UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021
OR
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______ to ______
Commission File Number 0-29923
Orbital Energy Group, Inc.
(Exact name of registrant as specified in its charter)
|
Colorado |
84-1463284 |
|
|
(State or other jurisdiction of |
(I.R.S. Employer |
|
|
incorporation or organization) |
Identification No.) |
| 1924 Aldine Western | ||
| Houston, Texas 77038 |
| (Address of principal executive offices and zip code) |
(832) 467-1420
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Non-accelerated filer ☒ |
Smaller reporting company ☒ |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
There were 66,652,211 shares of the registrant's common stock, par value $0.001 per share, outstanding as of November 15, 2021.
Securities registered pursuant to Section 12(b) of the Act.:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common stock, $0.001 par value. |
OEG |
Nasdaq Capital Market |
Condensed Consolidated Balance Sheets
(Unaudited)
|
September 30, |
December 31, |
|||||||
|
(in thousands, except share and per share amounts) |
2021 |
2020 |
||||||
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Assets: |
||||||||
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Current Assets: |
||||||||
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Cash and cash equivalents |
$ | 11,179 | $ | 3,046 | ||||
|
Restricted cash - current |
150 | 452 | ||||||
|
Trade accounts receivable, net of allowance of $1,348 and $1,227 at September 30, 2021 and December 31, 2020, respectively |
22,953 | 8,487 | ||||||
|
Inventories |
1,790 | 1,123 | ||||||
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Contract assets |
9,048 | 7,860 | ||||||
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Note receivable, current portion |
44 | 44 | ||||||
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Prepaid expenses and other current assets |
5,926 | 3,786 | ||||||
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Total current assets |
51,090 | 24,798 | ||||||
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Property and equipment, less accumulated depreciation of $3,814 and $2,158 at September 30, 2021 and December 31, 2020, respectively |
14,800 | 6,395 | ||||||
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Investment |
1,063 | 1,063 | ||||||
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Right of use assets - Operating leases |
12,880 | 7,054 | ||||||
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Right of use assets - Financing leases |
11,238 | - | ||||||
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Goodwill |
30,337 | 7,006 | ||||||
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Other intangible assets, net |
41,304 | 13,697 | ||||||
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Restricted cash |
1,026 | 1,026 | ||||||
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Note receivable |
3,210 | 3,602 | ||||||
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Deposits and other assets |
1,083 | 1,404 | ||||||
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Total assets |
$ | 168,031 | $ | 66,045 | ||||
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Liabilities and Stockholders' Equity: |
||||||||
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Current Liabilities: |
||||||||
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Accounts payable |
$ | 7,710 | $ | 9,913 | ||||
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Notes payable, current |
25,175 | 12,246 | ||||||
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Line of credit |
— | 441 | ||||||
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Operating lease obligations - current portion |
3,895 | 1,784 | ||||||
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Financing lease obligations - current portion |
3,805 | 1 | ||||||
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Accrued expenses |
10,290 | 5,881 | ||||||
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Contract liabilities |
4,188 | 6,810 | ||||||
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Total current liabilities |
55,063 | 37,076 | ||||||
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Notes payable, less current portion |
4,854 | 5,056 | ||||||
