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Item 1.01
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Entry Into A Material Definitive Agreement
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PPP Note
On April 21, 2020, Sterling Seal &
Supply, Inc. (“Sterling Seal”), a wholly owned subsidiary of Sterling Consolidated Corp. (the “Company”),
received loan proceeds in the amount of approximately $326,100 under the Paycheck Protection Program (the “PPP”). The
PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) and administered
by the U.S. Small Business Administration (the “SBA”), provides for loans to qualifying businesses for amounts up to
2.5 times of the average monthly payroll expenses of the qualifying business. The unsecured loan (the “PPP Loan”) is
evidenced by a promissory note (the “PPP Note”) issued by Sterling Seal, dated April 21, 2020, in the principal amount
of $326,100 with TrustBank (the “Lender”),
Under the terms of the PPP Note and the
PPP, interest accrues on the outstanding principal at the rate of 1.0% per annum with a deferral of payments for the first six
months. The term of the PPP Note is two years, though it may be payable sooner in connection with an event of default under the
PPP Note. To the extent the amount of the PPP Loan is not forgiven under the PPP, Sterling Seal will be obligated to make equal
monthly payments of principal and interest beginning after a six-month deferral period provided in the PPP Note and through April
21, 2022.
The CARES Act and the PPP provide a mechanism
for forgiveness of up to the full amount borrowed. Under the PPP, Sterling Seal may apply for forgiveness for all or a part of
the PPP Loan. The amount of PPP Loan proceeds eligible for forgiveness is based on a formula that takes into account a number of
factors, including: (i) the amount of PPP Loan proceeds that are used by Sterling Seal during the eight-week period after the PPP
Loan origination date for certain specified purposes including payroll costs, interest on certain mortgage obligations, rent payments
on certain leases, and certain qualified utility payments, provided that at least 75% of the PPP Loan amount is used for eligible
payroll costs; (ii) Sterling Seal maintaining or rehiring employees, and maintaining salaries at certain levels; and (iii) other
factors established by the SBA. Subject to the other requirements and limitations on PPP Loan forgiveness, only that portion of
the PPP Loan proceeds spent on payroll and other eligible costs during the covered eight-week period will qualify for forgiveness.
Although Sterling Seal currently intends to use the entire amount of the PPP Loan for qualifying expenses, no assurance is provided
that the Company will obtain forgiveness of the PPP Loan in whole or in part.
The PPP Note may be prepaid in part or
in full, at any time, without penalty. The PPP Note provides for certain customary events of default, including Sterling Seal’s:
(i) failure to make a payment when due under the PPP Note; (ii) breach of the terms of the PPP Note; (iii) default on any other
loan with the Lender; (iv) filing of a bankruptcy petition by or against Sterling Seal; (v) reorganization merger, consolidation
or other change in ownership or business structure without the Lender’s prior written consent; (vi) adverse change in financial
condition or business operation that the Lender believes may affect Sterling Seal’s ability to pay the PPP Note; and (vii)
default on any loan or agreement with another creditor, if the Lender believes the default may materially affect Sterling Seal’s
ability to pay the PPP Note. Upon the occurrence of an event of default, the Lender has customary remedies and may, among other
things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from Sterling Seal, and file
suit and obtain judgment against Sterling Seal. The foregoing description of the PPP Note does not purport to be complete is qualified
in its entirety by reference to the full text of the PPP Note, a copy of which is filed as Exhibit 10.1 to this Current Report
on Form 8-K.
EIDL Note
Additionally, on May 28, 2020, the Company
received $150,000 in loan funding from the SBA under the Economic Injury Disaster Loan (“EIDL”) program administered
by the SBA, which program was expanded pursuant to the CARES Act. The EIDL is evidenced by a promissory note, dated May 28, 2020
(the “EIDL Note”) in the original principal amount of $150,000 with the SBA, the lender.
Under the terms of the EIDL Note, interest
accrues on the outstanding principal at the rate of 3.75% per annum. The term of the EIDL Note is 30 years, though it may be payable
sooner upon an event of default under the EIDL Note. Under the EIDL Note, the Company will be obligated to make equal monthly payments
of principal and interest beginning on May 28, 2021 through the maturity date of May 28, 2051. The EIDL Note may be prepaid in
part or in full, at any time, without penalty.
The EIDL Note provides for certain customary
events of default, including: (i) a failure to comply with any provision of the EIDL Note, the related Loan Authorization and Agreement,
or other EIDL loan documents; (ii) a default on any other SBA loan; (iii) a sale or transfer of, or failure to preserve or account
to SBA’s satisfaction for, any of the collateral or its proceeds; (iv) a failure of the Company or anyone acting on its behalf
to disclose any material fact to SBA; (v) the making of a materially false or misleading representation to SBA by the Company or
anyone acting on their behalf; (vi) a default on any loan or agreement with another creditor, if SBA believes the default may materially
affect the Company’s ability to pay the EIDL Note; (vii) a failure to pay any taxes when due; (viii) if the Company becomes
the subject of a proceeding under any bankruptcy or insolvency law; (ix) if a receiver or liquidator is appointed for any part
of the Company’s business or property; (x) the making of an assignment for the benefit of creditors; (xi) has any adverse
change in financial condition or business operation that SBA believes may materially affect the Company’s ability to pay
the EIDL Note; (xii) effects any reorganization, merger, consolidation, or other transaction changing ownership or business structure
without SBA’s prior written consent; or (xiii) becomes the subject of a civil or criminal action that SBA believes may materially
affect the Company’s ability to pay the EIDL Note.
Upon the occurrence of an event of default,
the SBA has customary remedies and may, among other things: (i) require immediate payment of all amounts owed under the EIDL Note;
(ii) collect all amounts owing from the Company; (iii) file suit and obtain judgment against the Company; (iv) take possession
of any collateral; or (v) sell, lease, or otherwise dispose of, any collateral at public or private sale, with or without advertisement.
The foregoing description of the EIDL Note
does not purport to be complete is qualified in its entirety by reference to the full text of the EIDL Note, a copy of which is
filed as Exhibit 10.2 to this Current Report on Form 8-K.
