| | THE OFFER PERIOD AND YOUR RIGHT TO WITHDRAW WARRANTS THAT YOU TENDER WILL EXPIRE AT ONE MINUTE AFTER 11:59 P.M., EASTERN TIME, ON SEPTEMBER 26, 2023, UNLESS THE OFFER PERIOD IS EXTENDED. THE COMPANY MAY EXTEND THE OFFER PERIOD AT ANY TIME. | | |
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| The Company | | | Direct Digital Holdings, Inc., a Delaware corporation. Our principal executive offices are located at 1177 W Loop S., Suite 1310, Houston, Texas 77027. Our telephone number is (832) 402-1051. | |
| The Warrants | | | As of September 14, 2023, the Company had 3,217,800 Warrants outstanding. Each Warrant is exercisable for one share of our Class A common stock, par value $0.001 per share, at an exercise price of $5.50. By their terms, the Warrants will expire on February 15, 2027, at 11:59 p.m. Eastern Time, unless sooner exercised or redeemed by the Company in accordance with the terms of the Warrants. The Offer relates to the Warrants that were sold as part of the units issued in connection with the DIRECT IPO, which trade on Nasdaq under the symbol “DRCTW.” Any and all outstanding Warrants are eligible to be tendered pursuant to the Offer. | |
| Market Price of the Warrants | | | The Warrants are listed on Nasdaq under the symbol “DRCTW”. On September 13, 2023, the last reported sale price on Nasdaq for the Warrants was $1.17. | |
| The Offer | | | The Offer is to permit holders of Warrants to tender any and all outstanding Warrants for a purchase price of $1.20 in cash, without interest, for each Warrant tendered. A holder may tender as few or as many Warrants as the holder elects. | |
| | | | See “The Offer and Consent Solicitation, Section 1. General Terms.” | |
| The Consent Solicitation | | | In order to tender the Warrants in the Offer, holders of the Warrants are required to consent (by executing the Letter of Transmittal and Consent or requesting that their broker or nominee consent on their behalf) to an amendment to the Warrant Agreement governing the Warrants as set forth in the Warrant Amendment attached as Annex A. If approved by at least 50.1% of the holders of the Warrants, the Warrant Amendment would permit, as it relates, respectively, to the Warrants, the Company to redeem each Warrant as applicable that is outstanding upon the closing of the Offer for $0.35 in cash, without interest, which is approximately 71% less than the Offer Purchase Price. Although we intend to redeem all remaining outstanding Warrants if the Warrant Amendment is approved, we would not be required to effect such a redemption and may defer doing so until it is most advantageous to us. | |
| | | | See “The Offer and Consent Solicitation, Section 1. General Terms.” | |
| Fairness of the Transaction | | |
On September 12, 2023, our Board of Directors approved the Transaction as fair and in the best interest of the Company and the unaffiliated holders of the Warrants.
See “Special Factors, Section 2. Fairness of the Transaction.”
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| U.S. Federal Income Tax Consequences of the Offer and Warrant Amendment | | | The exchange of Warrants for cash pursuant to the Offer will be a taxable sale of the Warrants for U.S. federal income tax purposes. A U.S. Holder will recognize gain or loss in an amount equal to the difference between the amount of cash received and the U.S. Holder’s adjusted tax basis in the Warrants. | |
| | | | Although the issue is not free from doubt, if the Warrant Amendment is approved, we intend to treat all Warrants that are not exchanged for cash pursuant to the Offer as having been exchanged for “new” Warrants pursuant to the Warrant Amendment, and we intend to treat such deemed exchange as a “recapitalization” within the meaning of Section 368(a)(1)(E) of the Code, pursuant to which (i) the U.S. Holder should not recognize any gain or loss on the deemed exchange of Warrants for “new” Warrants, (ii) the U.S. Holder’s aggregate tax basis in the “new” Warrants deemed to be received should equal its aggregate tax basis in its existing Warrants deemed surrendered, and (iii) the U.S. Holder’s holding period for the “new” Warrants deemed to be received should include its holding period for the Warrants deemed surrendered. | |
| | | | See “Special Factors, Section 5. Material U.S. Federal Income Tax Consequences.” | |
| Reasons for the Transaction | | | The Offer is being made to all holders of Warrants. The purpose of the Offer and Consent Solicitation (including any subsequent redemption of untendered Warrants) is to reduce the number of shares of Class A common stock that would become outstanding upon the exercise of Warrants, thus providing investors and potential investors with greater certainty as to the Company’s capital structure. | |
| | | | See “Special Factors, Section 1. Purpose of the Transaction.” | |
| Expiration Date of Offer | | | One minute after 11:59 pm, Eastern Time, on September 26, 2023, or such later date to which we may extend the Offer. All Warrants and related paperwork must be received by the Depositary by this time, as instructed herein. | |
| | | | See “The Offer and Consent Solicitation, Section 10. Conditions; Termination; Waivers; Extensions; Amendments.” | |
