UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

 

Current Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 17, 2020

 

CSP Inc.

(Exact name of the registrant as specified in its charter)

 

Massachusetts

(State or other jurisdiction of incorporation)

 

 

 

000-10843

04-2441294

(Commission File Number)

(IRS Employer Identification No.)

 

 

 

 

175 Cabot Street - Suite 210, Lowell, MA

01854

(Address of principal executive offices)

(Zip Code)

 

(978) 954-5038

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

CSPI

Nasdaq Global Market

AFDOCS/22066009.2

 

Item 1.01.  Entry into a Material Definitive Agreement.

 

On April 17, 2020, CSP Inc. (the “Company”) and Modcomp, Inc., its wholly owned subsidiary (“Modcomp”, and collectively with the Company, the “Borrowers”) each received a loan in the form of a promissory note from Paragon Bank (“Lender”) in the amounts of $827,000 and $1,353,600, respectively (the “SBA Loans”), under the Paycheck Protection Program, which was established under the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration. The SBA Loans have a two-year term and carry an annual fixed interest rate of 1%.

 

The SBA Loans provide for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, materially false or misleading representations to Lender or SBA, and adverse changes in the financial condition or business operations that Lender believes may materially affect Borrowers’ ability to pay the SBA Loans.  The Borrowers did not provide any collateral or guarantees for the SBA Loans and the Borrowers may prepay the principal of the SBA Loans at any time without penalty.

 

The Borrowers may apply to the Lender for forgiveness of an amount due on the SBA Loans in an amount equal to the sum of certain costs during the 8-week period beginning on the date of the first disbursement of the SBA Loans. The amount of SBA Loans forgiveness shall be calculated in accordance with the requirements of the Paycheck Protection Program, including provisions of Section 1106 of the CARES Act. 

 

The foregoing description of the SBA Loans does not purport to be complete and is qualified in its entirety by reference to the SBA Loans, copies of which is attached to this Current Report on Form 8-K as Exhibits 10.1 and 10.2, and are incorporated herein by reference into this Item 1.01.

 

Item 2.03.  Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth in Item 1.01 of this Current Report on Form 8-K is hereby incorporated by reference into this Item 2.03.

 

Item 9.01.  Financial Statements and Exhibits.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(d) Exhibits.

 

Exhibit No.

    

Description   

 

 

 

 

 

 

 

 

 

 

 

10.1

 

Note, dated as of April 17, 2020, by, and between Paragon Bank and CSP, Inc.

10.2

 

Note, dated as of April 17, 2020, by, and between Paragon Bank and Modcomp, Inc.

 

AFDOCS/22066009.2

SIGNATURE

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

CSP INC.

 

Date:  April 23, 2020

 

By:  /s/Gary W. Levine

Gary W. Levine

Chief Financial Officer

 

AFDOCS/22066009.2

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

 

 

 

 

 

IMAGE1.PNG

 

 

 

 

 

 

 

 

 

 

 

SBA LOAN #

61979571-06

SBA LOAN NAME

CSP, INC.

DATE

4/17/2020

LOAN AMOUNT

$827,000.00

INTEREST RATE

Fixed 1%

BORROWER

CSP, INC.

OPERATING COMPANY

N/A

LENDER

PARAGON BANK

LENDER LOAN #

964500390

 

 

1.

PROMISE TO PAY:

U.S. Small Business Administration

Note

 

 

In return for the Loan, Borrower promises to pay to the order of Lender the amount of Eight Hundred Twenty Seven Thousand Dollars and No Cents ($827,000.00), interest on the unpaid principal balance, and all other amounts required by this Note.

 

2.

DEFINITIONS:

 

“Collateral” means any property taken as security for payment of this Note or any guarantee of this Note. “Guarantor” means each person or entity that signs a guarantee of payment of this Note.

“Loan” means the loan evidenced by this Note.

“Loan Documents” means the documents related to this loan signed by Borrower, any Guarantor, or anyone who pledges collateral.

“SBA” means the Small Business Administration, an Agency of the United States of America.

 

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

3.

PAYMENT TERMS:

 

Borrower must make all payments at the place Lender designates. The payment terms for this Note are:

1.

Maturity: This Note will mature in two years from date of first disbursement of this loan

 

2. Repayment Terms: If Lender uses its own Note, Lender must comply with the repayment terms set forth below and must ensure the Note is legally enforceable and assignable, has a stated maturity and is not payable on demand. The Note must include the following language:

 

“When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.”

 

If Lender uses SBA Note, Form 147, Lender must insert into Note, to be executed by Borrower, the following terms, without modification. Lender must complete all blank terms on the Note at time of closing.

