UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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): June 1, 2020

 

LEAF GROUP LTD.

(Exact name of Registrant as specified in its charter)

 

Delaware   001- 35048   20-4731239
(State or other jurisdiction
of incorporation)
  (Commission File No.)   (I.R.S. Employer
Identification No.)

 

     
1655 26th Street
Santa Monica, California
  90404
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (310) 656-6253

 

Not Applicable

(Former name or former address if changed since last report)

 

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))

 

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, $0.0001 par value LEAF New York Stock Exchange

 

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. ¨

 

 

 

 

 

 

Item 1.01 Entry into a Material Definitive Agreement.

 

On June 1, 2020, Leaf Group Ltd. (the “Company”) and subsidiaries of the Company party thereto (collectively with the Company, the “Borrowers”) entered into the First Amendment to Loan and Security Agreement (the “First Amendment”) with Silicon Valley Bank (the “Lender”). The First Amendment amends that certain Loan and Security Agreement, dated November 7, 2019, between the Borrowers and the Lender (the “Credit Agreement”), to, among other things, (i) extend the maturity date, (ii) add a financial covenant and (iii) modify the borrowing formula. The First Amendment extends the maturity date of any borrowings under the Credit Agreement from November 5, 2020 to May 5, 2021. In addition, the First Amendment adds a liquidity maintenance ratio financial covenant (the “Liquidity Ratio”). The Liquidity Ratio is a ratio of (a) (i) unrestricted cash and cash equivalents held by the Borrowers in accounts at the Lender, plus (ii) an amount equal to the product of (A) the Borrower’s net trade accounts receivable, multiplied by (B) sixty percent (60%), to (b) (i) the outstanding principal balance of any borrowings under the Credit Agreement, plus (ii) the Borrowers’ accounts payable owing to artists selling works on the Borrowers’ platforms (Society6 and Saatchi Art). The Company is required to maintain a Liquidity Ratio of at least 1.50 to 1.00. The First Amendment also provides for incremental borrowing flexibility for six months, with aggregate borrowing under the Credit Agreement still capped at $10.0 million.

 

A copy of the First Amendment is attached hereto as Exhibit 10.1 and is incorporated herein by reference. The foregoing description of the First Amendment does not purport to be complete and is qualified in its entirety by reference to the First Amendment.

 

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

 

The disclosure required by this Item 2.03 with respect to the Credit Agreement is included in Item 1.01 hereof and is incorporated herein by reference.

 

Item 9.01 Financial Statements and Exhibits.

 

(d)     Exhibits

 

Exhibit No.   Description
     
10.1   First Amendment to Loan and Security Agreement, dated as of June 1, 2020, by and among Leaf Group Ltd., Society6, LLC, Well+Good LLC, LS Media Holdings LLC, Deny Designs, LLC, Saatchi Online, Inc., Other Art Fairs, LLC, Leaf Group Services, LLC, Leaf OIYS, LLC and Silicon Valley Bank.

 

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SIGNATURES

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.

 

Date: June 2, 2020 LEAF GROUP LTD.
   
  By: /s/ Brian Gephart
    Brian Gephart
    Interim Chief Financial Officer  
     

 

 

 

 

Exhibit 10.1

 

FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT

 

This FIRST AMENDMENT to Loan and Security Agreement (this “Amendment”) is entered into as of June 1, 2020, by and among Silicon Valley Bank, a California corporation (“Bank”), LEAF GROUP LTD., a Delaware corporation (“Parent”), SOCIETY6, LLC, a Delaware limited liability company, WELL+GOOD LLC, a New York limited liability company, LS MEDIA HOLDINGS, LLC, a Delaware limited liability company, DENY DESIGNS, LLC, a Delaware limited liability company, SAATCHI ONLINE, INC., a Delaware corporation, OTHER ART FAIRS, LLC, a Delaware limited liability company, LEAF GROUP SERVICES, LLC, a Delaware limited liability company and LEAF OIYS, LLC, a Delaware limited liability company (together with Parent, each a “Co-Borrower” and collectively, “Co-Borrowers”).

