Item 1.01 Entry into a Material Definitive Agreement.
On February 1, 2017, The Alkaline Water Company Inc. and its
subsidiaries (the
Company
) entered into a Credit and Security Agreement
(the
Credit Agreement
) with SCM Specialty Finance Opportunities Fund,
L.P. (the
Lender
).
The Credit Agreement provides the Company with a revolving
credit facility (the
Revolving Facility
), the proceeds of which are to
be used to repay existing indebtedness of the Company, transaction fees incurred
in connection with the Credit Agreement and for working capital needs of the
Company.
Under the terms of the Credit Agreement, the Lender has agreed
to make cash advances to the Company in an aggregate principal at any one time
outstanding not to exceed the lesser of (i) $3 million (the
Revolving Loan
Commitment Amount
) and (ii) the Borrowing Base (defined to mean, as of any
date of determination, 85% of net eligible billed receivables plus 65% of
eligible unbilled receivables, minus certain reserves).
The Credit Agreement has a term of three years, unless earlier
terminated by the parties in accordance with the terms of the Credit Agreement.
The principal amount of the Revolving Facility outstanding
bears interest at a rate per annum equal to (i) a fluctuating interest rate per
annum equal at all times to the rate of interest announced, from time to time,
within Wells Fargo Bank at its principal office in San Francisco as its prime
rate, plus (ii) 3.25%, payable monthly in arrears.
To secure the payment and performance of the obligations under
the Credit Agreement, the Company granted to the Lender a continuing security
interest in all of the Companys assets and agreed to a lockbox account
arrangement in respect of certain eligible receivables.
In connection with the Credit Agreement, the Company paid to
the Lender a $30,000 facility fee. The Company agreed to pay to Lender monthly
an unused line fee in amount equal to 0.083% per month of the difference derived
by subtracting (i) the average daily outstanding balance under the Revolving
Facility during the preceding month, from (ii) the Revolving Loan Commitment
Amount. The unused line fee will be payable monthly in arrears. The Company also
agreed to pay the Lender as additional interest a monthly collateral management
fee equal to 0.35% per month calculated on the basis of the average daily
balance under the Revolving Facility outstanding during the preceding month. The
collateral management fee will be payable monthly in arrears. Upon a termination
of the Revolving Facility, the Company agreed to pay the Lender a termination
fee in an amount equal to 2% of the Revolving Loan Commitment Amount if the
termination occurs before February 1, 2020. The Company must also pay certain
fees in the event that receivables are not properly deposited in the appropriate
lockbox account.
The interest rate will be increased by 5% in the event of a
default under the Credit Agreement. Events of default under the Credit
Agreement, some of which are subject to certain cure periods, include a failure
to pay obligations when due, the making of a material misrepresentation to the
Lender, the rendering of certain judgments or decrees against the Company and
the commencement of a proceeding for the appointment of a receiver, trustee,
liquidator or conservator or filing of a petition seeking reorganization or
liquidation or similar relief.
The Credit Agreement contains customary representations and
warranties and various affirmative and negative covenants including the right of
first refusal to provide financing for the Company and the financial and loan
covenants, such as the loan turnover rate, minimum EBTDA, fixed charge coverage
ratio and minimum liquidity requirements.
On February 1, 2017, the Company drew $686,080.94 from the
Revolving Facility, to be disbursed as follows: $628,782.94 to pay off the
amount borrowed from Gibraltar Business Capital, LLC (
Gibraltar
) under
the revolving accounts receivable funding agreement dated February 20, 2014
(paid off on February 1, 2017) and the balance for the closing costs.
As of February 1, 2017, the Company and Gibraltar entered into a payoff agreement (the
Payoff Agreement
),
pursuant to which the Company agreed to pay an amount equal to the outstanding
indebtedness and obligations owing from the Company to Gibraltar (the
Gibraltar Obligations
). The Payoff Agreement provided that the Payoff
Agreement will confirm that, upon receipt via wire transfer of immediately
available funds to Gibraltar in the aggregate amount of $628,782.94, all of the
Gibraltar Obligations will be terminated and satisfied in full as of the close
of business on February 1, 2017.