Item 2.01 Completion of Acquisition or Disposition of Assets
On August 31, 2018, Lydall, Inc. (the “Company”)
completed the acquisition of Interface Performance Materials (“Interface” or the “Business”) for $265 million
in cash, subject to certain customary post-closing adjustments (the “Acquisition”) from an affiliate of Wind Point
Partners. The Acquisition was consummated pursuant to the terms of that certain Stock Purchase Agreement (the “Purchase Agreement”)
dated August 9, 2018, by and among the Company (as “Buyer”); Susquehanna Capital Acquisition Co., the target holding
company that held all of the assets and operations of the Business (the “Acquired Company”); and Vulcan Global, LLC,
an affiliate of Wind Point Partners (the “Seller”) that held all of the issued and outstanding shares of capital stock
of the Acquired Company.
Pursuant to the terms of the Purchase Agreement, the Company
acquired all of the issued and outstanding shares of capital stock of the Acquired Company. Interface is headquartered in Lancaster,
PA and supports its global sales with facilities in the U.S., Germany and India that manufacture wet-laid gasket and specialty
materials primarily serving OEM and Tier I manufacturers in the Agriculture, Construction and Earthmoving Equipment, as well as
Automotive and Industrial, sectors.
The Company used borrowings under its Second Amended and Restated
Credit Agreement, as discussed below in Item 2.03 of this Current Report on Form 8-K, in addition to cash on hand to fund the Acquisition.
A copy of the Purchase Agreement was filed on August 14, 2018
as Exhibit 2.1 to that Current Report on Form 8-K, and is hereby incorporated by reference.
Item 2.03 Creation of a Direct Financial Obligation or an
Obligation under an Off−Balance Sheet Arrangement of a Registrant.
Amended and Restated Credit Agreement
On August 31, 2018, the Company, as borrower, amended and restated
its $175 million senior secured revolving credit agreement (as amended, the “Second Amended Credit Agreement”) with
Bank of America, N.A. (“Bank of America”). The Second Amended Credit Agreement with Bank of America, as Agent for the
Lenders, increased the available borrowing from $175 million to $450 million, added three additional lenders and extended the maturity
date from July 7, 2021 to August 31, 2023.
Under the terms of the Second Amended
Credit Agreement, Bank of America and the other lenders (collectively, the “Lenders”) are providing up to a $450 million credit facility (the “Facility”) to the Company, under which the Lenders provided a term loan commitment
of $200,000,000 and revolving loans and issue letters of credit to or for the benefit of the Company and its subsidiaries of
up to $250,000,000. The Facility may be increased by an aggregate amount not to exceed $150 million through an accordion
feature, subject to specified conditions.
Domestic subsidiaries of the Company, Lydall Thermal/Acoustical,
Inc., Lydall Performance Materials, Inc., Lydall International, Inc., Lydall North America LLC and Southern Felt Company, Inc.
(collectively, the “Lydall Guarantors”) have unconditionally guaranteed the Company’s payment and other obligations
under and pursuant to the Second Amended Credit Agreement. Also, the Acquired Company and its two domestic subsidiaries (namely,
Interface Performance Materials, Inc. and Interface Sealing Solutions, Inc.) acquired in the transaction disclosed in Item 2.01
of this Current Report on Form 8-K, became guarantors under and pursuant to the Second Amended Credit Facility (the “Additional
Guarantors” and, collectively, with the Lydall Guarantors, the “Guarantors”). The Company’s obligations
under the Second Amended Credit Agreement are secured by substantially all of the assets of the Company and the Guarantors.
The terms of the Second Amended Credit Agreement include the
following:
1) A $450 million five-year credit facility consisting of a
$200 million term commitment and a $250 million revolving commitment, including a $50 million sublimit for letters of credit
and a $50 million sublimit for alternative currency borrowings.
