Item
1.01.
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Entry
into a Material Definitive Agreement.
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Acquisition
of Holzworth Instrumentation Inc.
As
previously disclosed on November 18, 2019 and February 4, 2020, Wireless Telecom Group, Inc. (the “Company”) entered
into a Share Purchase Agreement, dated November 13, 2019, with Holzworth Instrumentation Inc., a Colorado corporation (“Holzworth”),
Jason Breitbarth, Joe Koebel, and Leyla Bly (collectively, the “Sellers”), and Jason Breitbarth, as the designated
representative of the Sellers, as amended by a First Amendment to Share Purchase Agreement, dated January 31, 2020 (collectively,
the “Share Purchase Agreement”).
On
February 7, 2020, the Company completed the acquisition (the “Acquisition”) of all of the outstanding shares of Holzworth,
from the Sellers. The Acquisition was completed pursuant to the terms of the Share Purchase Agreement.
In
connection with the Acquisition, the Company entered into Lock-up and Voting Agreements with each of the Sellers in the form previously
disclosed on November 18, 2019 (the “Lock-up and Voting Agreements”).
Term
Loan Facility
In
connection with the Acquisition, on February 7, 2020, the Company, as borrower, and its subsidiaries, as guarantors, and Muzinich
BDC, Inc., as lender (“Muzinich”), entered into Credit Agreement (the “Term Loan Facility”), which provides
for a term loan in the principal amount of $8,400,000 (the “Initial Term Loan”). Principal payments on the Initial
Term Loan are $21,000 per quarter with a balloon payment at maturity. The Term Loan bears interest at LIBOR (subject to a floor
of 1.0%) plus a margin of 7.25%. The Term Loan Facility includes an upfront fee of 2.50% of the aggregate principal amount of
the Initial Term Loan.
The
Company may prepay the Initial Term Loan at any time. Prepayments made prior to (a) February 7, 2022 are subject to a prepayment
premium in the amount of 2.0% of the prepaid principal amount and (b) February 7, 2023 are subject to a prepayment premium in
the amount of 1.0% of the prepaid principal amount. The Company is required to make prepayments of the Initial Term Loan with
the proceeds of certain asset dispositions, insurance recoveries and extraordinary receipts, subject to specified reinvestment
rights. The Company is also required to make prepayments of the Initial Term Loan upon the issuance of certain indebtedness and
to make an annual prepayment based upon the Company’s excess cash flow. Mandatory prepayments with asset sale, insurance
or condemnation proceeds and excess cash flow may be made without penalty. Mandatory prepayments with the proceeds of indebtedness
are subject to the same prepayment penalties as are applicable to voluntary prepayments. The maturity date for the Initial Term
Loan is February 7, 2025.
The
Term Loan Facility provides for an additional $11,600,000 term loan (the “Second Term Loan”) to be used for a second
unannounced acquisition for which the Company has entered into a confidential, non-binding letter-of-intent (the “Additional
Acquisition”). There can be no assurance that the Additional Acquisition will be completed. In the event the Additional
Acquisition is completed, the Second Term Loan will be made available to the Company on the same terms and conditions as the Initial
Term Loan, including interest rate, amortization schedule and financial covenants, subject to the payment of an additional upfront
fee and satisfaction of customary conditions to funding.
The
Term Loan Facility is secured by liens on substantially all of the Company’s and its subsidiaries’ assets including
a pledge of the equity interests in the Company’s subsidiaries. The Term Loan Facility contains customary affirmative and
negative covenants for a transaction of this type, including, among others, the provision of annual, quarterly and monthly financial
statements and compliance certificates, maintenance of property, insurance, compliance with laws and environmental matters, restrictions
on incurrence of indebtedness, granting of liens, making investments and acquisitions, paying dividends, entering into affiliate
transactions and asset sales. In addition, the Company must maintain certain financial covenants typical for this type of arrangement,
including a consolidated leverage ratio, a consolidated fixed charge coverage ratio and minimum liquidity of its foreign subsidiaries.
The consolidated leverage ratio is defined as the ratio of total consolidated indebtedness, as defined, to consolidated EBITDA,
as defined. The required leverage ratio starts at 4.75 to 1.0 for the 12 month periods ended March 31, 2020 and June 30, 2020,
and decrease in various increments to 3.75 to 1.0 for the 12 months ended December 31, 2020, 2.75 to 1.0 for the 12 months ended
December 31, 2021 and 2.0 to 1.0 for the 12 months ended December 31, 2022 and thereafter. The consolidated fixed charge coverage
ratio is the ratio of consolidated EBITDA, as defined, less consolidated capital expenditures and cash income taxes paid to consolidated
fixed charges, as defined, calculated on a twelve month basis. The consolidated fixed charge coverage ratio for the twelve month
periods ended March 31, 2020, June 30 2020 and September 30, 2020 must be 1.35 to 1 and increases in various increments on a quarterly
basis to 1.5 to 1.0 for the twelve month period ended December 31, 2020 and 2021, and to 1.75 to 1.0 for the 12 months ending
December 31, 2022 and thereafter. Lastly, the Company must maintain minimum liquidity, defined as cash and availability under
the UK borrowing base, as defined, of $1.0 million over any trailing four-week period until such time as the foreign subsidiary
has positive EBITDA, as defined, for three consecutive quarters and the Holzworth deferred purchase price has been paid in full.
