| Item 1.01. | Entry into a Material Definitive Agreement. |
Merger Agreement with Kids2, Inc.
On March 16, 2022, Summer Infant, Inc. (the “Company”)
entered into an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Kids2, Inc., a Georgia
corporation (“Parent”), and Project Abacus Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Parent
(“Merger Sub”). The Merger Agreement provides, subject to its terms and conditions, for the acquisition of the Company by
Parent through the merger of Merger Sub with and into the Company, with the Company surviving the merger as a wholly owned subsidiary
of Parent (the “Proposed Merger”).
The Board of Directors of the
Company (the “Board of Directors”) unanimously (i) determined and declared that the Merger Agreement and the transactions
contemplated thereby, including the Proposed Merger, are advisable and in the best interests of the Company and its stockholders; (ii) approved
the Merger Agreement and the transactions contemplated thereby, including the Proposed Merger; and (iii) resolved to recommend that
the Company’s stockholders adopt the Merger Agreement (the “Company Board Recommendation”).
Under the terms of the Proposed Merger, (i) each share of common
stock of the Company issued and outstanding immediately prior to the effective time of the Proposed Merger (the “Effective Time”)
(other than shares of common stock (a) owned by Parent, Merger Sub, the Company or any subsidiary of Parent, Merger Sub or the Company,
or (b) held by a stockholder who is entitled to, and who has perfected, appraisal rights for such shares under Delaware law) automatically
will be converted into the right to receive cash in an amount equal to $12.00 per share (the “Merger Consideration”), without
interest, subject to any required withholding of taxes; and (ii) each outstanding unexercised, vested or unvested option or unvested
restricted stock award outstanding immediately prior to the Effective Time will be converted into the right to receive cash (without interest,
subject to any required withholding of taxes) (a) in the case of options, in an amount equal to the product of the excess, if any,
of the Merger Consideration over the exercise price of such option, multiplied by the number of shares of common stock issuable upon the
exercise of the option or (b) in the case of unvested restricted stock awards, in amount equal to the product of the Merger Consideration
multiplied by the number of shares subject to the restricted stock award.
The completion of the Proposed Merger is subject to closing conditions,
including: (i) the approval of the Merger Agreement by the Company’s stockholders (the “Stockholder Approval”);
(ii) the absence of any laws or court orders making the Proposed Merger illegal or otherwise prohibiting the Proposed Merger; (iii) other
customary closing conditions, including the accuracy of the representations and warranties of each party (subject to certain materiality
exceptions) and material compliance by each party with its covenants under the Merger Agreement; and (iv) the closing of a debt financing
by Parent, a portion of the proceeds of which will fund Parent’s obligation to pay the Merger Consideration.
Parent has entered into debt commitment letters providing for (i) an
asset-based credit facility and (ii) a term loan, a portion of the proceeds of which will fund Parent’s obligation to pay the
Merger Consideration at the closing of the Proposed Merger. The obligations of the lenders under the debt commitment letters are subject
to a number of conditions, including the receipt of executed loan documentation, accuracy of certain specified representations and warranties,
and certain pro forma financial conditions.
The Merger Agreement contains representations and warranties customary
for transactions of this type. The Company has agreed to various customary covenants and agreements, including, among others, (i) agreements
to use commercially reasonable efforts to conduct its and its subsidiaries’ businesses in the ordinary course of business during
the period between the date of the Merger Agreement and the Effective Time and not to engage in certain kinds of transactions during this
period; and (ii) to call a meeting of its stockholders to adopt the Merger Agreement.
The Company has also agreed not to (i) solicit proposals relating
to alternative transactions; or (ii) participate in any discussions or negotiations regarding, or furnish any non-public information
relating to the Company in connection with, any proposal for an alternative transaction, subject to certain exceptions to permit the Board
of Directors to comply with its fiduciary duties. Notwithstanding these “no-shop” restrictions, prior to obtaining the Stockholder
Approval, under specified circumstances, the Board of Directors may change the Company Board Recommendation in connection with its decision
to accept a superior proposal (in which case the Company is also required to terminate the Merger Agreement and pay the termination fee
described below).