| Withdrawal Rights | | | If you tender your Warrants and change your mind, you may withdraw your tendered Warrants at any time until the Expiration Date. | |
| | | | See “The Offer and Consent Solicitation, Section 3. Withdrawal Rights.” | |
| Participation by Executive Officers and Directors | | | To our knowledge, with the exception of 27,759 Warrants held by Mark Walker, and 71,124 Warrants held by Keith Smith, none | |
| | | | of our directors or executive officers beneficially own Warrants. Mark Walker and Keith Smith may tender their Warrants in the Offer and consent to the Warrant Amendment as it relates to the Warrants. | |
| | | | See “Special Factors, Section 4. Interests of Directors and Executive Officers.” | |
| Conditions of the Offer | | |
We will not accept for payment, purchase or pay for any Warrants tendered, and may terminate or amend the Offer or may postpone the acceptance for payment of, or the purchase of and the payment for the Warrants tendered, subject to the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), if:
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the Minimum Tender Condition has not been satisfied; or
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there has been instituted, threatened in writing or is pending any action, suit or proceeding by any government or governmental, regulatory or administrative agency or instrumentality, or by any other person, before any court, authority or other tribunal that, in our reasonable judgment, would or would be reasonably likely to prohibit, prevent, restrict or delay consummation of the Offer or materially impair the contemplated benefits to us of the Offer, or that is, or is reasonably likely to be, materially adverse to our business, operations, properties, condition, assets, liabilities or prospects; or
•
any order, statute, rule, regulation, executive order, stay, decree, judgment or injunction has been proposed, enacted, entered, issued, promulgated, enforced or deemed applicable by any court or governmental, regulatory or administrative agency or instrumentality that, in our reasonable judgment, would or would be reasonably likely to prohibit, prevent, restrict or delay consummation of the Offer or materially impair the contemplated benefits to us of the Offer, or that is, or is reasonably likely to be, materially adverse to our business, operations, properties, condition, assets, liabilities or prospects; or
•
in our reasonable judgment, there shall have occurred or be reasonably likely to occur, any material adverse change to our business, operations, properties, condition, assets, liabilities, or prospects.
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| | | | The foregoing conditions are solely for our benefit, and we may assert one or more of the conditions regardless of the circumstances giving rise to any such conditions, provided that, in no event shall the action or inaction of the Company or any of its affiliates be permitted to trigger any of such conditions. We may also, in our sole and absolute discretion, waive these conditions in whole or in part, subject to the potential requirement to disseminate additional information and extend the Offer, or terminate the Offer if these conditions are not satisfied prior to the Expiration Date. | |
| | | | See “The Offer and Consent Solicitation, Section 10. Conditions; Termination; Waivers; Extensions; Amendments.” | |
| Board of Directors’ Recommendation | | | Our board of directors has approved the Offer and Consent Solicitation. However, none of the Company, its directors, officers or employees, nor the Depositary, the Information Agent or the Dealer Manager makes any recommendation as to whether holders of Warrants should tender their Warrants and consent to the Warrant Amendment. Holders of Warrants must make their own decision as to whether to tender some or all of their Warrants and consent to the Warrant Amendment. | |
| | | | See “The Offer and Consent Solicitation, Section 1.C. General Terms-Board Approval of the Offer; No Recommendation; Holder’s Own Decision.” | |
| How to Tender Warrants | | | To tender your Warrants, you must complete the actions described herein under “The Offer and Consent Solicitation, Section 2. Procedure for Tendering Warrants” before the Offer expires. | |
| Questions or Assistance | | | Please direct questions or requests for assistance, or for additional copies of this Offer Letter, Letter of Transmittal and Consent or other materials to the Information Agent. The contact information for the Information Agent is located on the back cover of this Offer Letter. | |
Name
|
| |
Position
|
|
Mark Walker | | |
Chief Executive Officer and Chairman of the Board
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|
Anu Pillai | | | Chief Technology Officer | |
Diana P. Diaz | | | Interim Chief Financial Officer | |
Maria Vilchez Lowrey | | | Chief Growth Officer | |
Keith Smith | | | Director | |
Richard Cohen | | | Director | |
Antoinette Leatherberry | | | Director | |
Mistelle Locke | | | Director | |
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Shares of Class A
Common Stock Beneficially Owned |
| |
Shares of Class B
Stock Beneficially Owned |
| |
Total Voting Power
Beneficially Owned |
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Name of Beneficial Owner
|
| |
No.
