Item 1.01 Entry into Material Definitive Agreement
On May 31, 2017, Ultralife Corporation entered into a Credit and Security Agreement (the “Credit Agreement”) and related security agreements with KeyBank National Association (“KeyBank” or the “Bank”) to establish a $30 million senior secured, cash flow-based, revolving credit facility that includes a $1.5 million letter of credit subfacility (the “Credit Facility”). The Credit Agreement provides that the Credit Facility may be increased with the Bank’s concurrence to $50 million prior to the last six months of the term and is scheduled to expire on May 30, 2020. The Credit Facility replaces the Company’s asset-based revolving credit facility with PNC Bank National Association which expired in accordance with its terms on May 24, 2017 (the “Prior Credit Agreement”).
The Credit Facility provides the Company with an aggregate of up to $30 million of loan and letter of credit availability determined based on a borrowing base formula equal to the sum of 85% of eligible accounts receivable plus the lesser of (a) up to 50% of the cost or market value (whichever is lower) of eligible inventory and (b) $12.75 million, reduced by the amount, if any, of reserves required by the Bank.
The Company may use advances under the Credit Facility for general working capital purposes, to reimburse drawings under letters of credit and to fund capital expenditures and acquisitions, all subject to the terms of the Credit Agreement. The Company had no amounts drawn under the Prior Credit Agreement at the time of its expiration and has not borrowed under the Credit Facility.
Interest will accrue on outstanding indebtedness under the Credit Agreement at the Overnight LIBOR Rate plus the applicable margin, or at the Base Rate plus the applicable margin, as selected by the Company. During the period beginning May 31, 2017 and ending April 1, 2018, the applicable margin for Overnight LIBOR Loans is 185 basis points, the applicable margin for Base Rate Loans is negative 50 basis points and applicable margin for the Unused Fee is 20 basis points. Beginning April 2, 2018 and thereafter, the applicable margins will be determined based on the chart below.
Consolidated Senior Leverage
Ratio
|
Applicable Basis
Points for Overnight
LIBOR Loans
|
Applicable Basis
Points for
Base Rate Loans
|
Applicable Basis
Points for Unused
Fee
|
Less than 1.50 to 1.00
|
185
|
(50)
|
20
|
Greater than or equal to 1.50 to 1.00
but less than 2.50 to 1.00
|
200
|
(25)
|
15
|
Greater than or equal to 2.50 to 1.00
|
215
|
0
|
10
|
The Company must pay a fee on its unused availability equal to the applicable margin for the Unused Fee and customary letter of credit fees.
In addition to the customary affirmative and negative covenants, the Company must maintain a fixed charge coverage ratio of 1.15 to 1.0, tested each fiscal quarter for the trailing four fiscal quarters, and a minimum tangible net worth of $40 million, tested as of the end of each calendar year. The Credit Facility is secured by substantially all the assets of the Company.
Any outstanding advances must be repaid upon expiration of the term of the Credit Facility. Payments must be made during the term to the extent outstanding advances exceed the maximum amount then permitted to be drawn as advances under the Credit Facility and from the proceeds of certain transactions. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and the Bank will have other customary remedies.
The foregoing description of the Credit Agreement does not purport to be complete, and is qualified in its entirety by reference to the full text of the Credit Agreement, a copy of which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.
The Credit Agreement has been filed to provide investors and security holders with information regarding its terms, provisions, conditions, and covenants and is not intended to provide any other factual information respecting the Company or its subsidiaries. In particular the Credit Agreement contains representations and warranties made to and solely for the benefit of the parties thereto, allocating among themselves various risks of the transaction. The assertions embodied in those representations and warranties may be qualified or modified by information in disclosure schedules that the parties have exchanged in connection with executing the Credit Agreement. Moreover, information concerning the subject matter of the representations and warranties may change after the date of this document, which subsequent information may or may not be fully reflected in the Company’s public disclosures. Accordingly, investors and security holders should not rely on the representations and warranties in these documents as characterizations of the actual state of any fact or facts.