The Term Loan Facility also provides for a number of events of default, including, among others, nonpayment, bankruptcy, inaccuracy
of representations and warranties, breach of covenant, change in control, entry of final judgement or order, breach of material
contracts, and as long as the Company’s consolidated leverage ratio is greater than 1.0 to 1.0 (as calculated in accordance
with the terms of the Term Loan Facility), the cessation of service of any two of Tim Whelan, Michael Kandell or Daniel Monopoli
as Chief Executive Officer, Chief Financial Officer or Chief Technology Officer, respectively, of the Borrower. Any exercise of
remedies by Muzinich is subject to compliance with the intercreditor agreement entered into at the closing of the Term Loan Facility
among the Company, Muzinich and Bank of America, N.A., as lender under the Credit Facility referenced below.
The
foregoing description of the Term Loan Facility does not purport to be complete and is subject to, and qualified in its entirety
by, the full text of the Term Loan Facility, a copy of which the Company intends to file as an exhibit with its Annual Report
on Form 10-K.
Warrant
Pursuant
to the Term Loan Facility, the Company issued a Warrant, dated February 7, 2020 (the “Warrant”), to Muzinich. Under
the Warrant, Muzinich has the right to purchase 266,167 shares of common stock of the Company at an exercise price of $1.3923
per share (an aggregate value of approximately $370,588), based on a 90-day volume weighted average price for shares of stock
of the Company (the “Warrant Stock”). The Warrant is exercisable for an indefinite period from the date of the Warrant
and may be exercised on a cashless basis. The number of shares of common stock deliverable upon exercise of the Warrant is subject
to adjustment for subdivision or consolidation of shares and other standard dilutive events. In connection with the issuance of
the Warrant, the Company granted Muzinich one demand registration right and piggyback registration rights with respect to the
Warrant Stock, subject to certain exceptions.
The
foregoing description of the Warrant does not purport to be complete and is subject to, and qualified in its entirety by, the
full text of the Warrant. A copy of the Warrant is filed as Exhibit 10.1 to this Current Report on Form 8-K.
If
the Additional Acquisition is consummated, the Company has agreed to issue to Muzinich at the closing of the Additional Acquisition
an additional Warrant for the right to purchase 367,564 shares of common stock of the Company at an exercise price of $1.3923
per share (an aggregate value of approximately $511,765), based upon a 90-day volume weighted average price for shares of stock
of the Company as of February 7, 2020 (the “Additional Warrant”). The Additional Warrant will contain the same terms
and conditions as the Warrant, except that Muzinich will have only one demand registration right, subject to certain exceptions,
with respect to shares of common stock of the Company issued under the Warrant and the Additional Warrant.
Amendment
to Existing Credit Facility with Bank of America
Also
in connection with the Acquisition, on February 7, 2020, the Company and certain of its subsidiaries (the “Borrowers”),
and Bank of America, N.A. entered into Amendment No. 5 (the “Amendment”) to the Loan and Security Agreement (the “Credit
Facility”). By entering into the Amendment, Holzworth, together with CommAgility Limited, became borrowers under the Credit
Facility. The obligations of the Borrowers under the Credit Facility are guaranteed by Wireless Telecom Group, Ltd. CommAgility
Limited and Wireless Telecom Group, Ltd. are both wholly owned subsidiaries of the Company.
The
Amendment (a) effected certain modifications to the Credit Facility to accommodate the Acquisition, the Company’s incurrence
of the Initial Term Loan and the granting of the related liens and security interests, (b) subject to the satisfaction of certain
conditions precedent, made available to CommAgility an asset based revolving loan, subject to a borrowing base calculation applicable
to CommAgility’s assets, of up to a maximum availability of $5,000,000 (the “UK Revolver Commitment”), (c) reduced
the interest rate margin applicable to revolving loans made under the Credit Facility from a range of 2.75% to 3.25% to a range
of 2.00% to 2.50%, based on the Borrowers’ Fixed Charge Coverage Ratio (as defined in the Credit Facility) of the most recently
completed fiscal quarter, (d) extended the Revolver Termination Date to March 31, 2023 and (e) conditioned the Borrowers’
ability to make certain debt payments under the Term Loan Facility (described above) upon compliance with a liquidity test. In
all other material respects, the Credit Facility remains unchanged.
Effectiveness
of the Amendment was conditioned upon, among other things, the prepayment of the remaining principal balance (approximately $304,000)
of the $760,000 term loan made available under the Credit Facility and the payment of a closing fee in the amount of $25,000.
The Borrowers satisfied all such conditions on February 7, 2020.
Any
exercise of remedies by Bank of America, N.A. under the Credit Facility is subject to compliance with the intercreditor agreement
entered into at the closing of the Amendment among the Company, Muzinich, as lender under the Term Loan Facility, and Bank of
America, N.A.
The
foregoing description of the Amendment does not purport to be complete and is subject to, and qualified in its entirety by, the
full text of the Amendment, a copy of which the Company intends to file as an exhibit with its Annual Report on Form 10-K.