Item 1.01. Entry into a Material Definitive Agreement.
Acquisition
On June 25, 2020, SLG Chemicals, Inc., a Colorado corporation (“SLG Chemicals”) and a wholly owned subsidiary of Scott’s Liquid Gold-Inc., a Colorado corporation (the “Company”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with CR Brands, Inc., a Delaware corporation (“CR Brands”), and Sweep Acquisition Company, a Delaware corporation (“Sweep” and together with CR Brands, “Sellers”), pursuant to which SLG Chemicals agreed to purchase from Sellers substantially all of the assets, properties, rights and interests of Sellers primarily used in the business of designing, formulating, marketing and selling laundry care products to retail and wholesale customers under the Biz® and Dryel® brand names (the “Business”). The transactions contemplated by the Purchase Agreement were consummated on July 1, 2020 (the “Acquisition”). The total consideration SLG Chemicals paid for the Business was $9,250,000, plus an amount equal to the value of the Business-related inventory (including raw materials, work-in-progress inventory, finished goods and bill of material expense items) as of the closing, up to a maximum of $1,700,000, plus an earnout that will be paid following the second anniversary of the closing, the amount of which is based on sales to a certain new client. An amendment to this Current Report on Form 8-K will be filed within 75 days of July 1, 2020 to report certain financial information regarding the Business and the Acquisition.
A copy of the Purchase Agreement is attached to this Current Report on Form 8-K as Exhibit 2.1 and is incorporated by reference herein. The foregoing description of the Purchase Agreement is qualified in its entirety by reference to Exhibit 2.1.
Loan Agreement
On July 1, 2020, the Company, SLG Chemicals and Neoteric Cosmetics, Inc., a Colorado corporation (“Neoteric”) and wholly owned subsidiary of the Company, as borrowers, entered into a Loan and Security Agreement (the “Loan Agreement”) with UMB Bank, N.A. (“UMB”), as lender, pursuant to which UMB provided a term loan and a revolving credit facility that will be used to finance a portion of the Acquisition, to repay amounts owed under, and terminate, that certain Credit Agreement, dated June 30, 2016, between the Company, SLG Chemicals, Neoteric, Colorado Product Concepts, Inc., SLG Touch-a-Lite, Inc. and JPMorgan Chase Bank, N.A., (as amended, the “Existing Credit Agreement”) and for working capital. The term loan amount is $3 million with monthly payments fully amortized over three years and interest at the LIBOR Rate + 4.5%, with a floor of 5.5%. The revolving credit facility amount is $7 million with interest at the LIBOR Rate + 3.75%, with a floor of 4.75%. The revolving credit facility will terminate on July 1, 2023 or any earlier date on which the revolving commitment is otherwise terminated pursuant to the Loan Agreement. The loans are secured by all of the assets of the Company and all of its subsidiaries.
The Loan Agreement requires, among other things, that the Company and its Subsidiaries, on a consolidated basis, maintain a Fixed Charge Coverage Ratio of no less than 1.20 to 1.0. The Loan Agreement also contains covenants typical of transactions of this type, including among others, limitations on the Company’s ability to: create, incur or assume any indebtedness or lien on Company assets; pay dividends or make other distributions; redeem, retire or acquire the Company’s outstanding common stock, options, warrants or other rights; make fundamental changes to its corporate structure or business; make investments or asset sales; or engage in certain other activities as set forth in the Loan Agreement. A copy of the Loan Agreement is attached to this Current Report on Form 8-K as Exhibit 2.2 and is incorporated by reference herein. The foregoing description of the Loan Agreement is qualified in its entirety by reference to Exhibit 2.2.