Item 1.01 Entry into a Material Definitive Agreement
Loan Agreement
Borqs Hong Kong Limited,
a private company limited by shares under Hong Kong law (“
Borqs HK
”), and indirect, wholly owned subsidiary
of Borqs Technologies, Inc. (the “
Company
”), entered into a Loan and Security Agreement (the “
Loan
Agreement
”), effective as of April 30, 2018 (the “
Effective Date
”), with Partners For Growth V, L.P.,
a Delaware limited partnership (“
PFG5
”), for a term loan from PFG5 in the maximum amount of $3 million (the
“
PFG5 Loan
”). On May 16, 2018, the Company closed on the PFG5 Loan. After payment of a $45,000 commitment fee
to PFG5, $2,955,000 was made available to the Company for general corporate purposes.
The PFG5 Loan matures
in full on April 30, 2021 (the “
Maturity Date
”). Borqs HK shall pay interest only on loan principal for the
twelve (12) months immediately following the Effective Date, and thereafter shall make twenty-four (24) equal monthly payments
on the outstanding principal of the PFG5 Loan plus accrued interest until the Maturity Date. Repaid principal on the PFG5 Loan
may not be reborrowed. Borqs HK may repay the PFG5 Loan in whole or in part at any time without prepayment fee or penalty of any
kind. The PFG5 Loan is subject to an interest rate of 8.0% per annum (“
Interest Rate
”);
provided
that
if the PFG5 Loan is not fully repaid on or before October 30, 2018 (the “
Early Repayment Date
”), then the interest
rate shall increase to 12% as from such date through the Maturity Date.
PFG5’s rights under
the Loan Agreement are pari passu with the rights of Partners For Growth IV, L.P. (“
PFG4
”), a related party
of PFG5, under that certain Loan and Security Agreement, dated August 26, 2016, by and between Borqs HK and PFG4, as amended (the
“
PFG4 Loan
”), which remains in full force and effect according to its terms. Except for increased thresholds
with respect to the financial covenants described below, the terms of the PFG5 Loan are substantially similar to those of the
PFG4 Loan. Pursuant to a subordination agreement, effective as of April 30, 2018, by and between PFG5, Borqs HK and SPD Silicon
Valley Bank Co., Ltd., a PRC banking institution (“
SSVB
”), the PFG5 Loan and PFG5’s rights under the
Loan Agreement are subordinate to the obligations of Borqs HK owing to SSVB under the Facility Agreement, dated as of August 31,
2015, as amended, in an amount up to $6 million and indebtedness under a Facility Agreement between SSVB and Borqs Beijing Ltd.,
a PRC subsidiary of Borqs HK, in an amount up to RMB25 million. PFG4 and SSVB entered into a like subordination agreement pursuant
to which PFG4 subordinated its security interests and payment to the obligations owing to SSVB under the PFG4 Loan.
The obligations of Borqs
HK under the Loan Agreement are guaranteed by its direct parent company, Borqs International Holding Corp. (“
Borqs Holding
”),
a Cayman Islands company and wholly owned subsidiary of the Company. The PFG5 Loan is secured by all of the tangible and intangible
assets of Borqs HK and Borqs Holding, pledged as collateral for the obligations of Borqs HK under the Loan Agreement. Additionally,
the Company pledged its ownership interests in Borqs Holding as security to PFG5, which security interest is subordinate to the
security interests of SSVB.
Other than the $45,000
commitment fee paid to PFG5, a back-end fee in the amount of $300,000 is due and payable to PFG5 on the Maturity Date;
provided
,
however
, if the PFG5 Loan has not been repaid in full by the Early Repayment Date, then the back-end fee shall increase
by $100,000 for each succeeding 30 day period following the Early Repayment Date that the PFG5 Loan remains outstanding up to
a total back-end fee of $600,000.
The Loan Agreement includes
customary representations and warranties and affirmative covenants, negative covenants and financial covenants, including the
covenants to meet or exceed (i) quarterly revenues (as required to be classified as such under U.S. Generally Accepted Accounting
Principles) of $32,500,000 and (ii) a three month trailing EBITDA target of $2,000,000, with compliance for each covenant determined
as of the last day of each calendar quarter for revenues and each calendar month for EBITDA (as defined in the Loan Agreement).
Additionally, unless permitted
under the Loan Agreement or with the prior written consent of PFG5, Borqs HK is prohibited from (i) acquiring any assets, except
in the ordinary course of business, (ii) making any new investments other than permitted investments, (iii) transferring any part
of its business or property except as permitted under the Loan Agreement, (iv) guaranteeing or otherwise becoming liable with
respect to the obligations of another party or entity, (v) making any loans of any money or other assets, (vi) repurchasing or
redeeming any shares of Borqs HK, (vi) incurring any indebtedness, other than permitted indebtedness and (vii) certain other actions
as described in greater detail in the Loan Agreement.
An event of default under
the Loan Agreement includes, among other things, (i) any non-payment of the obligations, (ii) materially untrue or misleading
representations, warranties, covenants, statements, reports or certificates made or delivered to PFG5 by Borqs HK or Borqs Holding,
(iii) failure by Borqs HK to comply with the financial covenants set forth on the schedule to the Loan Agreement, (iv) breach
by Borqs HK or Borqs Holding of any of the covenants set forth in Section 4.6 of the Loan Agreement, (v) a default or breach under
the Loan Agreement or any other related agreement that remains continuing after the applicable cure period, (vi) a bankruptcy
of Borqs HK or Borqs Holding or other assignment for the benefit of creditors, (vii) the occurrence of a change of control of
Borqs HK, and (viii) the occurrence of a “Material Adverse Change” as defined in the Loan Agreement. Upon
the occurrence and during the continuance of an event of default under the Loan Agreement, and at any time thereafter, PFG5 may,
among other things, without notice or demand, accelerate all outstanding amounts to become immediately due and payable. In addition,
the Interest Rate on the PFG5 Loan would become the default rate which is defined in the Loan Agreement to be the lesser of (i)
the Interest Rate or 12% (if the PFG5 Loan is not repaid by the Early Repayment Date), plus 6.0% per annum, and (ii) the
maximum interest rate allowed to be charged to a commercial borrower under applicable usury laws.