 

Recitals

 

A.           Bank and Co-Borrowers have entered into that certain Loan and Security Agreement dated as of November 7, 2019 (as the same may from time to time be amended, modified, supplemented or restated, the “Loan Agreement”).

 

B.           Bank has extended credit to Co-Borrowers for the purposes permitted in the Loan Agreement.

 

C.           Co-Borrowers have requested that Bank amend the Loan Agreement to (i) modify the borrowing formula, (ii) add a financial covenant, (iii) extend the maturity date, and (iv) make certain other revisions to the Loan Agreement as more fully set forth herein.

 

D.           Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

 

Agreement

 

Now, Therefore, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

 

1.            Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

 

2.            Amendments to Loan Agreement.

 

2.1          Section 2.3 (Overadvances). Section 2.3 of the Loan Agreement hereby is amended and restated in its entirety to read as follows:

 

2.3        Overadvances. If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either (a) the Revolving Line or (b) the sum of (i) the Borrowing Base plus (ii) the Non-Formula Sublimit, Co-Borrowers shall immediately pay to Bank in cash the amount of such excess (such excess, the “Overadvance”). Without limiting Co-Borrowers’ obligation to repay Bank any Overadvance, Co-Borrowers agree to pay Bank interest on the outstanding amount of any Overadvance, on demand, at a per annum rate equal to the rate that is otherwise applicable to Advances plus five percent (5.0%).”

 

 

 

2.2          Section 6.3 (Accounts Receivable). Sections 6.3(b) and 6.3(c) of the Loan Agreement hereby are amended and restated in their entirety to read as follows:

 

“(b)          Disputes. Co-Borrowers shall promptly notify Bank of all disputes or claims in excess of Fifty Thousand Dollars ($50,000) relating to Accounts. Co-Borrowers may forgive (completely or partially), compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Co-Borrowers do so in good faith, in a commercially reasonable manner, in the ordinary course of business, in arm’s-length transactions, and, to the extent such Accounts exceed Fifty Thousand Dollars ($50,000) reports the same to Bank in the regular reports provided to Bank; (ii) no Event of Default has occurred and is continuing; and (iii) after taking into account all such discounts, settlements and forgiveness, the total outstanding Advances will not exceed the lesser of (i) the Revolving Line or (ii) the sum of (A) the Borrowing Base plus (B) the Non-Formula Sublimit.

 

(c)          Collection of Accounts. Co-Borrowers shall direct Account Debtors to deliver or transmit all proceeds of Accounts into a lockbox account, or via electronic deposit capture into a “blocked account” as specified by Bank (either such account, the “Cash Collateral Account”). Whether or not an Event of Default has occurred and is continuing, Co-Borrowers shall promptly deliver all payments on and proceeds of Accounts to the Cash Collateral Account. Subject to Bank’s right to maintain a reserve pursuant to Section 6.3(d), all amounts received in the Cash Collateral Account shall be (i) when a Streamline Period is not in effect, applied to immediately reduce the Obligations (other than Obligations owing under the Non-Formula Sublimit) under the Revolving Line (unless Bank, in its sole discretion, at times when an Event of Default exists, elects not to so apply such amounts), or (ii) when a Streamline Period is in effect, transferred on a daily basis to Co-Borrowers’ operating account with Bank. Co-Borrowers hereby authorize Bank to transfer to the Cash Collateral Account any amounts that Bank reasonably determines are proceeds of the Accounts (provided that Bank is under no obligation to do so and this allowance shall in no event relieve Co-Borrowers of their obligations hereunder).”

 

2.3          Section 6.9 (Financial Covenant). Section 6.9 of the Loan Agreement hereby is amended and restated in its entirety to read as follows:

 

6.9          Financial Covenant. Co-Borrowers shall, at all times, but tested as of the last day of each calendar month, maintain a Liquidity Ratio of at least 1.50 to 1.00.”