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Operating lease obligations, less current portion |
8,897 | 5,211 | ||||||
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Financing lease obligations, less current portion |
7,561 | — | ||||||
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Contingent consideration |
720 | 720 | ||||||
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Other long-term liabilities |
69 | 835 | ||||||
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Total liabilities |
77,164 | 48,898 | ||||||
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Commitments and contingencies |
||||||||
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Stockholders' Equity: |
||||||||
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Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at September 30, 2021 or December 31, 2020 |
— | — | ||||||
|
Common stock, par value $0.001; 325,000,000 shares authorized; 66,161,108 shares issued and 65,808,045 shares outstanding at September 30, 2021 and 31,029,642 shares issued and 30,676,579 shares outstanding at December 31, 2020 |
66 | 31 | ||||||
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Additional paid-in capital |
281,498 | 171,616 | ||||||
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Treasury stock at cost; 353,063 shares held at September 30, 2021 and December 31, 2020 |
(413 | ) | (413 | ) | ||||
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Accumulated deficit |
(185,993 | ) | (149,681 | ) | ||||
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Accumulated other comprehensive loss |
(4,291 | ) | (4,406 | ) | ||||
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Total stockholders' equity |
90,867 | 17,147 | ||||||
|
Total liabilities and stockholders' equity |
$ | 168,031 | $ | 66,045 | ||||
See accompanying notes to condensed consolidated financial statements
Condensed Consolidated Statements of Operations
(Unaudited)
|
For the Three Months |
For the Nine Months |
|||||||||||||||
|
(in thousands, except share and per share amounts) |
Ended September 30, |
Ended September 30, |
||||||||||||||
|
2021 |
2020 |
2021 |
2020 |
|||||||||||||
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Revenues |
$ | 30,919 | $ | 13,615 | $ | 56,718 | $ | 27,078 | ||||||||
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Cost of revenues |
27,131 | 11,261 | 55,400 | 23,121 | ||||||||||||
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Gross profit |
3,788 | 2,354 | 1,318 | 3,957 | ||||||||||||
|
Operating expenses: |
||||||||||||||||
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Selling, general and administrative expense |
13,701 | 7,179 | 43,856 | 21,158 | ||||||||||||
|
Depreciation and amortization |
1,738 | 1,454 | 4,668 | 3,285 | ||||||||||||
|
Research and development |
1 | 6 | 2 | 51 | ||||||||||||
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Provision for bad debt |
87 | 15 | 65 | 23 | ||||||||||||
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Other operating (income) expense |
(6 | ) | 23 | (15 | ) | 23 | ||||||||||
|
Total operating expenses |
15,521 | 8,677 | 48,576 | 24,540 | ||||||||||||
|
Loss from operations |
(11,733 | ) | (6,323 | ) | (47,258 | ) | (20,583 | ) | ||||||||
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Other income |
754 | 860 | 3,009 | 62 | ||||||||||||
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Interest expense |
(1,266 | ) | (333 | ) | (3,098 | ) | (469 | ) | ||||||||
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Loss from continuing operations before income taxes and net loss of affiliate |
(12,245 | ) | (5,796 | ) | (47,347 | ) | (20,990 | ) | ||||||||
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Net loss of affiliate |
— | — | — | (4,806 | ) | |||||||||||
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Loss from continuing operations before income taxes |
(12,245 | ) | (5,796 | ) | (47,347 | ) | (25,796 | ) | ||||||||
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Income tax benefit |
(2,098 | ) | (61 | ) | (11,035 | ) | (3,211 | ) | ||||||||
|
Loss from continuing operations, net of income taxes |
(10,147 | ) | (5,735 | ) | (36,312 | ) | (22,585 | ) | ||||||||
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Discontinued operations |
||||||||||||||||
