Item
1.01.
Entry
into a Material Definitive Agreement
On March 29, 2019 (the “Closing Date”), New Age
Beverages Corporation, a Washington corporation (the
“Company”) entered into a Loan and Security Agreement
(the “Loan Agreement”) with East West Bank
(“EWB”). The Loan Agreement provides for (i) a term
loan in the aggregate principal amount of $15.0 million (the
“Term Loan”), which may be increased to $25.0 million,
subject to the satisfaction of certain conditions (such additional
term loans, the “Incremental Term Loans”) and (ii) a
$10.0 million revolving loan facility (the “Revolving Loan
Facility” and collectively with the Term Loan, the
“Transactions”). In connection with the closing of the
Transactions, the Company repaid all outstanding amounts under its
Loan and Security Agreement dated as of August 10, 2018 (the
“Prior Loan Agreement”) with Siena Lending Group LLC
(the “Prior Lender”), as more fully described in Item
1.02 of this Current Report on Form 8-K. On the Closing Date, EWB
funded $25.0 million to the Company, consisting of the $15.0
million Term Loan and $10.0 million as an advance under the
Revolving Loan Facility.
The obligations of the Company under the Loan Agreement are secured
by substantially all assets of the Company and guaranteed by
certain material subsidiaries of the Company pursuant to a
Guarantee and Pledge Agreement (the “Guarantee
Agreement”) entered into by such material subsidiaries in
favor of EWB.
Additionally, the
Company’s obligations under the Loan Agreement are secured by
the Company’s intellectual property and the intellectual
property of certain subsidiaries of the Company pursuant to an
Intellectual Property Security Agreement (the “IP Security
Agreement”).
The Revolving Loan Facility bears interest at prime rate plus (i)
0.25%, if the Total Leverage Ratio (as defined in the Loan
Agreement) is less than 1.50 to 1.00 or (ii) 0.50%, if the Total
Leverage Ratio is greater than or equal to 1.50 to 1.00, in each
case as of the end of the most recent fiscal quarter of the
Company. The Revolving Loan Facility matures and becomes due and
payable on March 29, 2023. Interest on loans outstanding under the
Revolving Loan Facility is payable monthly beginning on April 1,
2019. The Company may voluntarily prepay amounts outstanding under
the Revolving Loan Facility on ten business days’ prior
notice to EWB without prepayment penalties. The Company is required
to pay a quarterly fee on the unused portion of the Revolving Loan
Facility equal to 0.50% per annum of average unused portion of the
revolving line.
The Term Loan matures on March 29, 2023. Payments with respect to
the Term Loan are interest-only until October 1, 2019. Beginning on
October 1, 2019, the Company is required to make monthly payments
of interest and monthly amortization payments on the Term Loan,
which monthly amortization payments shall each be equal to the
outstanding principal amount of the Term Loan (as such amount may
increase by the Incremental Term Loans)
divided by
10
divided by
12. The Company may elect to prepay the Term Loan
before its maturity on 10 business days’ notice to EWB
subject to a prepayment fee of 2% of the principal amount of the
Term Loan prepaid in the first 12 months after the Closing Date and
1% of the principal amount of the Term Loan prepaid after the 12
month anniversary of the Closing Date through and including the 24
month anniversary of the Closing Date.
No later than 120
days after the end of each fiscal year, commencing with the fiscal
year ending December 31, 2019, the Company is required to make a
payment towards the outstanding principal amount of the Term Loan
in an amount equal to 35% of the Excess Cash Flow (as defined in
the Loan Agreement),
if the Total
Leverage Ratio is less than 1.50 to 1.00 or (i) 50% if the Total
Leverage Ratio is greater than or equal to 1.50 to
1.00
.
Under the terms of the Loan Agreement, the Company is subject to
the following financial covenants:
●
Minimum
Adjusted EBITDA – The Company and its Subsidiaries may not
have Adjusted EBITDA (as defined in the Loan Agreement) for the 12
month period ending on the last day of any fiscal quarter,
commencing with the fiscal quarter ending March 31, 2019 of less
than (i) $4.0 million for the periods ended March 31, 2019 and June
30, 2019, (ii) $7.0 million for the period ended September 30, 2019
and (iii) $8.0 million for the period ended December 31,
2019;
●
Minimum
Fixed Charge Coverage Ratio – The Company and its
Subsidiaries may not have a Fixed Charge Coverage Ratio (as defined
in the Loan Agreement) as of the last day of a fiscal quarter,
commencing with the fiscal quarter ending March 31, 2020, of less
than 1.50 to 1.00.
