue date of the Notes to, but excluding, September 30, 2017. Prior to the release of the funds from the segregated escrow account to the Escrow Issuer (the “Escrow Release”), the Notes will be secured by a first-priority security interest in the escrow account and all deposits and investment property therein to the Trustee for the benefit of the holders of the Notes. The Escrow Release is subject to the satisfaction of certain conditions, including the closing of the Merger.
Copies of the Indenture and the form of Notes are filed herewith as Exhibits 4.1 and 4.2, respectively, and are each incorporated herein by reference. The foregoing descriptions of the Indenture and the Notes do not purport to be complete and are qualified in their entirety by reference to the full text of those documents.
ITEM 2.03. CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
The information under “Indenture” in Item 1.01 above is incorporated herein by reference.
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