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Item 2.03
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Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance
Sheet Arrangement of a Registrant.
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Indenture and 6.125% Senior Secured Notes due 2025
On January 27, 2017, the Company completed the sale of $850.0 million of its 6.125% senior secured notes due 2025 (the
“Notes”) to qualified institutional buyers pursuant to Rule 144A and pursuant to Regulation S in a private offering exempt from the registration requirements of the Securities Act. The Notes were issued under the Indenture.
The aggregate net cash proceeds from the sale of the Notes were approximately $831.1 million after deducting the Initial Purchaser’s
discount and estimated expenses and fees payable by the Company in connection with the Notes offering. The Company is using the net cash proceeds from the Notes offering, together with the proceeds of the Equity Sale (as defined below) and cash on
hand, to redeem all of the Company’s outstanding 7.750% Senior Secured notes due 2021 (the “Existing Notes”) and to satisfy and discharge the indenture governing the Existing Notes.
The Company will pay cash interest at a rate of 6.125% per year, payable semi-annually on February 1 and August 1 of each year,
beginning on August 1, 2017. Interest will accrue from January 27, 2017. Interest on overdue principal and interest, if any, will accrue at a rate that is 1% higher than the then applicable interest rate on the Notes. The Company will make
each interest payment to the holders of record on the immediately preceding January 15 and July 15.
The Notes are fully and
unconditionally guaranteed on a joint and several basis by all of the wholly owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses. The Notes are not guaranteed by subsidiaries engaged
in the Company’s real estate business conducted through its subsidiary New Valley LLC. The guarantees provided by some of the Guarantors are secured by first priority or second priority security interests in certain assets of such Guarantors
pursuant to security and pledge agreements, subject to certain permitted liens and exceptions as further described in the Indenture and the security documents relating thereto. The Company will not provide any security for the notes.
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The Notes will be the Company’s general senior obligations and will be
pari passu
in
right of payment with all of the Company’s existing and future senior indebtedness, will be senior in right of payment to all of the Company’s future subordinated indebtedness, if any, and will be effectively subordinated in right of
payment to all existing and future indebtedness and other liabilities of the
non-Guarantor
subsidiaries of the Company (other than indebtedness and liabilities owed to the Company or one of the Guarantors).
Each guarantee of the Notes will be the general obligation of the Guarantor and will be
pari passu
in right of payment with all other senior indebtedness of the Guarantor, including the indebtedness of Liggett Group and Maple under their
Credit Agreement with Wells Fargo. Each guarantee of the Notes will be senior in right of payment to all future subordinated indebtedness of the Guarantor, if any. Each guarantee of the Notes which is secured by the assets of a Guarantor will be
effectively senior in right of payment to all existing and future unsecured indebtedness of such Guarantor to the extent of the value of the assets that secure such guarantee, after giving effect to any prior liens on such assets. Each guarantee of
the Notes will be effectively subordinated to indebtedness that is secured by a higher priority lien than the lien securing the guarantee, if any, to the extent of the value of the collateral securing such indebtedness.
The Notes mature on February 1, 2025. The Company may redeem some or all of the Notes at any time at a make-whole redemption price. On or
after February 1, 2020, the Company may redeem some or all of the Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date.
In the event of a Change of Control (as defined in the Indenture), each holder of the Notes may require the Company to repurchase some or all
of its Notes at a repurchase price equal to 101% of the aggregate principal amount of the Notes plus accrued and unpaid interest to the date of purchase. If the Company sells certain assets and does not apply the proceeds as required pursuant to the
Indenture, it must offer to repurchase the Notes at the prices listed in the Indenture.
If an Event of Default (as defined in the
Indenture) occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Notes may declare the Notes immediately due and payable, except that an Event of Default resulting from a bankruptcy or
similar proceeding with respect to the Company or with respect to the Guarantors who, individually or as a group, would constitute a Significant Subsidiary (as defined in the Indenture) will automatically cause the Notes to become immediately due
and payable without any declaration or other act on the part of the Trustee or any Note holders.
The Indenture contains covenants that
limit the Company and each Guarantor’s ability to, among other things: (i) incur additional indebtedness; (ii) pay dividends or make other distributions in respect of or repurchase or redeem its equity interests; (iii) prepay,
redeem or repurchase its subordinated indebtedness; (iv) make investments; (v) sell assets; (vi) incur certain liens; (vii) enter into agreements restricting its subsidiaries’ ability to pay dividends; (viii) enter into
transactions with affiliates; and (ix) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications, as described in the Indenture.
Pledge Agreement
In connection with the
issuance of the Notes, on January 27, 2017, VGR Holding LLC (“VGR Holding”) entered into a pledge agreement (the “Pledge Agreement”) with U.S. Bank National Association, in its capacity as collateral agent for the holders of
the Notes (the “Collateral Agent”). Pursuant to the Pledge Agreement, VGR Holding granted to the Collateral Agent for the benefit of the holders of the Notes a first priority security interest in all if its right and title in the Pledged
Collateral (as defined in the Pledge Agreement) as collateral security for its guarantee obligations in respect of the Notes, subject to certain permitted liens and exceptions as further described in the Indenture and the Pledge Agreement.
Vector Tobacco Security Agreement
In
connection with the issuance of the Notes, on January 27, 2017, Vector Tobacco Inc. (“Vector Tobacco”) entered into a security agreement (the “Vector Tobacco Security Agreement”) with the Collateral Agent. Pursuant to the
Vector Tobacco Security Agreement, Vector Tobacco granted to the Collateral Agent for the benefit
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of the holders of the Notes a first priority security interest in all if its right and title in the Collateral (as defined in the Vector Tobacco Security Agreement) as collateral security for its
guarantee obligations in respect of the Notes, subject to certain permitted liens and exceptions as further described in the Indenture and the Vector Tobacco Security Agreement.
Liggett Guarantors Security Agreement
In connection with
the issuance of the Notes, on January 27, 2017, Liggett Group and Maple (the “Liggett Guarantors”) entered into a security agreement (the “Liggett Guarantors Security Agreement”) with the Collateral Agent. Pursuant to the
Liggett Guarantors Security Agreement, the Liggett Guarantors granted to the Collateral Agent for the benefit of the holders of the Notes a second priority security interest in all if its right and title in the Collateral (as defined in the Liggett
Guarantors Security Agreement) as collateral security for its guarantee obligations in respect of the Notes, subject to certain permitted liens and exceptions as further described in the Indenture and the Liggett Guarantors Security Agreement.
Intercreditor Agreement
In connection
with the issuance of the Notes, on January 27, 2017, the Liggett Guarantors entered into an amended and restated intercreditor and lien subordination agreement (the “Intercreditor Agreement”) with the Collateral Agent and Wells Fargo,
as lender under the Credit Agreement. Pursuant to the Intercreditor Agreement, the liens of the Collateral Agent on the ABL Collateral (as defined in the Intercreditor Agreement) will be subordinated to the liens of Wells Fargo on the ABL
Collateral.
The foregoing summary of the Notes, the Indenture, the Pledge Agreement, the Vector Tobacco Security Agreement, the Liggett
Guarantors Security Agreement and the Intercreditor Agreement does not purport to be complete and is qualified in its entirety by reference to the Indenture, the Pledge Agreement, the Vector Tobacco Security Agreement, the Liggett Guarantors
Security Agreement and the Intercreditor Agreement, attached hereto as Exhibits 4.1, 4.2, 4.3, 4.4 and 4.5, respectively, and incorporated herein by reference.