 

Initial Deferment Period: No payments are due on this loan for 6 months from the date of first disbursement of this loan. Interest will continue to accrue during the deferment period. Thereafter on the 5th of each month Lender will apply each installment payment first to pay interest accrued to the day Lender receives the payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance to reduce principal.

 

Monthly Loan Payment Amount Due After 6 Month Deferment Period: $46,309.03 Interest Rate Fixed at 1.00%

The interest rate identified in the Note may not be changed during the life of the Loan unless changed in accordance with SOP 50 10.

 

Loan Forgiveness: Borrower may apply to Lender for forgiveness of the amount due on this loan in an amount equal to the sum of the following costs incurred by Borrower during the 8-week period beginning on the date of first disbursement of this loan:

 

a.

Payroll costs

 

b. Any payment of interest on a covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation)

c.

Any payment on a covered rent obligation

 

d.

Any covered utility payment

 

The amount of loan forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136). Not more than 25% of the amount forgiven can be attributable to non-payroll costs. [If applicable, insert the following: Borrower has received an EIDL advance in the amount of $0.00. That amount shall be subtracted from the loan forgiveness amount.]

 

Loan Prepayment: Notwithstanding any provision in this Note to the contrary:

 

Borrower may prepay this Note at any time without penalty. Borrower may prepay 20 percent or less of the unpaid principal balance at any time without notice. If Borrower prepays more than 20 percent and the Loan has been sold on the secondary market, Borrower must: a. Give Lender written notice; b. Pay all accrued interest; and c. If the prepayment is received less than 21 days from the date Lender received the notice, pay an amount equal to 21 days interest from the date lender received the notice, less any interest accrued during the 21 days and paid under b. of this paragraph. If Borrower does not prepay within 30 days from the date Lender received the notice, Borrower must give Lender a new notice.

 

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

4.

DEFAULT:

 

Borrower is in default under this Note if Borrower does not make a payment when due under this Note, or if Borrower or Operating Company:

A.

Fails to do anything required by this Note and other Loan Documents;

B.

Defaults on any other loan with Lender;

C.

Does not preserve, or account to Lender’s satisfaction for, any of the Collateral or its proceeds;

D.

Does not disclose, or anyone acting on their behalf does not disclose, any material fact to Lender or SBA;

E.

Makes, or anyone acting on their behalf makes, a materially false or misleading representation to Lender or SBA;

F.

Defaults on any loan or agreement with another creditor, if Lender believes the default may materially affect

Borrower’s ability to pay this Note;

G.

Fails to pay any taxes when due;

H.

Becomes the subject of a proceeding under any bankruptcy or insolvency law;

I.

Has a receiver or liquidator appointed for any part of their business or property;

J.

Makes an assignment for the benefit of creditors;

K.

Has any adverse change in financial condition or business operation that Lender believes may materially affect

Borrower’s ability to pay this Note;

L.

Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender’s prior

written consent; or

M.

Becomes the subject of a civil or criminal action that Lender believes may materially affect Borrower’s ability to pay this Note.

 

 

5.

LENDER’S RIGHTS IF THERE IS A DEFAULT:

 

Without notice or demand and without giving up any of its rights, Lender may:

A.

Require immediate payment of all amounts owing under this Note;

B.

Collect all amounts owing from any Borrower or Guarantor;

C.

File suit and obtain judgment;

D.

Take possession of any Collateral; or

E.

Sell, lease, or otherwise dispose of, any Collateral at public or private sale, with or without advertisement.

 

6.

LENDER’S GENERAL POWERS:

 

Without notice and without Borrower’s consent, Lender may:

A.

Bid on or buy the Collateral at its sale or the sale of another lienholder, at any price it chooses;

B.

Incur expenses to collect amounts due under this Note, enforce the terms of this Note or any other Loan Document, and preserve or dispose of the Collateral. Among other things, the expenses may include payments for property taxes, prior liens, insurance, appraisals, environmental remediation costs, and

 

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

reasonable attorney’s fees and costs. If Lender incurs such expenses, it may demand immediate repayment from Borrower or add the expenses to the principal balance;

C.

Release anyone obligated to pay this Note;

D.

Compromise, release, renew, extend or substitute any of the Collateral; and

E.

Take any action necessary to protect the Collateral or collect amounts owing on this Note.

 

7.

WHEN FEDERAL LAW APPLIES:

 

When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.

 

8.

SUCCESSORS AND ASSIGNS:

 

Under this Note, Borrower and Operating Company include the successors of each, and Lender includes its successors and assigns.

 

9.

GENERAL PROVISIONS:

 

A.

All individuals and entities signing this Note are jointly and severally liable.

B.

Borrower waives all suretyship defenses.

C.

Borrower must sign all documents necessary at any time to comply with the Loan Documents and to enable Lender to acquire, perfect, or maintain Lender’s liens on Collateral.

