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Item
2.01
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Completion
of Acquisition or Disposition of Assets.
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On
February 1, 2019, the Company completed the sale of the Old Bridge Facility to the Buyer. In addition, in connection with the
completion of the sale, the Company and the Buyer (as landlord) entered into the Lease, pursuant to which the Company will continue
to occupy, and continue to conduct its manufacturing, engineering, sales and administrative functions in, the Old Bridge Facility.
The
sale of the Old Bridge Facility was made pursuant to an Agreement of Sale dated as of August 3, 2018 (the “Initial Sale
Agreement”), as amended by an Extension Letter Agreement dated as of September 20, 2018, the Second Amendment to Agreement
of Sale dated as of October 8, 2018 and the Third Amendment to Agreement of Sale dated as of January 30, 2019 (the Initial Sale
Agreement together with the Extension Letter Agreement, Second Amendment to Agreement of Sale and Third Amendment to Agreement
of Sale, collectively, the “Sale Agreement”). Pursuant to the Sale Agreement, Buyer paid the Company $10,500,000.
In addition, the Company advanced to the Buyer the sum of $130,000, representing a preliminary estimate of the Company’s
share (as a tenant of the Old Bridge Facility following closing) of property repairs, as contemplated by the Sale Agreement.
As
previously disclosed, the Lease will have an initial term of five years and allows the Company to extend the term for an additional
five years following the initial term. The Company is obligated to pay base rent of $836,855.50 for the first year of the Lease,
with the amount of the base rent adjusted for each subsequent year to equal 102.5% of the preceding year’s base rent. Without
regard to any reduction in the Company’s lease expense derived from its sublease to a third party of the Sublease Space
(defined below), for the first year of the Lease, the base rent of $836,855.00 would offset, in part, the anticipated annualized
saving of interest and depreciation expense of approximately $469,000 and the cash debt service of approximately $562,000. The
Lease further provides for a security deposit in an amount equal to eight months of base rent, which may be reduced to three months
of base rent upon certain benchmarks being met. The landlord may, once during the lease term or any renewal thereof, require the
Company to relocate to another facility made available by the landlord that meets the Company’s specifications for a replacement
facility within a defined geographical area, by providing notice which confirms that all of the Company’s specifications
for a replacement facility will be met, that all costs relating to such relocation will be paid by the landlord, and that security
for the repayment of those relocation costs has been established. The Company will also be provided a six month overlap period
(the “Overlap Period”) during which the Company may operate in the Old Bridge Facility with rent therein being abated,
but with rent being paid at the replacement facility, to mitigate interruptions of the Company’s on-going business while
the move occurs. If the Company declines to be relocated to the facility proposed by the landlord, the Lease will terminate 18
months from the date of the landlord’s notice, but the Company will continue to be entitled to receive the same benefits
in terms of reimbursement of its relocation costs and an Overlap Period during which no rent will be due at the Old Bridge Facility,
while the Company moves its operations to an alternative facility that it has identified.
The
Company anticipates subleasing to a third party up to 40,000 square feet of the Old Bridge Facility (the “Sublease Space”),
the rental proceeds from which will inure to the benefit of the Company. The Company’s ability to sublease all or part of
the Sublease Space, the specific terms of any sublease of the Sublease Space and the amount of rent that will be derived therefrom
cannot be predicted at this time. The landlord will provide the Company with up to six months of free rent for the Sublease Space,
as the Company undertakes to identify a suitable tenant or tenants therefor.
The
foregoing description of the Sale Agreement is qualified in its entirety by reference to the Agreement of Sale, a copy of which
was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 6, 2018, the Extension Letter Agreement,
a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 21, 2018, the Second
Amendment to Agreement of Sale, a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A
filed October 9, 2018, and the Third Amendment to Agreement of Sale, a copy of which was filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed January 31, 2019, each of which is incorporated herein by reference.
The
foregoing description of the Lease is qualified in its entirety by reference to the form of Lease, attached as an exhibit to the
Agreement of Sale, a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 6,
2018 and is incorporated herein by reference.