Item 1.01 Conclusion of a Material Definitive Agreement.
At 22 November 2021, Stran & Company, Inc. (the âCompanyâ) has entered into a revolving demand line of credit loan agreement (the âLoan Agreementâ), with
Salem Five Cents Savings Bank (the “Lender”), for total loans up to $ 7 million (the âLoanâ or the âLine of Creditâ), evidenced by a revolving demand credit note, also dated 22 November 2021 (the note “). The Line of Credit and the Note are secured by a first ranking security interest in all assets and property of the Company, as further described in the Security Agreement, also dated 22 November 2021, between the Lender and the Borrower (the âGuarantee Agreementâ and together with the Loan Agreement and the Note, the âLoan Documentsâ).
The amount available under the line of credit is the lesser of: $ 7 million or the sum of (x) eighty percent (80%) of the then unpaid amount of qualifying accounts (as defined below), plus (y) fifty percent (50%) of qualifying inventory (as defined below) ; less one hundred (100%) percent of the total amount then withdrawn from the line of credit on behalf of the Company. In addition, advances based on eligible inventory must be capped at all times at
$ 2,000,000. “Qualifying Accounts” are defined as accounts that meet a number of requirements including, unless otherwise approved by the Lender, being less than ninety (90) days from the date of the invoice. and not subject to any prior assignment, claim, lien or security. interest, not subject to set-off, credit, provision or adjustment by the account debtor, arose in the ordinary course of the business of the Company, does not constitute an intercompany obligation, is not subject to notice of bankruptcy or insolvency of the account debtor, not owed by an account debtor whose main establishment is outside United States of America, not a government account, not be evidenced by promissory notes, and not any of the accounts owed by an account debtor 25% or more of the accounts are 90 days or more past the invoice date; or otherwise deemed unacceptable by the lender in accordance with its normal credit policies. âQualifying Inventoryâ means all finished products, work in progress and raw materials and inventory components owned by the Company. It does not include stocks held on consignment or not belonging to the Company; any inventory that has been returned by a customer or that is damaged or subject to legal charges other than prime security held by the Company; any inventory that is not in the possession of the Company; any inventory held by the Company on property leased by the Company, unless the lender has received a waiver and consent from the lessor’s owner of such property to the satisfaction of the lender; any inventory that is not in United States; any inventory that the lender considers reasonably obsolete or unmarketable; and any non-fully perfect first priority lien inventory held by the lender.
The loan bears interest at the prime rate plus 0.5% per annum. The Company must repay the interest on the loan proceeds on a monthly basis. The loan is expected to continue for 12 months, subject to the lender’s application rights and the outstanding positive and other obligations of the company under the loan documents, as summarized below.
The Company may freely draw on the Loan subject to the Lender’s right to demand full repayment of the Loan at any time. Late payments are subject to a 5% late fee. In the event of non-repayment of the loan after the Lender has requested full repayment, the interest rate will increase by 10%. The ticket can be prepaid at any time without penalty. The lender can assign the note without the consent of the company.
Under the terms of the guarantee agreement and other loan documents, the Company has given the lender a first ranking security interest in all of its assets, whether held now and in the future, as security for the full repayment of the loan. The lender may file Uniform Commercial Code financing statements with any jurisdiction and with sufficient descriptions of the property to complete its security over all current and future assets of the company. In the event of default of the loan, the lender can expedite the repayment of the loan, take possession of the assets of the company, assign a receiver over the assets of the company and assert other rights over the assets of the company as a creditor. guaranteed. The Company shall pay all reasonable legal fees and expenses of the Lender incurred in enforcing its rights under the Loan Documents.
Under the Loan Agreement, the Company is required to continue its current business of outsourced marketing solutions and, without the prior consent of the Lender, will not acquire in whole or in part any other company or business and will not engage in any other business or open other locations, and will use the loan proceeds only for the general and ordinary operations of its business and for the following purposes: general working capital for accounts receivable and inventory purchases.
The loan is also subject to continuing positive obligations of the company, including punctual repayment of the loan amount, keeping proper books and records in accordance with the opinion of LMHS, PC or other chartered accountant acceptable to the lender, allowing the lender to inspect its books and records, providing audited, quarterly, monthly and other financial statements to the lender, payment of the lender’s reasonable expenses for review on the field in 2022, allows the Lender to communicate with its accountants; maintain its properties in good condition subject to normal wear; and obtain replacement cost insurance for its property from the lender as the mortgagee / loss beneficiary; and the contracts for the management of the assets of the Company shall be subordinate to the rights of the Lender and there shall be no change of management company without the prior written consent of the Lender.
The loan is further subject to the following financial requirements: (a) Debt service coverage ratio: cash flows should be calculated on an annual basis of at least 1.20 times EBITDA less cash taxes , distributions, dividends, shareholder withdrawals in any form and CAPEX divided by all expected principal payments on all debts plus cash interest payments made on all debts; (b) Minimum
Net value: The Company will be required to respect the following minimum net worth thresholds: $ 2,000,000 To December 31, 2021; $ 2,750,000 To December 31, 2022; and $ 3,500,000 To December 31, 2023.
The Company may not also contract any additional debt, guaranteed or not, except in the normal course of business; make loans or advances to third parties or guarantee the obligations of third parties, except certain ordinary advances to employees or ordinary customer credit terms; make investments; acquire a business; make capital expenditures, except in the ordinary course of business; sell any material asset, except in the ordinary course of business; grant security or mortgages on its property or assets.
The above summary of the loan agreement, note and guarantee. . .
Item 2.03 Creation of a Direct Financial Obligation or Obligation Under an Off-Balance Sheet Arrangement of a Registrant.
As a result of the loan, under the loan documents, the company became obligated to assume a direct financial obligation from the 22 November 2021. A description of the loan and the loan documents creating the obligation, the amount of the obligation, including the terms of its payment and a description of the material conditions under which it can be accelerated or increased and other terms and conditions Loan and Loan Documents are provided in Item 1.01 above and incorporated by reference herein.
Item 8.01 Other Events.
At 22 November 2021, the Company issued a press release announcing the Loan. A copy of the press release is attached to this report as Exhibit 99.1. The press release provided in this report as Exhibit 99.1 will not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the requirements of that section.
Item 9.01 Financial statements and supporting documents.
Exhibit No. Description of Exhibit
10.1 Revolving Demand Line of Credit Loan Agreement, dated November 22,
2021, by and between Stran & Company, Inc. and Salem Five Cents Savings
10.2 Revolving Demand Line of Credit Note, dated November 22, 2021, by
Stran & Company, Inc. in favor of Salem Five Cents Savings Bank
10.3 Security Agreement, dated November 22, 2021, by and between Stran &
Company, Inc. in favor of Salem Five Cents Savings Bank
10.4 Warehouseman's Waiver, dated November 4, 2021 and executed November
22, 2021, by and among Harte Hanks Response Management/ Boston, Inc.,
Stran & Company, Inc. and Salem Five Cents Savings Bank
99.1 Press Release dated November 22, 2021
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