 

2.4          Section 6.15 (Post-Closing Deliverables). Section 6.15(c) of the Loan Agreement hereby is amended and restated in its entirety to read as follows:

 

“(c)          Co-Borrowers shall, on or prior to August 31, 2020, close the Barclay’s Account and the NAB Account and transfer all amounts therein to Co-Borrowers accounts at Bank or Bank’s Affiliates. Notwithstanding the foregoing, any failure to complete such closure and transfer of the Barclay’s Account and/or the NAB Account within the timeframe set forth herein that is solely a result of Bank’s or its Affiliates’ failure to timely open and make available substantially equivalent replacement accounts shall not constitute an Event of Default hereunder.”

 

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2.5          Section 8.2 (Covenant Default). Section 8.2(a) of the Loan Agreement hereby is amended and restated in its entirety to read as follows:

 

“(a)          (i) A Co-Borrower fails or neglects to perform any obligation in Sections 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.10, 6.12, 6.14 or 6.15 or violates any covenant in Section 7, or (ii) Co-Borrowers fail to maintain compliance with the financial covenant set forth in Section 6.9 hereof, unless any such failure to comply is cured within three (3) Business Days after the occurrence thereof; or”

 

2.6          Section 13 (Definitions). The following terms and their respective definitions hereby are added or amended and restated in their entirety in Section 13.1 of the Loan Agreement, as appropriate, as follows:

 

Availability Amount” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base plus the Non-Formula Sublimit, minus, in each case, (b) the outstanding principal balance of any Advances.

 

First Amendment Effective Date” means June 1, 2020.

 

Liquidity Ratio” means a ratio of (a) (i) unrestricted cash and Cash Equivalents held by Co-Borrowers in accounts at Bank, plus (ii) an amount equal to the product of (A) Co-Borrower’s net trade accounts receivable (determined in accordance with GAAP), multiplied by (B) sixty percent (60%), to (b) (i) the outstanding principal balance of any Advances (other than amounts outstanding in connection with the PPP Loan), plus (ii) Co-Borrowers’ accounts payable owing to artists selling works on Co-Borrowers’ platforms, as defined in Financial Statements delivered in accordance with Section 6.2.

 

Non-Formula Sublimit” is availability for Advances under the Revolving Line without regard to Eligible Accounts in an aggregate amount equal to (a) at all times during the period of time from the First Amendment Effective Date through and including December 1, 2020, One Million Dollars ($1,000,000), and (b) at all times after December 1, 2020, Zero Dollars ($0.00).

 

PPP Loan” means that certain loan made by Bank to Parent under the Paycheck Protection Program established pursuant to the Coronavirus Aid, Relief and Economic Security Act (as amended, and the related rules and regulations).

 

Revolving Line Maturity Date” is May 5, 2021.

 

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Streamline Period” is, on and after the First Amendment Effective Date, provided no Event of Default has occurred and is continuing, the period (a) commencing on the first day of the month following the day that Co-Borrowers provide to Bank a written report confirming that Co-Borrowers have, for each consecutive day in the immediately preceding month maintained a Liquidity Ratio no less than 1.75:1.00, as determined by Bank in its good faith business discretion, (the “Streamline Ratio”); and (b) terminating on the earlier to occur of (i) the occurrence of an Event of Default, and (ii) the first day thereafter on which Co-Borrowers fail to maintain the Streamline Ratio, as calculated by Bank. Upon termination of a Streamline Period, Co-Borrowers must maintain the required Streamline Ratio each consecutive day for one (1) fiscal quarter as determined by Bank, prior to entering into a subsequent Streamline Period. Each Streamline Period shall commence on the first day of the monthly period following the date Bank determines that the conditions set forth herein have been achieved.

 

Streamline Ratio” is defined in the definition of Streamline Period.

