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Item 1.01
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Entry into a Definitive Material Agreement
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Loan Agreement
On April 3, 2017, the Company, as borrower, and
certain of its subsidiaries, as guarantors, entered into a Loan and Security Agreement with Wilmington Trust, National Association,
as agent, and the lenders party thereto (the “
Loan Agreement
”), providing for a term loan of $85,000,000 (the
“
Loan
”) and a maturity date of April 4, 2022. The Loan is secured by substantially all of the assets of the
Company and its subsidiaries.
Interest on the Loan is equal to the one-, two-,
three- or six-month London interbank rate, or LIBOR, plus 8.75% per annum on the unpaid principal amount of the Loan, subject to
adjustment under certain circumstances. Interest on the Loan is generally payable monthly. There are no amortized principal payments;
however, the Company is required to prepay the Loan, and in certain cases pay a prepayment premium thereon, with proceeds received
from the issuances of debt or equity, transfers, events of loss and extraordinary receipts. The Company is required to make an
offer quarterly to the lenders to prepay the Loan in an amount equal to 75% of its excess cash flow, plus accrued and unpaid interest
thereon and a prepayment premium.
The Loan Agreement contains various covenants that
limit, among other things, the Company’s ability and certain of its subsidiaries’ ability to incur certain indebtedness,
grant certain liens, merge or consolidate, sell assets, make certain loans, enter into acquisitions, incur capital expenditures,
make investments, and pay dividends. In addition, the Company is required to maintain the following financial covenants:
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a ratio of secured indebtedness to EBITDA of not more than 3.10 to 1.00 beginning with the four consecutive
quarters ending June 30, 2017, reducing to 1.80 to 1.00 by the four consecutive quarters ending September 30, 2019;
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daily cash collateral of not less than $10,000,000 commencing on June 30, 2017, increasing to $15,000,000
on October 1, 2017, and potentially further increasing to $18,000,000 beginning on April 4, 2018;
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a rolling four quarter gross margin in contract backlog of not less than $60,000,000 commencing June
30, 2017, increasing to $70,000,000 by March 31, 2019;
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the incurrence of net capital expenditures during each four consecutive fiscal quarters shall not
exceed $15,000,000;
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bonding capacity shall be maintained at all times in an amount not less than $1,000,000,000; and
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the EBITDA of Tealstone Residential Concrete, Inc. shall not be less than $12,000,000 during each
four consecutive fiscal quarters, commencing June 30, 2017.
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The Loan Agreement also includes customary events
of default, including events of default relating to non-payment of principal or interest, inaccuracy of representations and warranties,
breaches of covenants, cross-defaults, bankruptcy and insolvency events, certain unsatisfied judgments, loan documents not being
valid, calls under the Company’s bonds, failure of specified individuals to remain employed by the Company, and a change
of control. If an event of default occurs, the lenders will be able to accelerate the maturity of the Loan Agreement and exercise
other rights and remedies.
The
foregoing description of the Loan Agreement does not purport to be complete and is qualified in its entirety by reference to such
document, which is filed as Exhibit 10.1 hereto and incorporated herein by reference.
Warrants
On April 3, 2017, the Company issued Warrants (the
“
Warrants
”) to the lenders under the Loan Agreement (the “
Holders
”) pursuant to which the
Holders have the right to purchase, for a period of five years from the date of issuance, up to an aggregate of 1,000,000 shares
of the Company’s common stock (the “
Warrant Shares
”) at an initial exercise price of $10.25 per share,
subject to adjustment for stock splits, combinations and similar recapitalization events and weighted-average antidilution upon
the issuance by the Company of shares of common stock or rights, options or convertible securities exercisable for common stock
in the future at a price below the exercise price of the Warrants.
The
foregoing description of the Warrants does not purport to be complete and is qualified in its entirety by reference to such document,
a form of which will be filed with the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ending March 31, 2017.
Registration Rights Agreement
In connection with the issuance of the Warrants,
on April 3, 2017, the Company entered into a Registration Rights Agreement (the “
Registration Rights Agreement
”)
with the Holders pursuant to which the Company granted to the Holders certain registration rights related to the Warrants and the
Warrant Shares. Under the Registration Rights Agreement, the Company agreed to file registration statements on Form S-3 with
respect to the resale of the Warrants and the Warrant Shares and to register common stock having a value of not less than $80 million
no later than May 31, 2017 and granted to the Holders demand and piggyback registration rights, including the right to demand underwritten
shelf offerings for resale of the Warrants and Warrant Shares and receive reimbursement from the Company of registration expenses
specified in the Registration Rights Agreement.
The Company also agreed, among other things, to
indemnify and hold harmless the Holders and their officers, directors, employees, agents and representatives, and each person who
controls the Holders, from and against all losses incident to the Company’s obligations under the Registration Rights Agreement,
including certain liabilities under the Securities Act of 1933, as amended (the “
Securities Act
”). The
Holders agreed to indemnify and hold harmless the Company and its officers, directors, employees, agents and representatives, and
each person who controls the Company, from and against all losses that may be based upon written information furnished by the Holders
to the Company for inclusion in a registration statement pursuant to the Registration Rights Agreement.
The
foregoing description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by
reference to such document, which is filed as Exhibit 4.1 hereto and incorporated herein by reference.