●
Minimum
Net Cash – The Company and its subsidiaries organized in the
United States of America and in China may not collectively have Net
Cash (as defined in the Loan Agreement) of less than $5.0 million
in the aggregate at any time on and after the Closing Date through
December 31, 2019.
●
Maximum
Total Leverage Ratio – The Company and its subsidiaries may
not have a Total Leverage Ratio as of the last day of a fiscal
quarter, commencing with the fiscal quarter ending March 31, 2020
to be greater than (i) 2.50 to 1.00 for the fiscal quarters ending
March 31, 2020 through September 30, 2020; (ii) 2.00 to 1.00 for
the fiscal quarters ending December 31, 2020 through September 30,
2021; (iii) 1.50 to 1.00 for the fiscal quarters ending December
31, 2021 through September 30, 2022; and (iv) and 1.00 to 1.00 for
fiscal quarters ending December 31, 2022 and later.
provided
,
however
, that if the Company
fails to comply with any of the financial covenants described above
as of the last day of any fiscal quarter, any cash equity
contribution funded with proceeds from the sale or issuance of
Qualified Stock (as defined in the Loan Agreement) to the
Company’s capital stock after the last day of such fiscal
quarter and on or prior to the day that is 10 business days after
the day on which financial statements are required to be delivered
for that fiscal quarter will, at the Company’s election, be
included in the calculation of Adjusted EBITDA solely for the
purposes of determining compliance with such covenants, and, if
after giving effect to such pro forma adjustment the Company is in
compliance with the financial covenants described above, the
Company shall be deemed to have satisfied such financial covenants
as of the relevant date of determination and any breach of such
financial covenants will be deemed automatically cured. This equity
cure may not be used (A) more than twice in any four consecutive
quarters; (B) in consecutive quarters and (C) more than three times
in the aggregate. Additionally, the foregoing equity cure is
limited to $5.0 million and any proceeds received from the sale of
capital stock shall immediately be used to prepay the Term
Loan.
The Loan Agreement includes customary representations, warranties
and covenants (affirmative and negative), including restrictive
covenants that, among other things, limit the Company’s
ability to: dispose of all or any part of its business or property;
merge or consolidate with or into any other business organization;
incur or prepay additional indebtedness; declare or pay any
dividend or make a distribution on any class of the Company’s
stock or enter into specified material transactions with the
Company’s affiliates; in each case subject to certain
specified exceptions set forth in the Loan Agreement.
Subject to certain exceptions set forth in the Loan Agreement, the
Company is generally prohibited from borrowing additional
indebtedness other than subordinated debt.
The Loan Agreement also includes standard events of default,
including, but not limited to, payment defaults; breaches of
covenants following any applicable cure period; material breaches
of representations or warranties; the occurrence of a Material
Adverse Change (as defined in the Loan Agreement); events relating
to bankruptcy or insolvency and the occurrence of an unsatisfied
material judgment against the Company. Upon the occurrence of an
event of default, EWB may declare all outstanding obligations
immediately due and payable, take such actions as it considers
necessary or reasonable to protect its security interest in the
collateral and take such other actions as are set forth in the Loan
Agreement and other Loan Documents (as defined in the Loan
Agreement). From and after the occurrence, and during the
continuance, of an event of default, obligations under the Loan
Agreement will bear interest at 3.0% above the rate that is
otherwise applicable to such obligations immediately prior to the
occurrence of the event of default.
Northland Securities Inc. acted as banker in connection with the
Transactions and received a fee of $375,000.
The foregoing summary descriptions of the Loan Agreement, Guarantee
Agreement and IP Security Agreement do not purport to be complete
and are qualified in their entirety by reference to copies thereof,
which are filed as Exhibits 10.1, 10.2 and 10.3, respectively
hereto and incorporated herein by reference.
Item 1.02 Termination of a Material Definitive
Agreement
The information set forth in Item 1.01 is incorporated into this
Item 1.02 by reference. On March 29, 2019, the Prior Loan Agreement
was paid in full and terminated in its entirety upon the
effectiveness of the Loan Agreement.
On March 29, 2019, the Company paid the Prior Lender an aggregate
payment of $2,617,643.11, representing the repayment of all of the
obligations under the Prior Loan Agreement in full, including a
prepayment fee of $480,000.
The foregoing summary description of the Prior Loan Agreement does
not purport to be complete and is qualified in its entirety by
reference to the full text of the Prior Loan Agreement, which was
filed as an exhibit to the Company's Form 8-K filed with the U.S
Securities and Exchange Commission on August 16, 2018, which is
incorporated by reference herein.