 

2.7          Section 13 (Definitions). Subsection (a) of the defined term “Permitted Indebtedness” set forth in Section 13.1 of the Loan Agreement hereby is amended and restated to read as follows:

 

“(a)          Co-Borrowers’ Indebtedness to Bank under this Agreement, the other Loan Documents and in connection with the PPP Loan;”

 

2.8          Exhibit B of the Loan Agreement hereby is replaced with Exhibit B attached hereto.

 

3.            Limitation of Amendments.

 

3.1          The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

 

3.2          This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

 

4.            Representations and Warranties. To induce Bank to enter into this Amendment, each Co-Borrower hereby represents and warrants to Bank as follows:

 

4.1          Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true and correct in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct in all material respects as of such date), and (b) no Event of Default has occurred and is continuing;

 

4.2          Co-Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

 

4.3          The organizational documents of Co-Borrower delivered to Bank on the Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

 

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4.4          The execution and delivery by Co-Borrower of this Amendment and the performance by Co-Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

 

4.5          The execution and delivery by Co-Borrower of this Amendment and the performance by Co-Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any material Requirement of Law, (b) any material agreement binding on Co-Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Co-Borrower, or (d) the organizational documents of Co-Borrower;

 

4.6          The execution and delivery by Co-Borrower of this Amendment and the performance by Co-Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Co-Borrower, except as already has been obtained or made; and

 

4.7          This Amendment has been duly executed and delivered by Co-Borrower and is the binding obligation of Co-Borrower, enforceable against Co-Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

 

5.            Ratification of Intellectual Property Security Agreement. Each Co-Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and conditions of those certain Intellectual Property Security Agreements dated as of the Effective Date between each Co-Borrower and Bank, and acknowledges, confirms and agrees that said Intellectual Property Security Agreement (a) except as set forth on Schedule 1 hereto, contains an accurate and complete listing of all Intellectual Property Collateral (as defined therein) and (b) shall remain in full force and effect.

 

6.            Ratification of Perfection Certificate.  Each Co-Borrower hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in those certain Perfection Certificates dated on or prior to the Effective Date and acknowledges, confirms and agrees that, except as set forth on Schedule 1 hereto, the disclosures and information such Co-Borrower provided to Bank in such Perfection Certificate have not changed, as of the date hereof.

 

7.            Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

 

8.            Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, and (b) Co-Borrowers’ payment to Bank of (i) a commitment fee in an amount equal to Twenty Five Thousand Dollars ($25,000), and (ii) all Bank Expenses due and owing as of the date hereof, which may be debited from any of Co-Borrowers’ accounts at Bank.

 

[Balance of Page Intentionally Left Blank]

 

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In Witness Whereof, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

CO-BORROWERS:      
         
LEAF GROUP LTD.   DENY DESIGNS, LLC, by Leaf Group Ltd., its sole member
         
By: /s/ Sean Moriarty   By: /s/ Sean Moriarty
         
Name: Sean Moriarty   Name: Sean Moriarty
         
Title: Chief Executive Officer    Title: Chief Executive Officer
         
SOCIETY6, LLC, by Leaf Group Ltd., its sole member   SAATCHI ONLINE, INC.
         
By: /s/ Sean Moriarty   By: /s/ Sean Moriarty
         
Name: Sean Moriarty   Name: Sean Moriarty
         
Title: Chief Executive Officer   Title: Chief Executive Officer
         
WELL+GOOD LLC, by Leaf Group Ltd., its sole member   OTHER ART FAIRS, LLC, by Leaf Group Ltd., its sole member
         
By: /s/ Adam Wergeles   By: /s/ Sean Moriarty
         
Name: Adam Wergeles   Name: Sean Moriarty
         
Title: Executive Vice President and Secretary   Title: Chief Executive Officer
         
LS MEDIA HOLDINGS, LLC, by Leaf Group Ltd., its sole member   LEAF GROUP SERVICES, LLC, by Leaf Group Ltd., its sole member
         
By: /s/ Sean Moriarty   By: /s/ Sean Moriarty
         
Name: Sean Moriarty   Name: Sean Moriarty
         
Title: Chief Executive Officer   Title: Chief Executive Officer
         
LEAF OIYS, LLC, by Leaf Group Ltd., its sole member      
         
By: /s/ Sean Moriarty      
         
Name: Sean Moriarty      
         
Title: Chief Executive Officer      

 

[Signature Page to First Amendment to Loan and Security Agreement]

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Effective Date.

 

BANK:

 

SILICON VALLEY BANK

 

By /s/ Andrea Jones                                                  
     
Name:   Andrea Jones  
     
Title: Vice President