The Merger Agreement may be terminated by mutual written consent of
the Company and Parent or by either the Company or Parent in certain circumstances if the failure to consummate the transactions contemplated
by the Merger Agreement is not caused by any breach of the Merger Agreement by the party electing to terminate the Merger Agreement. If
the Board of Directors approves a change of the Company Board Recommendation, the Company will be required to pay Parent a termination
fee of $2,310,600.
In connection with entering into the Merger Agreement, Wynnefield Capital
Management LLC and Jason Macari, who beneficially own shares of common stock constituting approximately 53% of the Company’s issued
and outstanding common stock, have each entered into a similar voting and support agreement with Parent pursuant to which they agreed
to vote their beneficially owned shares of common stock in favor of the Proposed Merger, and their respective agreements will automatically
terminate in certain circumstances, including if the Merger Agreement is terminated or the Board of Directors changes its Company Board
Recommendation.
A copy of the Merger Agreement has been filed herewith to provide investors
with information regarding its terms. It is not intended to provide any other factual information about the Company. In particular, the
representations and warranties contained in the Merger Agreement were made only for the purposes of the Merger Agreement as of the specific
dates therein and were solely for the benefit of the parties to the Merger Agreement. The representations and warranties contained in
the Merger Agreement may be subject to limitations agreed upon by the parties to the Merger Agreement and are qualified by information
in confidential disclosure schedules provided in connection with the signing of the Merger Agreement. These confidential disclosure schedules
contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Merger Agreement.
Moreover, certain representations and warranties in the Merger Agreement may be subject to a standard of materiality provided for in the
Merger Agreement and have been used for the purpose of allocating risk among the parties, rather than establishing matters of fact. Investors
are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any
descriptions thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates.
Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement,
which subsequent information may or may not be fully reflected in the Company’s public disclosures.
If the Proposed Merger is consummated, the Company’s common stock
will be delisted from the Nasdaq Capital Market and deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete
and is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed herewith as Exhibit 2.1 and
is incorporated herein by reference.
Amendments to Loan Agreements
Amendment
to BofA Agreement. On March 16, 2022, the Company and its subsidiary, Summer Infant
(USA), Inc. (“Summer USA”), as borrowers, entered into Amendment No. 2 to the Third Amended and Restated
Loan and Security Agreement among the Company and Summer USA, as borrowers, the guarantors from time-to-time party thereto, the financial
institutions from time-to-time party thereto as lenders, and Bank of America, N.A., as agent for the lenders (the “BofA Amendment”).
The BofA Amendment amends the terms of the Third Amended and Restated
Loan and Security Agreement (the “BofA Agreement”) among other things:
| • | increase the minimum availability requirement to $3.5 million; |
| • | modify the fixed charge coverage ratio to provide for a ratio of at least 1.00 to 1.00 as of the last day of each fiscal month commencing
January 28, 2023; |
| • | adjust the minimum EBITDA covenant thresholds; |
| • | waive the requirement that the Company’s audit and certification with respect to its fiscal year 2021 financial statements be
without qualification; and |
| • | permit the Company to add back the costs of legal advisors and independent consultants incurred during the period from January 1,
2022 through July 2, 2022 in an aggregate amount not to exceed $1.0 million. |
The foregoing summary of the BofA Amendment does not purport to be
complete and is qualified in its entirety by reference to the full text of the agreement, a copy of which is filed herewith as Exhibit 10.1
and is incorporated herein by reference.
Amendment
to Loan and Security Agreement. On March 16, 2022, the Company and Summer USA, as borrowers, entered into Amendment No. 1
to the Loan and Security Agreement dated as of January 28, 2022, among the Company and Summer USA. as borrowers, the guarantors from
time-to-time party thereto, Wynnefield Partners Small Cap Value, L.P. and Wynnefield Partners Small
Cap Value, L.P. I, as lenders (“Lenders”), and Wynnefield Capital, Inc., as agent for the Lenders (the “New
Term Loan Amendment”). The New Term Loan Amendment amends the terms of the Loan and Security Agreement to conform with the amendments
to the BofA Agreement. In addition, the Lenders also waived the requirement that the Company’s audit and certification with respect
to its fiscal year 2021 financial statements be without qualification.
The foregoing summary of the New Term Loan Amendment does not purport
to be complete and is qualified in its entirety by reference to the full text of the agreement, a copy of which is filed herewith as Exhibit 10.2
and is incorporated herein by reference.