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Income from operations of discontinued power and electromechanical components businesses |
— | 3,403 | — | 3,512 | ||||||||||||
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Income tax expense |
— | 870 | — | 835 | ||||||||||||
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Income from discontinued operations, net of income taxes |
— | 2,533 | — | 2,677 | ||||||||||||
|
Net loss |
$ | (10,147 | ) | $ | (3,202 | ) | $ | (36,312 | ) | $ | (19,908 | ) | ||||
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Basic and diluted weighted average common shares outstanding |
62,823,330 | 30,430,422 | 53,142,557 | 29,761,135 | ||||||||||||
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Loss from continuing operations per common share - basic and diluted |
$ | (0.16 | ) | $ | (0.19 | ) | $ | (0.68 | ) | $ | (0.76 | ) | ||||
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Income from discontinued operations - basic and diluted |
— | 0.08 | — | 0.09 | ||||||||||||
|
Loss per common share - basic and diluted |
$ | (0.16 | ) | $ | (0.11 | ) | $ | (0.68 | ) | $ | (0.67 | ) | ||||
See accompanying notes to condensed consolidated financial statements
Condensed Consolidated Statements of Comprehensive Income and Loss
(Unaudited)
|
For the Three Months |
For the Nine Months |
|||||||||||||||
|
(in thousands) |
Ended September 30, |
Ended September 30, |
||||||||||||||
|
2021 |
2020 |
2021 |
2020 |
|||||||||||||
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Net loss |
$ | (10,147 | ) | $ | (3,202 | ) | $ | (36,312 | ) | $ | (19,908 | ) | ||||
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Other comprehensive income (loss) |
||||||||||||||||
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Foreign currency translation adjustment |
129 | (177 | ) | 115 | 194 | |||||||||||
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Reclassification from sale of business |
— | (14 | ) | — | (14 | ) | ||||||||||
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Comprehensive loss |
$ | (10,018 | ) | $ | (3,393 | ) | $ | (36,197 | ) | $ | (19,728 | ) | ||||
See accompanying notes to condensed consolidated financial statements
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Nine Months Ended September 30, 2021 and 2020
(Unaudited)
|
(in thousands, except share amounts) |
Common Stock |
Treasury Stock |
||||||||||||||||||||||||||||||
|
Shares |
Amount |
Additional Paid-in Capital |
Shares |
Amount |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholders' Equity |
|||||||||||||||||||||||||
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Balance, December 31, 2020 |
31,029,642 | $ | 31 | $ | 171,616 | (353,063 | ) | $ | (413 | ) | $ | (149,681 | ) | $ | (4,406 | ) | $ | 17,147 | ||||||||||||||
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Issuance of common stock via equity raises |
15,555,556 | 16 | 42,360 | — | — | — | — | 42,376 | ||||||||||||||||||||||||
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Common stock issued for cashless exercises of stock options |
214,596 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
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Common stock issued and issuable for compensation, services and royalty payments |
40,188 | — | 2,551 | — | — | — | — | 2,551 | ||||||||||||||||||||||||
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Net loss |
— | — | — | — | — | (17,952 | ) | — | (17,952 | ) | ||||||||||||||||||||||
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Other comprehensive loss |
— | — | — | — | — | — | (22 | ) | (22 | ) | ||||||||||||||||||||||
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Balance, March 31, 2021 |
46,839,982 | 47 | 216,527 | (353,063 | ) | (413 | ) | (167,633 | ) | (4,428 | ) | 44,100 | ||||||||||||||||||||
|
Common stock issued for acquisition of Gibson Technical Services, Inc. |
5,929,267 | 6 | 16,926 | — | — | — | — | 16,932 | ||||||||||||||||||||||||
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Common stock issued and issuable for compensation, services and royalty payments |
1,282,318 | 1 | 5,503 | — | — | — | — | 5,504 | ||||||||||||||||||||||||
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Net loss |
— | — | — | — | — | (8,213 | ) | — | (8,213 | ) | ||||||||||||||||||||||
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Other comprehensive income |
