Item
1.01
Entry into a Material Definitive Agreement
.
Bank of America
Loan Agreement
On November 9, 2018 (the “
Closing Date
”), Industrial Services of America, Inc. (the “
Company
”) and certain of its wholly-owned subsidiaries (collectively, the “
Borrowers
”) entered into a Loan and Security Agreement with Bank of America, N.A. (“
BofA
” and the “
BofA
Loan Agreement
”) that provides for (
i
) a revolving line of credit in the aggregate principal amount of $10 million (subject to a borrowing base)
, which includes a $1.0
million
letter of credit subline
(the “
Revolving Loan
”),
and
(ii) a term loan in the amount of $2.5 million (the “
Term Loan
”
and together with the Revolving Loan, the “
Loans
”).
The interest rate on the Revolving Loan is equal to LIBOR plus 2.25% to 2.75%. The interest rate on the Term Loan is
equal to
LIBOR plus 2.75% to 3.25%. During a continuance of an Event of Default (as defined in the
BofA
Loan Agreement), the interest rate will increase by 2.0%.
Proceeds from the BofA Loan Agreement will be used to satisfy the Company’s existing credit facility with Midcap Business Credit, LLC (“
Mid
C
ap
”). In addition, proceeds from the Revolving Loan may be used to pay fees and transaction expenses associated with the Loans, to pay
the
Borrowers’
obligations to
BofA
, and for other lawful corporate purposes of the Borrowers, including working capital.
The Revolving Loan is due and payable in full on the Commitment Termination Date (as defined below), and the Borrowers may prepay the Revolving Loan without premium or penalty. The Term Loan will be repaid by consecutive installments of $89,286
on the first day of each quarter, commencing on January 1, 2019. On the Commitment Termination Date, all principal, interest, and other amounts with respect to the Term Loan will be due and payable in full.
The Company agreed to pay
BofA
certain fees in connection with the
BofA
Loan Agreement, including, without limitation: (
i
) unused credit line fees
,
due on the first day of each month and on the Commitment Termination Date
,
(
ii
)
letter of credit
facility fees, payable in monthly arrears on the first day of each month
,
(
iii
) a closing fee in the amount of $
50,000
, due on the Closing Date
,
and (
iv
) an administrative fee of $10,000 on the Closing Date and on each anniversary date
thereof
. In addition, the Company agreed to pay all reasonable fees, costs, and expenses, incurred by
BofA
in the enforcement of the
BofA
Loan Agreement and related documents during the continuance of an Event of Default and all legal, accounting, appraisal, consulting
,
and other fees incurred by
BofA
in connection with the Loans.
Borrowings under the
BofA
Loan Agreement are secured by all
property
of each Borrower. The Company’s obligations are also secured by mortgages upon real estate owned by certain wholly-owned subsidiaries of the Company.
On the Closing Date,
BofA
advanced the
Borrowers
$4,108,924
under
the Revolving Loan and $2.5 million under the Term Loan.
The
BofA
Loan Agreement requires the Borrowers to comply with certain customary affirmative and negative covenants that, among other things, will restrict, subject to certain exceptions, the ability of the Borrowers to incur indebtedness, grant liens, make investments, engage in acquisitions, mergers or consolidations
,
and pay dividends and other restricted payments. The
BofA
Loan Agreement also requires that the Borrowers maintain a certain fixed charge coverage ratio, calculated as of the last day of each month for the trailing twelve month period then ended.
The
BofA
Loan Agreement contains customary Events of Default for facilities of a similar nature and size as the
BofA
Loan Agreement, including without limitation (
i
)
the
Borrowers
’
failure to pay its obligations under the
BofA
Loan Agreement, (ii) inaccuracy of representations and warranties, (iii) any Borrower’s breach of a covenant, (iv) any breach or default of
the
Borrowers occurs under any hedging agreement or any other agreement to which it is a party, (v) the entry of any judgment against the Company or its subsidiaries which exceeds $250,000
,
(vi) the occurrence of any uninsured loss, theft, damage or destruction to any of the collateral if the amount not covered by insurance exceeds $250,000, or (vii) the occurrence of any event that would cause any material adverse change in the business or financial condition of the Borrowers. If an Event of Default occurs,
BofA
may declare all amounts due to
BofA
immediately due and payable, terminate or recondition any commitment to lend under the
BofA
Loan Agreement or adjust the borrowing base, require the Company to cash collateralize all of its obligations, and exercise any other remedy afforded under any agreement, law, at equity, or otherwise. In addition, if an Event of Default is triggered by any Borrower’s bankruptcy and insolvency proceedings, all Borrowers’ obligations to
BofA
will
automatically become due and payable and all of the commitments under the
BofA
Loan Agreement
will
terminate.
The
BofA
Loan Agreement will terminate on the earlier of
: (
i
) September 30, 2020
,
with an option to extend such date to September 30, 2023 upon certain conditions, (ii) the date on which the Borrowers terminate the Revolving Loan pursuant to the
BofA
Loan Agreement, or (iii) the date on which
BofA
terminates the Revolving Loan as a result of an Event of Default (the “
Commitment Termination Date
”).
The Company has the right to terminate the
BofA
Loan Agreement at any time with 30 days prior written notice. Any notice of termination by the Borrowers will be irrevocable and the Borrowers
will
make full payment of all obligations on the Commitment Termination Date.
The foregoing description of the
BofA
Loan Agreement does not purport to be complete and is qualified in its entirety by reference to the
BofA
Loan Agreement
,
a
cop
y
of whic
h
is
attached as Exhibits 10.1
to this Current Report on Form 8-K, and incorporated herein by reference.
Pledge
Agreement
;
General
Security Agreement;
Guaranty Agreement
; Mortgage
s
As security for the
BofA
Loan
Agreement,
(
i
)
certain of the Company’s wholly-owned subsidiaries
granted
BofA
a first priority security interest in
substantially
all of
their
assets pursuant to a
General
Security Agreement
, (ii) the Company
pledged
to
BofA
all of its equity interests
pursuant to a Pledge Agreement
,
(iii) c
ertain
of the Company
’
s subsidiaries guaranteed the Company
’
s obligations under the
BofA
Loan Agreement
pursuant to a
Guaranty Agreement
,
and (iv)
certain of the Company’s
wholly
-
owned subsidiaries granted
BofA
a lien on certain real estate property pursuant to certain
M
ortgages
.
The foregoing descriptions of the
Pledge
Agreement
, the General
Security Agreement
,
the
Guaranty Agreement
, and the Mortgages
do not purport to be complete and are qualified in their entirety by reference to the full text of
the Pledge
Agreement
, the General
Security Agreement
, the
Guaranty Agreement
, and Mortgages
, copies of
which are filed as Exhibits 10.
2, 10.3, 10.4
, 10.5, and 10.6, respectively,
to this Current Report on Form 8-K and are incorporated herein by reference.