Item 1.01 Entry into a Material Definitive Agreement.
On June 15, 2017, Nortech Systems Incorporated (the Company) entered into a Loan and Security Agreement with Bank of America, N.A. (the Loan Agreement), which provides for senior secured asset-based credit facilities of up to $21.0 million, including up to $16.0 million of revolving loans and up to $5.0 million of term loans. The Loan Agreement also includes an expansion feature providing for up to an additional $20.0 million of revolving credit, subject to certain conditions and further approvals. This new credit facility replaces the Companys existing credit agreement with Wells Fargo Bank, National Association (Wells Fargo), which has been terminated.
Loans made under the Loan Agreement mature on June 15, 2022. A portion of the loan proceeds were allocated for payment of amounts owed under the Companys existing credit facility with Wells Fargo, and the balance will be used by the Company for working capital and general corporate purposes. The Loan Agreement allows the Company to borrow at interest rates equal to Bank of Americas base rate or LIBOR plus an applicable margin ranging from 1.00% to 2.25%. The Loan Agreement also permits the issuance of letters of credit.
The Loan Agreement contains customary covenants, including covenants relating to financial reporting and notification, compliance with applicable laws, payment of taxes, and maintenance of insurance. There is also a financial covenant that requires the Company to maintain a Fixed Charge Coverage Ratio
for any period of four consecutive fiscal quarters of not less than 1.0 to 1.0. The Fixed Charge Coverage Ratio is defined in the Loan Agreement as the ratio of (a) EBITDA, minus (i) capital expenditures, (ii) cash taxes paid and (iii) distributions made, to (b) the sum of interest expense (other than payment-in-kind) and scheduled principal payments made on borrowed money.
The Loan Agreement also imposes certain customary limitations and requirements on the Company with respect to the incurrence of indebtedness and liens, investments, mergers and dispositions of assets. Amounts due under the Loan Agreement may be accelerated upon an event of default, as described in the Loan Agreement, such as breach of a representation, covenant or agreement of the Company or the occurrence of bankruptcy, if not otherwise waived or cured.
Advances under the Loan Agreement are secured by a lien on all assets of the Company, including certain real estate.
The foregoing summary description of the terms and conditions of the Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the Loan Agreement, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.
In addition, on June 15, 2017, the Company issued a press release, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference.
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