Item 1.01 Entry into a Material Definitive Agreement.
Modification of Loan and Security Agreement
Effective March 11, 2019, Giga-tronics Incorporated, its wholly-owned subsidiary, Microsource, Inc. (together with Giga-tronics Incorporated, the “Company”), and Partners for Growth V, L.P. agreed to modify an existing Loan and Security Agreement dated as of April 27, 2017 (as previously modified, the “Loan Agreement”) by entering into a Modification No. 3 to Loan and Security Agreement (the “Modification”).
As of March 11, 2019, the Company had borrowed $1,500,000 under the Loan Agreement and there was $183,083 (calculated as of March 4, 2019) of accrued interest outstanding. Under the Loan Agreement, the Company agreed, among other things, (i) to make monthly interest-only payments through April 30, 2019, (ii) to pay all accrued interest on the loan on May 1, 2019, which will be $197,979; (iii) beginning May 1, 2019, to make monthly principal payments of $75,000, plus accrued interest until the maturity date, which was November 1, 2019, and (iv) to pay all amounts outstanding on the maturity date.
The Modification extends the maturity date to March 1, 2020. The Modification also adds financial covenants requiring the Company to maintain a minimum tangible net worth and minimum revenues described in the Modification.
This description of the terms of the Modification is qualified in its entirety by reference to the actual agreement, which is filed as an exhibit to this Current Report.
Amended and Restated
Business Financing Agreement
Effective March 11, 2019, the Company entered into an Amended and Restated Business Financing Agreement (the “Restated Financing Agreement”) with Western Alliance Bank. The Restated Financing Agreement amends, restates and replaces the Company’s Business Financing Agreement with Western Alliance Bank (doing business as Bridge Bank) dated May 6, 2015 (as previously amended, the “Previous Financing Agreement”) in its entirety.
Under the Restated Financing Agreement, Western Alliance Bank may advance up to 85% of the amounts of invoices issued by the Company, up to a maximum of $2,500,000 in aggregate advances outstanding at any time. The Restated Financing Agreement eliminates a $500,000 non-formula borrowing base and an asset coverage ratio financial covenant.
Under the Restated Financing Agreement, interest accrues on outstanding amounts at an annual rate equal to the greater of prime or 4.5% plus, in either case, one percent. The Company is required to pay certain fees, including an annual facility fee of $14,700,to be paid in two semiannual installments. The Company’s obligations under the Restated Financing Agreement are secured by a security interest in substantially all of the assets of the Company and any domestic subsidiaries, subject to certain customary exceptions. The Restated Financing Agreement has no specified term and may be terminated by either the Company or Western Alliance Bank at any time.
The Restated Financing Agreement contains customary events of default, including, among others: non-payment of principal, interest or other amounts when due; providing false or misleading of representations and information; Western Alliance Bank failing to have an enforceable first lien on the collateral; cross-defaults with certain other indebtedness; certain undischarged judgments; bankruptcy, insolvency or inability to pay debts; and a change of control of the Company. Upon the occurrence and during the continuance of an event of default, the interest rate on the outstanding borrowings increases by 500 basis points and the Western Alliance Bank may declare the loans and all other obligations under the Restated Financing Agreement immediately due and payable.
This description of the terms of the Restated Financing Agreement is qualified in its entirety by reference to the actual agreement, which is filed as an exhibit to this Current Report.