Item 1.03. Bankruptcy or Receivership.
Voluntary Petitions for Bankruptcy
On August 31, 2021, Sequential Brands Group, Inc. (“Sequential”
or the “Company”) and the subsidiaries of the Company listed on Exhibit 99.1 (together with the Company, the “Debtors”)
commenced voluntary Chapter 11 proceedings under Chapter 11 of the United States, (the “Bankruptcy Code”) in the United States
Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). The Debtors have requested that the Chapter 11 proceedings
be jointly administered under the caption In re Sequential Brands Group Inc., et al. (the “Chapter 11 Cases”). The Debtors
continue to operate their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance
with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Debtors are seeking approval of various
“first day” motions containing customary relief intended to assure the Debtors’ ability to continue their ordinary course
operations.
Additional information about the Chapter 11 Cases, including access
to Bankruptcy Court documents, is available online at www.kccllc.net/SQBG, a website administered by Kurtzman Carson Consultants LLC,
a third party bankruptcy claims and noticing agent. The information on this website is not incorporated by reference into, and does not
constitute part of, this Current Report on Form 8-K.
Restructuring Support Agreement
On August 31, 2021, the Debtors entered into a Restructuring Support
Agreement (together with all exhibits and schedules thereto, the “RSA”) with creditors holding, in the aggregate, approximately
100% of obligations outstanding under the “Third Amended and Restated Credit Agreement,” dated as of July 1, 2016, with Wilmington
Trust, National Association, as administrative agent and collateral agent and the lenders party thereto, as subsequently amended (such
lenders, the “Consenting Lenders” or the “Investor Group”). Capitalized terms used but not otherwise defined in
this “Restructuring Support Agreement” section of this Form 8-K have the meanings given to them in the RSA, which is attached
as Exhibit 99.3 hereto.
In conjunction with the execution of the
RSA, the Company entered into two asset purchase agreements (each, an “APA” and together, the “Asset Purchase
Agreements”) with (i) Gainline Galaxy Holdings LLC (“Galaxy”) for the purchase of the Company’s Active
Division Assets, for a purchase price of $333 million (subject to certain adjustments) and (ii) Centric Brands LLC
(“Centric” and, together with Galaxy, the “Stalking Horse Bidders”) for the purchase of the Joe’s
Jeans brand, for a purchase price (subject to certain adjustments) of (a) $38,250,000 in cash plus (b) certain earnout payments
(subject to minimum guaranteed payments of $750,000 per year) over the next five years (the transactions collectively, the
“Sale Transactions”).
Upon filing for the Chapter 11 Cases, the Company will contemporaneously
initiate a sale process for the Active Division Assets, the Joe’s Jeans brand, and the Company’s remaining brands, which is
intended to be value-maximizing by providing third parties with the ability to provide higher and/or better bids. The Company plans to
ultimately sell all or substantially all of its assets to the Stalking Horse Bidders and/or one or more third party purchasers determined
through an auction process supervised by the Bankruptcy Court to have submitted the highest or otherwise best offer in accordance with
the proposed bidding and sale procedures (the “Bidding Procedures”).
The RSA also contemplates debtor-in-possession
financing pursuant to a DIP Credit Agreement (as defined and described below), to be provided by the Consenting Lenders, which will provide
the Debtors up to $150 million in financing for the purposes of refinancing the First Lien Credit Agreements (as defined below) and will
provide the Company with the necessary liquidity to operate during the Chapter 11 Cases.
Pursuant to the RSA, each of the Debtors and the Consenting Lenders
has made customary commitments to each other. The Debtors have agreed to, among other things, seek to implement the Sale Transactions
and other matters contemplated by the RSA and to satisfy certain other covenants. The Consenting Lenders have also committed to support
and to use commercially reasonable efforts to take, or refrain from taking, certain actions in furtherance of the Sale Transactions and
other matters contemplated in the RSA and to provide the necessary financing for the Chapter 11 Cases through, among other things, the
DIP Credit Agreement.
