Chardan NextTech 2 (CNTQ) Secures $75M for Dragonfly Deal
Chardan NextTech Acquisition 2 Corp. (NASDAQ:CNTQ) announced this afternoon that it has obtained a loan of 75 million dollars for its combination with energy storage company Dragonfly Energy.
The parties entered into a debt commitment letter with CCM Investments 5 LLC, an affiliate of Chardan Capital Markets, and EICF Agent LLC, for a $75 million senior secured term loan facility concurrent with the closing under the business combination agreement.
The lender Chardan has secured its commitment under the debt covenant by entering into a guarantee commitment, dated May 20, 2022 with a third-party funding source. The collateral lender has agreed to purchase from the Chardan lender the full amount of the loan immediately after issuance on the closing date subject to final documentation which complies with all documents relating to the debt commitment letter and the summary of terms and conditions.
Loan proceeds are expected to be used to refinance, at the closing date, prior indebtedness, to support the combination, for working capital purposes, to pay costs associated with transactions contemplated under the definitive agreement for the loan and the costs and expenses related to the business combination.
The Term Loan will be advanced in one tranche on the Closing Date and will be amortized by an amount of 5% per annum beginning 24 months after Closing and will mature on the fourth anniversary of the Maturity Date.
In addition, the term loan will bear interest until April 1, 2023 at an annual rate equal to the adjusted secured overnight rate plus a margin equal to 13.5%. Of this amount, 7% will be payable in cash and 6.5% will be paid in kind, thereafter until October 1, 2024, at an annual rate equal to the Adjusted SOFR plus 7% payable in cash plus an amount ranging from 4 .5% to 6.5%, depending on the senior leverage ratio of the consolidated company, which will be paid in kind.
This will also occur at any time thereafter, at an annual rate equal to the adjusted SOFR plus a margin ranging from 11.5% to 13.5% payable in cash, depending on the senior leverage ratio of the consolidated company . In each of the above cases, the adjusted SOFR will not be less than 1%.
Chardan is authorized to prepay all or part of the amounts due before the due date, provided that it notifies the administrative agent and that the amount is accompanied by the applicable prepayment premium.
Early repayments of the loan must be accompanied by a premium of 5% of the principal amount thus repaid in advance if they are made before 1st anniversary of the closing, 3% if carried out on and after the 1st birthday but before the 2n/a closing anniversary, 1% if made after the 2n/a anniversary of the closure, but before the 3rd anniversary of the closing, and 0% if carried out on or after the 3rd anniversary of the closure. If the Loan is accelerated following the occurrence of an Event of Default, the Borrower will be required to immediately pay the Lenders the sum of all obligations for principal, accrued interest and the applicable prepayment premium.
In addition, Dragonfly will be required to prepay the Loan with the net cash proceeds of certain asset sales and claims, together with the net cash proceeds of the issuance of debt that is not otherwise permitted to be incurred, upon receipt of the net cash proceeds of an issue of shares. This will be an amount equal to 25% of such net cash proceeds, and will begin in the fiscal year ending December 31, 2023, with excess cash for each fiscal year equal to 25% or 50 % of this product. the cash surplus, based on the senior leverage ratio of the consolidated company, less the amount of any voluntary early repayments made during this financial year.
As part of the loan agreement, Chardan will issue penny warrants to the initial term lenders exercisable to purchase an aggregate number of shares equal to 5.6% of the common stock on a fully diluted basis. This will also apply to the $10 warrant to issue warrants to the original term lenders exercisable to purchase 1.6 million shares of SPAC common stock at $10 per share.
The amount of the penny warrants, which have an exercise period of 10 years from the date of issue, was increased from 3.6% to 5.6% of the ordinary shares of Chardan on a full basis at closing . The additional common shares will proportionately dilute the pro forma ownership of other SPAC shareholders.
The $10 Warrants will have an exercise period of 5 years from the date of issue and will have customary cashless exercise provisions. In the event that the registration statement recording the common stock associated with Chardan’s planned $150 million line of credit has not been declared effective by the SEC on or before the date that is 121 days after the date of issuance, the number of common shares the shares to be issued under the $10 Warrants will increase by an additional 200,000 shares and at the beginning of each 30-day period thereafter, until effective.
Chardan’s $75 million loan comes after he added $15 million to his proposed merger through a stock purchase agreement with THOR Industries.
CNTQ initially contributed $128.4 million to the deal from its current trust as well as a $230 million PIPE composed of $75 million senior secured term loan, which is to be used in part to refinance approximately $45 million of Dragonfly’s outstanding debt, a $5 million HOSE to $10.00 per share of CNTQ’s limited partner, Chardan NexTech Investments 2 LLC, and a $150 million Chardan Equity Facility of Chardan, a subsidiary of the sponsor.
SPAC announced its $500 million business combination with Dragonfly on May 16. Based in Reno, Nevada, Dragonfly creates lithium-ion batteries equipped with a proprietary battery management system that are currently used in recreational vehicles (RVs), ships, material handling, off-grid residences and solar applications.