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Percent
|
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No.
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Percent
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No.
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Percent
|
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5% Stockholders | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Direct Digital Management, LLC(1)
|
| | | | — | | | | | | —% | | | | | | 11,278,000 | | | | | | 100% | | | | | | 11,278,000 | | | | | | 79.6% | | |
Named Executive Officers and Directors | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Mark Walker(2), Chairman, Chief Executive Officer and director
|
| | | | 62,915(3) | | | | | | 2.0% | | | | | | 5,689,000 | | | | | | 50.4% | | | | | | 5,751,915 | | | | | | 40.0% | | |
Keith Smith(2), President and director
|
| | | | 146,780(4) | | | | | | 4.6% | | | | | | 5,589,000 | | | | | | 49.6% | | | | | | 5,735,780 | | | | | | 39.7% | | |
Diana Diaz, Interim Chief Financial Officer
|
| | | | — | | | | | | *% | | | | | | — | | | | | | *% | | | | | | — | | | | | | *% | | |
Anu Pillai(5), Chief Technology Officer
|
| | | | 10,610 | | | | | | *% | | | | | | — | | | | | | *% | | | | | | 10,610 | | | | | | *% | | |
Maria Vichez Lowrey(6)
|
| | | | 6,642 | | | | | | *% | | | | | | — | | | | | | *% | | | | | | 6,642 | | | | | | *% | | |
Richard Cohen, director
|
| | | | 16,296 | | | | | | *% | | | | | | — | | | | | | *% | | | | | | 16,296 | | | | | | *% | | |
Antoinette R. Leatherberry, director
|
| | | | 16,296 | | | | | | *% | | | | | | — | | | | | | *% | | | | | | 16,296 | | | | | | *% | | |
Mistelle Locke, director
|
| | | | — | | | | | | *% | | | | | | — | | | | | | *% | | | | | | — | | | | | | *% | | |
All executive officers and directors as a group (8 persons)(7)
|
| | | | 259,539 | | | | | | 8.5% | | | | | | 11,278,000 | | | | | | 100% | | | | | | 11,537,539 | | | | | | 79.6% | | |
| | |
Warrants
|
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| | |
High
|
| |
Low
|
| ||||||
| | |
$
|
| |
$
|
| ||||||
Fiscal 2022 | | | | | | | | | | | | | |
First Quarter (beginning on February 11, 2022)
|
| | | $ | 1.43 | | | | | $ | 0.27 | | |
Second Quarter
|
| | | $ | 0.86 | | | | | $ | 0.30 | | |
Third Quarter
|
| | | $ | 0.49 | | | | | $ | 0.16 | | |
Fourth Quarter
|
| | | $ | 1.04 | | | | | $ | 0.21 | | |
Fiscal 2023 | | | | | | | | | | | | | |
First Quarter
|
| | | $ | 1.76 | | | | | $ | 0.50 | | |
Second Quarter
|
| | | $ | 0.92 | | | | | $ | 0.05 | | |
Third Quarter (through September 13, 2023)
|
| | | $ | 1.175 | | | | | $ | 0.36 | | |
|
Legal fees
|
| | | $ | 200,000 | | |
|
Filing fees
|
| | | $ | 425 | | |
|
Information Agent/Depositary/Printing and Mailing expense
|
| | | $ | 40,000 | | |
|
Dealer Manager fees
|
| | | $ | 200,000 | | |
|
Advertisement fees
|
| | | $ | 42,000 | | |
| Total | | | | $ | 482,425 | | |
Name
|
| |
Position
|
|
Mark Walker | | |
Chief Executive Officer and Chairman of the Board
|
|
Anu Pillai | | | Chief Technology Officer | |
Diana P. Diaz | | | Interim Chief Financial Officer | |
Maria Vilchez Lowrey | | | Chief Growth Officer | |
Keith Smith | | | Director | |
Richard Cohen | | | Director | |
Antoinette Leatherberry | | | Director | |
Mistelle Locke | | | Director | |