The RSA and other transaction documents contain milestones for the
progress of the Chapter 11 Cases (the “Milestones”), which include the dates by which the Debtors are required to, among other
things, obtain certain orders of the Bankruptcy Court and consummate the Sale Transactions. Among other dates set forth in the RSA, the
agreement contemplates:
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On or prior to August 31, 2021 (the “Petition Date”), the Debtors
shall have entered into the Asset Purchase Agreements (as defined in the RSA) with each of the respective Stalking Horse Bidders;
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No later than one (1) calendar day after the Petition Date, the Company shall
file a motion in Bankruptcy Court to approve the Debtors’ consensual use of cash collateral and debtor-in-possession financing facility
pursuant to the terms set forth in the DIP Term Sheet (the “DIP Facility”);
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No later than one (1) business day after the Petition Date, the Debtors shall
file a motion requesting (a) an order from the Bankruptcy Court (the “Bidding Procedures Order”) (i) approving the proposed
Bidding Procedures, and (ii) authorizing the Company to provide the Stalking Horse Bidders with the bid protections set forth in the applicable
Asset Purchase Agreements, and (b) an order or orders from the Bankruptcy Court (each, a “Sale Order”) approving the Sale
Transactions;
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No later than three (3) business days after the Petition Date, the Bankruptcy
Court shall have entered an order approving the DIP financing on an interim basis;
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No later than twenty-three (23) calendar days after the Petition Date, the
Bankruptcy Court shall have entered the Bidding Procedures Order and an order approving the DIP financing on a final basis;
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The Debtors shall establish a date that is no later than fifty-five (55)
calendar days after the Petition Date as the deadline for the submission of binding bids with respect to each of the Sales;
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No later than sixty (60) calendar days after the Petition Date, the Debtors
shall complete an auction for substantially all of its assets, in accordance with the Bidding Procedures; provided that if there is no
higher or better offer submitted in comparison to the stalking horse bids, no auction shall be held;
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No later than sixty-five (65) calendar days after the Petition Date, the
Bankruptcy Court shall have entered one or more Sale Orders approving each of the winning bids resulting from the auction which any such
order shall be in form and substance acceptable to the Requisite Consenting Lenders; and
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Closing of the Sales, including consummation of the transactions contemplated
thereby, shall occur no later than the date that is seventy-five (75) calendar days after the Petition Date.
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Each of the parties to the RSA may terminate the agreement under certain
limited circumstances. Any Debtor may terminate the RSA upon, among other circumstances:
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the Bankruptcy Court enters an order denying any of the transactions embodied
in the Asset Purchase Agreements and such order remains in effect for seven (7) Business Days after entry of such order; or
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any Sale Order or Bidding Procedures Order is reversed or vacated.
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The transactions contemplated by the RSA do not provide for any ownership
or other interest in the Company or the applicable Buyer being provided to the holders of the Company’s outstanding common stock,
nor does the Company currently anticipate the holders of the Company’s outstanding common stock will receive any consideration as
a result of such transactions.
The transactions contemplated by the RSA are subject to approval by
the Bankruptcy Court, among other conditions. Accordingly, no assurance can be given that the transactions described therein will be consummated.
The APAs each contain customary representations,
warranties and covenants, including closing conditions and agreements with respect to operation of the Company prior to closing. The
APAs are attached to this Form 8-K to provide investors and security holders with information regarding their terms. It is not intended
to provide any other factual information about Sequential or the counterparties or any of their respective businesses, subsidiaries or
affiliates. The representations, warranties and covenants contained in the APAs (a) were made by the parties thereto only for purposes
of that agreement and as of specific dates; (b) were made solely for the benefit of the parties to the applicable APA; (c) may be subject
to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties
in connection with the execution of the applicable APA (such disclosures include information that has been included in public disclosures,
as well as additional non-public information); (d) may have been made for the purposes of allocating contractual risk between the parties
to the applicable APA instead of establishing these matters as facts; and (e) may be subject to standards of materiality applicable to
the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties
and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of Sequential or the counterparties
or any of their respective subsidiaries or affiliates. Additionally, the representations, warranties, covenants, conditions and other
terms of the APAs may be subject to subsequent waiver or modification. Moreover, information concerning the subject matter of the representations,
warranties and covenants may change after the date of the APA, which subsequent information may or may not be fully reflected in Sequential’s
public disclosures.
The foregoing description of the RSA and APAs
is not complete and is qualified in its entirety by reference to the RSA, which is attached hereto as Exhibit 99.3 and incorporated by
reference herein, and the Asset Purchase Agreements, which are attached hereto as Exhibits 2.1 and 2.2 and are incorporated by reference
herein.