Item 1.01 Entry into a Material Definitive Agreement.
Waiver, Consent and Amendment to Credit Agreements
On April 28, 2023, SigmaTron International, Inc., a Delaware corporation (the
"Company") entered into (i) a Waiver, Consent and Amendment No. 1 to the Credit
Agreement ("JPM Waiver") by and among the Company, Wagz, Inc. ("Wagz") and
JPMorgan Chase Bank, N.A., as lender ("JPM"), with respect to that certain
Amended and Restated Credit Agreement dated as of July 18, 2022 (as amended,
restated, supplemented or otherwise modified from time to time, the "JPM Credit
Agreement") by and among the Company, the other loan party thereto, and JPM and
(ii) a Waiver, Consent and Amendment No. 1 to the Credit Agreement ("TCW
Waiver") by and among the Company, Wagz, the financial institutions identified
therein (the "TCW Lenders") and TCW Asset Management Company LLC as
administrative agent for the TCW Lenders (in such capacity, the "Agent" and
collectively with the TCW Lenders and JPM, the "Lender Parties") with respect to
that certain Credit Agreement date as of July 18, 2022 (as amended, restated,
supplemented or otherwise modified from time to time, the "TCW Credit Agreement"
and together with the JPM Credit Agreement the "Credit Agreements") by and among
the Company, Wagz, the TCW Lenders and Agent.
The Company entered into the JPM Waiver and TCW Waiver (together, the "Waivers")
after receiving on March 2, 2023, the previously disclosed Event of Default and
Reservation of Rights notice from each of JPM ("JPM Notice") and the TCW Lenders
and Agent ("TWC Notice" together with the JPM Notice, the "Notices"). As
previously disclosed in the Company's Current Report on Form 8-K filed on
March 20, 2023, the Notices indicated the occurrence of certain events of
default under the JPM Credit Agreement and the TCW Credit Agreement as disclosed
in such Report. In addition, on March 27, 2023, the Company filed a Current
Report on Form 8-K reporting the receipt of a delinquency notification letter
from Nasdaq indicating that the Company was not in compliance with the continued
listing requirements of Nasdaq for failing to timely file the Company's Form
10-Q for the fiscal quarter ended January 31, 2023. This notification also
constituted a default under the Credit Agreements.
In connection with the Waivers, the Company decided to exit its active
involvement in the Pet Tech business that is conducted by Wagz through the sale
by the Company of a majority stake in Wagz, effective April 1, 2023. Pursuant to
the Waivers, the Company has agreed, among other things, to (i) if requested by
the Agent, effect a corporate restructuring that would create a new holding
company structure to own all of the Company's stock through a merger pursuant to
Section 251(g) of the General Corporation Law of the State of Delaware, after
which the holding company would continue as the public company, become a
guarantor under the Credit Agreements and pledge to the Lender Parties all of
the equity of the Company, (ii) engage a financial advisor to review certain of
the Company's financial reporting to JPM and the Agent and participate in weekly
conference calls with the advisor, JPM and the Agent to discuss and provide
updates on the Company's liquidity and operations, (iii) extend the Wagz Loan
(defined below), (iv) pay to JPM an amendment fee in the amount of $70,000, paid
in cash, and (v) pay to the TCW Lenders an amendment fee of $395,000 and a
default rate fee of $188,301, both of which were paid in kind by being added to
the principal of the term loan incurred under the TCW Credit Agreement. The
Waivers also amended the Credit Agreements to, among other things, (x) require
that the Company maintain a minimum of $2.5 million in revolver availability
under the JPM Credit Agreement, (y) modify the definition of EBITDA to allow
adjustments to account for Wagz operating losses, impairment charges relating to
the write-down of the Wagz business, the Wagz Note (as defined below) and net
assets of the Company and Wagz, and expenses relating to the Waivers, the Wagz
sale and SPA (as defined below), and (z) modify the existing Total Debt to
EBITDA Ratios (as defined in the Credit Agreements) as follows:
Total Debt to EBITDA Ratio* Total Debt to EBITDA Ratio*
Fiscal Quarter (as amended) (prior to amendment)
October 31, 2023 4.50:1.0 4.25:1.0
January 31, 2024 4.50:1.0 4.00:1.0
April 30, 2024 4.50:1.0 4.00:1.0
July 31, 2024 4.25:1.0 3.75:1.0
October 31, 2024 4.00:1.0 3.75:1.0
* Assumes the Term Loan Borrowing Base Coverage Ratio (as defined in the Credit
Agreements) is less than or equal to 1.50:1.0.
. . .
Item 2.01 Completion of Acquisition or Disposition of Assets.
The information set forth under the heading "Wagz Stock Purchase Agreement" and
"Wagz Promissory Note" in Item 1.01 of this Current Report on Form 8-K is hereby
incorporated by reference into this Item 2.01.
Item 2.05 Costs Associated with Exit or Disposal Activities.
The information set forth under Item 1.01 of this Current Report on Form 8-K is
hereby incorporated by reference into this Item 2.05.
As disclosed above in Item 1.01 of this Current Report on Form 8-K, on April 28,
2023, the Company consummated the sale to Buyer of 81% of the issued and
outstanding shares of common stock of Wagz pursuant to the terms of the SPA,
with effect as of April 1, 2023. As reported in that item, the Company incurred
a $900,000 expense representing the full principal amount of the Wagz Note that
was funded during April 2023. In addition, in connection with the sale, the
Company expects to incur a non-cash impairment charge of approximately
$2.5 million to $3.0 million related to the sale of the business, which the
Company expects to record in its financial statements for the Company's fourth
quarter of its fiscal year 2023 ended April 30, 2023; the charge primarily
relates to the impairment of certain assets that were not transferred to Buyer
in connection with the sale transaction. This amount is in addition to the
impairment charges previously reported by the Company in its Current Report on
Form 8-K filed with the SEC on March 20, 2023. The Company does not expect any
future capital expenditures in connection with its exit of the Pet Tech business
as the Company did not commit to extending any further financial support to Wagz
beyond the Wagz Loan.
Item 2.06 Material Impairments.
The information set forth under Item 2.05 of this Current Report on Form 8-K is
hereby incorporated by reference into this Item 2.06.
Item 8.01 Other Events
On May 4, 2023, the Company issued a press release announcing the events
reported herein. A copy of the press release is filed herewith as Exhibit 99.1
and incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
No. Description
Exhibit 10.1* Waiver, Consent and Amendment No. 1 to the Credit Agreement
dated April 28, 2023, by and among SigmaTron International, Inc.,
Wagz, Inc. and JPMorgan Chase Bank, N.A.
Exhibit 10.2* Waiver, Consent and Amendment No. 1 to the Credit Agreement
dated April 28, 2023, by and among SigmaTron International, Inc.,
Wagz, Inc. and TCW Asset Management Company LLC, as Administrative
Agent, and the Lenders parties thereto.
Exhibit 10.3* Stock Purchase Agreement, dated April 28, 2023, by and among
SigmaTron International, Inc. Wagz, Inc., Vynetic LLC, and Terry
B. Anderton.
Exhibit 10.4 Promissory Note dated April 1, 2023, issued by Wagz, Inc. to
SigmaTron International, Inc.
Exhibit 99.1 SigmaTron International, Inc. press release dated May 4, 2023.
Exhibit 104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
* Certain of the exhibits and schedules to this Exhibit have been omitted in
accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a
copy of all omitted exhibits and schedules to the Securities and Exchange
Commission upon its request.
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