D.

Lender may exercise any of its rights separately or together, as many times and in any order it chooses.

Lender

may delay or forgo enforcing any of its rights without giving up any of them.

E.

Borrower may not use an oral statement of Lender or SBA to contradict or alter the written terms of this Note.

F.

If any part of this Note is unenforceable, all other parts remain in effect.

G.

To the extent allowed by law, Borrower waives all demands and notices in connection with this Note, including presentment, demand, protest, and notice of dishonor. Borrower also waives any defenses based upon any claim that Lender did not obtain any guarantee; did not obtain, perfect, or maintain a lien upon Collateral; impaired Collateral; or did not obtain the fair market value of Collateral at a sale.

 

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

10.

STATE-SPECIFIC PROVISIONS:

 

 

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

DocuSign Envelope ID: 6B06C741-E7D7-41E6-9718-754F0E522792

11.

BORROWER’S NAME(S) AND SIGNATURE(S):

 

By signing below, each individual or entity becomes obligated under this Note as Borrower.

 

 

 

By: /s/ William M. Newbanks

   Authorized Signer

 

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

 

IMAGE1.PNG

 

U.S. Small Business Administration

Note

 

 

 

 

SBA LOAN #

63159171-07

SBA LOAN NAME

MODCOMP, INC.

DATE

4/17/2020

LOAN AMOUNT

$1,353,600.00

INTEREST RATE

Fixed 1%

BORROWER

MODCOMP, INC.

OPERATING COMPANY

N/A

LENDER

PARAGON BANK

LENDER LOAN #

964500422

 

1.

PROMISE TO PAY:

In return for the Loan, Borrower promises to pay to the order of Lender the amount of One Million Three Hundred Fifty Three Thousand Six Hundred Dollars and No Cents ($1,353,600.00), interest on the unpaid principal balance, and all other amounts required by this Note.

 

2.

DEFINITIONS:

 

“Collateral” means any property taken as security for payment of this Note or any guarantee of this Note.

“Guarantor” means each person or entity that signs a guarantee of payment of this Note.

“Loan” means the loan evidenced by this Note.

“Loan Documents” means the documents related to this loan signed by Borrower, any Guarantor, or anyone who pledges collateral.

“SBA” means the Small Business Administration, an Agency of the United States of America.

 

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

3.

PAYMENT TERMS:

 

Borrower must make all payments at the place Lender designates. The payment terms for this Note are:

1.

Maturity: This Note will mature in two years from date of first disbursement of this loan

 

2. Repayment Terms: If Lender uses its own Note, Lender must comply with the repayment terms set forth below and must ensure the Note is legally enforceable and assignable, has a stated maturity and is not payable on demand. The Note must include the following language:

 

“When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.”

 

If Lender uses SBA Note, Form 147, Lender must insert into Note, to be executed by Borrower, the following terms, without modification. Lender must complete all blank terms on the Note at time of closing.

 

Initial Deferment Period: No payments are due on this loan for 6 months from the date of first disbursement of this loan. Interest will continue to accrue during the deferment period. Thereafter on the 5th of each month Lender will apply each installment payment first to pay interest accrued to the day Lender receives the payment, then to bring principal current, then to pay any late fees, and will apply any remaining balance to reduce principal.

 

Monthly Loan Payment Amount Due After 6 Month Deferment Period: $75,796.74 Interest Rate Fixed at 1.00%

The interest rate identified in the Note may not be changed during the life of the Loan unless changed in accordance with SOP 50 10.

 

Loan Forgiveness: Borrower may apply to Lender for forgiveness of the amount due on this loan in an amount equal to the sum of the following costs incurred by Borrower during the 8-week period beginning on the date of first disbursement of this loan:

 

a.

Payroll costs

 

b. Any payment of interest on a covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation)

c.

Any payment on a covered rent obligation

 

d.

Any covered utility payment

 

The amount of loan forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (P.L. 116-136). Not more than 25% of the amount forgiven can be attributable to non-payroll costs. [If applicable, insert the following: Borrower has received an EIDL advance in the amount of $0.00. That amount shall be subtracted from the loan forgiveness amount.]

 

Loan Prepayment: Notwithstanding any provision in this Note to the contrary:

 

Borrower may prepay this Note at any time without penalty. Borrower may prepay 20 percent or less of the unpaid principal balance at any time without notice. If Borrower prepays more than 20 percent and the Loan has been sold on the secondary market, Borrower must: a. Give Lender written notice; b. Pay all accrued interest; and c. If the prepayment is received less than 21 days from the date Lender received the notice, pay an amount equal to 21 days interest from the date lender received the notice, less any interest accrued during the 21 days and paid under b. of this paragraph. If Borrower does not prepay within 30 days from the date Lender received the notice, Borrower must give Lender a new notice.