2) Interest is charged on borrowings at the Company’s
option of either: (i) Base Rate plus the Applicable Rate, or (ii) the Eurodollar Rate plus the Applicable Rate. The Base Rate is
a fluctuating rate equal to the highest of (a) the federal funds rate plus 0.50%, (b) the prime rate as set by Bank of America,
and (c) the Eurocurrency Rate plus 1.00%. The Eurocurrency Rate means (i) if denominated in LIBOR quoted currency, a fluctuating
LIBOR per annum rate equal to the London Interbank Offered Rate; (ii) if denominated in Canadian Dollars, the rate per annum equal
to the Canadian Dollar Offered Rate; or (iii) the rate per annum as designated with respect to such alternative currency at the
time such alternative currency is approved by the Lenders. The Applicable Rate is determined based on the Company’s Consolidated
Leverage Ratio (as defined in the Second Amended Credit Agreement). The Applicable Rate added to the Base Rate Committed Loans
ranges from 0.00% to 1.25%, and the Applicable Rate added to Eurocurrency Rate Committed Loans and Letters of Credit ranges from
0.75% to 2.00%. The Company pays a quarterly fee ranging from 0.15% to 0.275% on the unused portion of the revolving commitment.
3)
Repayment of the Term Loan: The Company is required to repay the term commitment in an amount of $2,500,000 per quarter
beginning with the quarter ending December 31, 2018 through the quarter ending June 30, 2023.
4) Prepayment: The Company is permitted to prepay term and revolving
borrowings in whole or in part at any time without premium or penalty, subject to certain minimum payment requirements, and the
Company is generally permitted to irrevocably cancel unutilized portions of the revolving commitments under the Second Amended
Credit Agreement.
5) Company Covenants: The Second Amended
Credit Agreement contains covenants required of the Company and its subsidiaries, including various affirmative and negative financial
and operational covenants. The Company is required to meet certain quarterly financial covenants calculated from the four fiscal
quarters most recently ended, including: (i) a minimum consolidated fixed charge coverage ratio, which requires that at the end
of each fiscal quarter the ratio of (a) consolidated EBITDA to (b) the sum of consolidated interest charges, redemptions, non-financed
maintenance capital expenditures, restricted payments and taxes paid, each as defined in the Second Amended Credit Agreement, may
not be lower than 1.25 to 1.0; and (ii) a consolidated net leverage ratio, which requires that at the end of each fiscal quarter
the ratio of consolidated funded indebtedness minus consolidated domestic cash to consolidated EBITDA, as defined in the Second
Amended Credit Agreement, may not be greater than 3.5 to 1.0.
6) Events of Default: The Facility may be accelerated upon the
occurrence of an event of default under the Second Amended Credit Agreement, which includes customary events of default, including
payment defaults, the inaccuracy of representations or warranties, the failure to comply with covenants, ERISA defaults, judgment
defaults, and bankruptcy and insolvency defaults.
The foregoing description of the Second Amended Credit Agreement
is qualified in its entirety by reference to the full text of the Second Amended Credit Agreement, a copy of which is filed herewith
as Exhibit 10.2 and is hereby incorporated by reference.
Security Agreements
The Company and each of
the Guarantors entered into separate Security Agreements (or, as the case may be, amended and restated existing Security
Agreements) with Bank of America, as Agent for the Lenders (collectively, the “Security Agreements”) to secure the
performance of all payment and other obligations of the Company and the Guarantors under the Second Amended Credit Agreement
and the other loan documents related to the Second Amended Credit Agreement. Under the Security Agreements, the Company and
each of the Guarantors have granted to the Agent a lien upon, first priority security interest in (subject to certain liens
permitted by the Second Amended Credit Agreement), and pledge and assignment of, substantially all of the assets and property
of the Company and each of the Guarantors, now owned or hereafter acquired, wherever located, other than real estate
(collectively, the “Collateral”), subject to certain specific limitations.
The Collateral also includes: (i) all equity interests held
by the Company and each Guarantor in their respective domestic subsidiaries; (ii) 65% of the equity interests held by the Company
and each Guarantor in their respective first-tier foreign subsidiaries; and (iii) patents, patent rights and trademarks, service
marks and trademark and service mark rights and copyrights owned by the Company and the Guarantors.
The Security Agreements terminate upon satisfaction in full
of all payment and other obligations under the Second Amended Credit Agreement, the Guaranty and the other loan documents related
to the Second Amended Credit Agreement.
The foregoing description of the Security Agreements is qualified
in its entirety by reference to the full text of each Security Agreement, copies of which are filed herewith as Exhibits 10.3 through
10.11 and are hereby incorporated by reference.