On June 11, 2018, the Company amended its existing
Credit Agreement (the “Amended Credit Agreement”). The Amended Credit Agreement provides for a two year revolving facility
(“Amended Revolving Facility”) in the principal amount of $15,000 or the equivalent in U.S. dollars, repayable at any
time, two years from June 11, 2018, with no accordion feature. Borrowings under the Amended Revolving Facility may not exceed the
lesser of the total commitment for the revolving facility and the borrowing base, calculated as 75% of the face value of all eligible
receivables plus 50% of the estimated value of all eligible inventory, less any priority payables.
The Amended Credit Agreement subjects the Company
to certain financial covenants. Without the prior written consent of the lender, the Company’s fixed charge coverage ratio
may not be less than 1.10:1.00 and the Company’s leverage ratio may not exceed 3.00:1.00. In addition, the Company’s
net tangible worth may not be less than $65,000 and the Company’s minimum excess availability must not be less than $15,000.
The Amended Revolving Facility bears interest based on the Company’s adjusted leverage ratio, at the bank’s prime rate,
U.S. bank rate or LIBOR plus a range from 0.5% to 2.5% per annum. A standby fee range of 0.3% to 0.5% will be paid on the daily
principal amount of the unused portion of the Amended Revolving Facility.
The credit facility also contains nonfinancial
covenants that, among other things and subject to certain exceptions, restrict the Company’s ability to become guarantor
or endorser or otherwise become liable upon any note or other obligation other than in the normal course of business. The Company
also cannot make any dividend payments.
As at November 2, 2019, the Company did not
have any borrowings under the Amended Revolving Facility.
As at November 2, 2019, the Company is in breach
of its fixed charge coverage ratio and certain nonfinancial covenants. BMO has temporarily agreed to forbear from exercising remedies
under the Credit Agreement, however the Company cannot borrow under the facility.
The current lending agreement will be
terminated on the earlier of (a) January 24, 2020, (b) the Company securing new financing. The Company is in good faith
discussions with BMO to install an asset based lending facility that will provide a revolving facility at commercially
reasonable terms.
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