|
Item
2.04
|
Triggering
Events that Accelerate or Increase a Direct Financial Obligation or an Obligation under
an Off-Balance Sheet Arrangement.
|
On
September 8, 2017, the Registrant and Ironclad Performance Wear Corporation, a California corporation and its wholly-owned subsidiary
(“Ironclad California” and together with the Registrant, the “Debtors”), filed voluntary petitions under
Chapter 11 of the U. S. Bankruptcy Code (the “Chapter 11 Cases”) in the U. S. Bankruptcy Court, Central District of
California, San Fernando Valley Division (the “Bankruptcy Court”). The Chapter 11 Cases are expected to be jointly
administered.
During
the pendency of the Chapter 11 Cases, the Debtors will continue in the possession of their assets and will continue to operate
and manage their business in the ordinary course, including continuing the development, manufacture and sale of their high-performance
task-specific work gloves, pending the sale of substantially all of their assets pursuant to a sale under Section 363 of the U.
S. Bankruptcy Code. The Registrant intends to request Bankruptcy Court approval of a series of customary motions related to the
payment of various expenses to continue operations.
To
facilitate continued business operations, on September 8, 2017, the Debtors and Radians Wareham Holding, Inc. (“Radians”)
entered into a Debtor-in-Possession Credit Agreement and Agreement for the Use of Cash Collateral (the “DIP Agreement”)
pursuant to which Radians will provide to the Debtors a secured multiple draw term loan credit facility of up to $1,000,000 for
normal business operations and up to an additional $1,000,000 for additional purchases of inventory (the “DIP Facility”),
in accordance with the terms and provisions of the DIP Agreement.
The
note to be executed by the Debtors evidencing the DIP Facility will bear interest at 10% per annum, provided that after the occurrence
and during the continuance of an event of default, the Debtors’ obligations under the DIP Facility shall bear interest at
18% per annum. Accrued unpaid interest shall be compounded on the last day of each calendar month.
The
DIP Facility is secured by a grant of superpriority status with respect to debt referenced in Sections 364(c) and (d) of the U.
S. Bankruptcy Code, and a continuing second priority lien (subject only to (1) that certain Revolving Loan and Security Agreement
dated November 28, 2014, originally entered into among Capital One, National Association and the Debtors and assigned to Radians
on July 25, 2017, and related documents (the “Secured Loan Documents”), and (2) liens expressly permitted under the
DIP Agreement) on all of the Debtors’ assets.
Among
other customary matters, the Debtors’ failure to comply with certain bankruptcy-related filing obligations within the timeframes
set forth in the DIP Agreement constitute events of default thereunder.
On
September 8, 2017, the Debtors and Radians also entered into a Stalking Horse Asset Purchase Agreement (the “Purchase Agreement”)
pursuant to which Radians will purchase from the Debtors substantially all of their assets for (1) an aggregate amount (the “Aggregate
Purchase Price”) of $20,000,000, subject to a reduction to $15,000,000 if certain conditions set forth in the Purchase Agreement
are not met, and (2) the assumption of certain of the Debtors’ liabilities at the closing of the transactions contemplated
under the Purchase Agreement (the “Closing”). Upon execution of the Purchase Agreement, Radians deposited $1,000,000
with an escrow agent (the “Radians Deposit”).
The
Closing is conditioned on, among other matters, approval by the Bankruptcy Court and the consideration by the Debtors and the
Bankruptcy Court of higher or better competing bids with respect to any transaction involving the sale or other disposition of
the Debtors’ assets to a purchaser or purchasers other than Radians.
The
Debtors are required to include in their motion (the “Bid Procedures Motion”) seeking approval of the order of the
Bankruptcy Court establishing bidding procedures for the solicitation of higher or otherwise better bids for the Debtors’
assets (the “Bid Procedures Order”), and to seek inclusion and approval in the Bid Procedures Order of, among other
matters, the following requirements: the initial overbid must be at least $750,000 over the Aggregate Purchase Price; subsequent
overbids must be in increments of at least $250,000 or figures which are wholly divisible by $250,000; bidders must have demonstrated
that they have the financial means to consummate their purchase of the Debtors’ assets without a financing contingency;
bidders must submit a cash deposit of $2,000,000; and if any party other than Radians is deemed by the Bankruptcy Court to be
the winning bidder at the auction undertaken pursuant to the Bid Procedures Order (the “Auction”), or if the Debtors
elect to proceed with a plan of reorganization instead of proceeding with a sale of assets, Radians shall receive a $500,000 break-up
fee.
The
Purchase Agreement may be terminated by the Debtors or Radians if the Closing does not occur on or before November 15, 2017, if
any material representation or warranty made for the benefit of such party is untrue in any material respect, or if the other
party defaults in any material respect in the performance of any obligation under the Purchase Agreement; by Radians if the Debtors
fail to file, by the dates specified in the Purchase Agreement, the Chapter 11 Cases or certain required bankruptcy motions, if
the Bankruptcy Court fails to enter, by the dates specified in the Purchase Agreement, the orders requested by such bankruptcy
motions, if the Debtors fail to conduct the Auction in accordance with the Bid Procedures Order or the Auction is cancelled for
reasons other than a lack of competing bids, or if less than an agreed upon percentage of Debtors’ employees accept offers
of employment by Radians; or automatically if an alternative bidder is selected at the conclusion of the Auction as having the
highest or otherwise best bid, and such alternative bidder closes its transaction.
The
Chapter 11 Cases constitute events of default under the Secured Loan Documents, automatically accelerating the Debtors’
obligations thereunder. From and after the occurrence of an event of default the Debtors have agreed to pay interest on all amounts
due under the Secured Loan Documents which the Debtors fail or refuse to pay at the lesser of 18% per annum and the maximum non-usurious
interest rate permitted under applicable law.
On
September 11, 2017, the Registrant issued a press release entitled “Ironclad Performance Wear Files for Chapter 11 Bankruptcy
Protection with Stalking Horse Bid from Radians.” The press release is attached hereto as Exhibit 99.1 and is incorporated
herein by reference.
Court
filings for the Chapter 11 Cases are available at https://www.pacer.gov.