 

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

4.

DEFAULT:

 

Borrower is in default under this Note if Borrower does not make a payment when due under this Note, or if Borrower or Operating Company:

A.

Fails to do anything required by this Note and other Loan Documents;

B.

Defaults on any other loan with Lender;

C.

Does not preserve, or account to Lender’s satisfaction for, any of the Collateral or its proceeds;

D.

Does not disclose, or anyone acting on their behalf does not disclose, any material fact to Lender or SBA;

E.

Makes, or anyone acting on their behalf makes, a materially false or misleading representation to Lender or SBA;

F.

Defaults on any loan or agreement with another creditor, if Lender believes the default may materially affect

Borrower’s ability to pay this Note;

G.

Fails to pay any taxes when due;

H.

Becomes the subject of a proceeding under any bankruptcy or insolvency law;

I.

Has a receiver or liquidator appointed for any part of their business or property;

J.

Makes an assignment for the benefit of creditors;

K.

Has any adverse change in financial condition or business operation that Lender believes may materially affect

Borrower’s ability to pay this Note;

L.

Reorganizes, merges, consolidates, or otherwise changes ownership or business structure without Lender’s prior

written consent; or

M.

Becomes the subject of a civil or criminal action that Lender believes may materially affect Borrower’s ability to pay this Note.

 

 

5.

LENDER’S RIGHTS IF THERE IS A DEFAULT:

 

Without notice or demand and without giving up any of its rights, Lender may:

A.

Require immediate payment of all amounts owing under this Note;

B.

Collect all amounts owing from any Borrower or Guarantor;

C.

File suit and obtain judgment;

D.

Take possession of any Collateral; or

E.

Sell, lease, or otherwise dispose of, any Collateral at public or private sale, with or without advertisement.

 

6.

LENDER’S GENERAL POWERS:

 

Without notice and without Borrower’s consent, Lender may:

A.

Bid on or buy the Collateral at its sale or the sale of another lienholder, at any price it chooses;

B.

Incur expenses to collect amounts due under this Note, enforce the terms of this Note or any other Loan Document, and preserve or dispose of the Collateral. Among other things, the expenses may include payments for property taxes, prior liens, insurance, appraisals, environmental remediation costs, and

 

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

reasonable attorney’s fees and costs. If Lender incurs such expenses, it may demand immediate repayment from Borrower or add the expenses to the principal balance;

C.

Release anyone obligated to pay this Note;

D.

Compromise, release, renew, extend or substitute any of the Collateral; and

E.

Take any action necessary to protect the Collateral or collect amounts owing on this Note.

 

7.

WHEN FEDERAL LAW APPLIES:

 

When SBA is the holder, this Note will be interpreted and enforced under federal law, including SBA regulations. Lender or SBA may use state or local procedures for filing papers, recording documents, giving notice, foreclosing liens, and other purposes. By using such procedures, SBA does not waive any federal immunity from state or local control, penalty, tax, or liability. As to this Note, Borrower may not claim or assert against SBA any local or state law to deny any obligation, defeat any claim of SBA, or preempt federal law.

 

8.

SUCCESSORS AND ASSIGNS:

 

Under this Note, Borrower and Operating Company include the successors of each, and Lender includes its successors and assigns.

 

9.

GENERAL PROVISIONS:

 

A.

All individuals and entities signing this Note are jointly and severally liable.

B.

Borrower waives all suretyship defenses.

C.

Borrower must sign all documents necessary at any time to comply with the Loan Documents and to enable Lender to acquire, perfect, or maintain Lender’s liens on Collateral.

D.

Lender may exercise any of its rights separately or together, as many times and in any order it chooses.

Lender

may delay or forgo enforcing any of its rights without giving up any of them.

E.

Borrower may not use an oral statement of Lender or SBA to contradict or alter the written terms of this Note.

F.

If any part of this Note is unenforceable, all other parts remain in effect.

G.

To the extent allowed by law, Borrower waives all demands and notices in connection with this Note, including presentment, demand, protest, and notice of dishonor. Borrower also waives any defenses based upon any claim that Lender did not obtain any guarantee; did not obtain, perfect, or maintain a lien upon Collateral; impaired Collateral; or did not obtain the fair market value of Collateral at a sale.

 

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

10.

STATE-SPECIFIC PROVISIONS:

 

 

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

DocuSign Envelope ID: 2B7306BA-E54C-4FCC-9F4B-78F37A7C8A4D

11.

BORROWER’S NAME(S) AND SIGNATURE(S):

 

By signing below, each individual or entity becomes obligated under this Note as Borrower.

 

By: /s/ William M. Newbanks

Authorized Signer