Item 1.01 Entry into a Material Definitive Agreement
On December 31, 2019, the Company and its wholly-owned subsidiaries entered into
a Loan and Security Agreement ("Loan Agreement") with Sterling National Bank
("Lender"). The Loan Agreement provides the Company's operating subsidiaries
(the "Borrowers") with maximum borrowings under Revolving Loans of $16,000,000
(which includes an inventory sub-limit of $11,000,000) but limited to the
Borrowing Base and a Term Loan in the amount of $3,800,000. To secure payment of
all amounts payable to lender under the Loan Agreement, the Company and the
Borrowers have granted Lender a first priority security interest in all of their
respective assets, and the Company has pledged to Lender the equity interests in
its subsidiaries. The Company also has guaranteed the payment of all Obligations
under the Credit Agreement.
Set forth below is a summary of the material terms of the Loan Agreement which
is filed as an exhibit to this report. Capitalized terms used herein without
definition have the respective meanings assigned to them in the Loan Agreement.
Under the terms of the Loan Agreement, the Revolving Note and Term Note bear
interest at a per annum rate equal to the greater of the LIBOR Rate and one
percent (1.0%) plus two and one/half percent (2.5%). In addition, the Company
paid Lender a commitment fee of $99,000, or one-half of one percent of the Total
Facility of $19,800,000. The Company also must pay the Lender an unused line
fee, determined on a daily basis, in an amount equal to one-quarter of one
percent per annum multiplied by the amount by which $16,000,000 exceeds the sum
of the average daily outstanding amount of Revolving Loans during the
immediately preceding calendar month (prorated if determined on a shorter basis)
and a collateral monitoring fee of $1,000 per month. The Maturity Date of the
Revolving Note and Term Note is December 30, 2022, or September 30, 2020 if
prior thereto the Company fails to extend the maturity date of its Subordinated
Debt then outstanding to a date having a maturity date not less than six months
after December 30, 2022 unless such Subordinated Debt is converted into common
stock, in each case pursuant to documentation satisfactory to Lender.
Accordingly, Michael Taglich, Robert Taglich, Taglich Brothers, Inc., and
individuals with which they jointly held certain notes entered into
Subordination Agreements acceptable to the Lender and extended the maturity date
of notes of the Company held by them to December 31, 2020.
The Company's receivables will continue to be payable directly into a lockbox
controlled by Lender (subject to the terms of the Loan Agreement). Each day, the
Company's cash collections are swept directly by the bank to reduce the balance
owed under the Revolving Note and the Company's operating subsidiaries can then
borrow according to a Borrowing Base. As such, the Company generally has no cash
on hand.
The Term Loan is repayable in consecutive monthly principal installments of
approximately $45,000, plus accrued interest, plus a final payment of any unpaid
balance of principal and interest payable on the Termination Date. Additionally,
there is a prepayment equal to 25% of Excess Cash Flow, as defined in the Loan
Agreement) for each fiscal year commencing the year ending December 31, 2020,
payable no later than April 15 of the following fiscal year.
Borrowers may prepay the obligations in full and terminate the commitment of the
Lender to make loans under the Loan Agreement; provided that the Borrowers pay
the Lender, in addition to all other amounts then payable under the Loan
Agreement, a prepayment penalty equal to the product of (a) the sum of (1)
$16,000,000 plus (ii) the outstanding principal amount of the term loan times
(b) one percent.
The terms of the Loan Facility require that, among other things, the Company
maintain a specified Fixed Charge Coverage Ratio. In addition, the Company is
limited in the amount of capital expenditures it may make and in the amount of
dividends it can pay its stockholders.
Item 1.02 Termination of a Material Definitive Agreement.
On December 31, 2019, the Company terminated its Amended and Restated Loan,
Revolving Credit, Term Loan and Security Agreement with PNC Bank, N.A. and paid
PNC approximately $15,392,000 in satisfaction of its obligations thereunder.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
10.1 Loan and Security Agreement with Sterling National Bank
10.2 Guaranty Agreement
10.3 Pledge Agreement
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