— | — | — | — | — | — | 8 | 8 | ||||||||||||||||||||||||
|
Balance, June 30, 2021 |
54,051,567 | 54 | 238,956 | (353,063 | ) | (413 | ) | (175,846 | ) | (4,420 | ) | 58,331 | ||||||||||||||||||||
|
Issuance of common stock via equity raise |
10,410,959 | 10 | 35,660 | — | — | — | — | 35,670 | ||||||||||||||||||||||||
|
Common stock issued for acquisition of IMMCO, Inc. |
874,317 | 1 | 2,543 | — | — | — | — | 2,544 | ||||||||||||||||||||||||
|
Common stock issued and issuable for compensation, services and royalty payments |
86,660 | — | 1,765 | — | — | — | — | 1,765 | ||||||||||||||||||||||||
|
Common stock issued for debt repayment |
737,605 | 1 | 2,574 | — | — | — | — | 2,575 | ||||||||||||||||||||||||
|
Net loss |
— | — | — | — | — | (10,147 | ) | — | (10,147 | ) | ||||||||||||||||||||||
|
Other comprehensive loss |
— | — | — | — | — | — | 129 | 129 | ||||||||||||||||||||||||
|
Balance, September 30, 2021 |
66,161,108 | $ | 66 | $ | 281,498 | (353,063 | ) | $ | (413 | ) | $ | (185,993 | ) | $ | (4,291 | ) | $ | 90,867 | ||||||||||||||
|
(in thousands, except share amounts) |
Common Stock |
Treasury Stock |
||||||||||||||||||||||||||||||
|
Shares |
Amount |
Additional Paid-in Capital |
Shares |
Amount |
Accumulated Deficit |
Accumulated Other Comprehensive Income (Loss) |
Total Stockholders' Equity |
|||||||||||||||||||||||||
|
Balance, December 31, 2019 |
28,736,436 | $ | 29 | $ | 170,106 | (353,063 | ) | $ | (413 | ) | $ | (122,234 | ) | $ | (4,371 | ) | $ | 43,117 | ||||||||||||||
|
Common stock issued for royalty payments |
37,312 | — | 9 | — | — | — | — | 9 | ||||||||||||||||||||||||
|
Net loss |
— | — | — | — | — | (7,381 | ) | — | (7,381 | ) | ||||||||||||||||||||||
|
Other comprehensive income |
— | — | — | — | — | — | 415 | 415 | ||||||||||||||||||||||||
|
Balance, March 31, 2020 |
28,773,748 | 29 | 170,115 | (353,063 | ) | (413 | ) | (129,615 | ) | (3,956 | ) | 36,160 | ||||||||||||||||||||
|
Common stock issued for acquisition of Orbital Solar Services |
2,000,000 | 2 | 1,222 | — | — | — | — | 1,224 | ||||||||||||||||||||||||
|
Common stock issued for compensation, services, and royalty payments |
— | — | 4 | — | — | — | — | 4 | ||||||||||||||||||||||||
|
Net loss |
— | — | — | — | — | (9,325 | ) | — | (9,325 | ) | ||||||||||||||||||||||
|
Other comprehensive loss |
— | — | — | — | — | — | (44 | ) | (44 | ) | ||||||||||||||||||||||
|
Balance, June 30, 2020 |
30,773,748 | 31 | 171,341 | (353,063 | ) | (413 | ) | (138,940 | ) | (4,000 | ) | 28,019 | ||||||||||||||||||||
|
Common stock issued for royalty payments |
— | — | 3 | — | — | — | — | 3 | ||||||||||||||||||||||||
|
Net loss |
— | — | — | — | — | (3,202 | ) | — | (3,202 | ) | ||||||||||||||||||||||
|
Other comprehensive income |
— | — | — | — | — | — | (191 | ) | (191 | ) | ||||||||||||||||||||||
|
Balance, September 30, 2020 |
30,773,748 | $ | 31 | $ | 171,344 | (353,063 | ) | $ | (413 | ) | $ | (142,142 | ) | $ | (4,191 | ) | $ | 24,629 | ||||||||||||||
See accompanying notes to condensed consolidated financial statements
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
For the Nine Months |
||||||||
|
(in thousands) |
Ended September 30, |
|||||||
|
2021 |
2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
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Net loss |
$ | (36,312 | ) | $ | (19,908 | ) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
|
Depreciation |
2,671 | 573 | ||||||
|
Amortization of intangibles |
4,262 | 3,043 | ||||||
|
Amortization of note receivable discount |
(237 | ) | (214 | ) | ||||
|
Stock-based compensation and expense |
9,833 | 12 | ||||||
|
Fair value adjustment to liability for stock appreciation rights |
2,543 | — | ||||||
|
Amortization of debt discount |
2,016 | — | ||||||
|
Gain on extinguishment of debt |
(2,400 | ) | — | |||||
|
Non-cash loss on equity method investment in affiliate |
— | 4,806 | ||||||
|
Gain on sale of business |
— | (14 | ) | |||||
|
Provision for bad debt |
65 | 23 | ||||||
|
Deferred income taxes |
(11,176 | ) | (1,195 | ) | ||||
|
Inventory reserve |
(291 | ) | (185 | ) | ||||
|
(Gain) loss on sale of assets |
(15 | ) | 23 | |||||
|
Non-cash unrealized foreign currency gain |
233 | 516 | ||||||
|
Change in operating assets and liabilities, net of acquisitions: |
||||||||
|
Trade accounts receivable |
(5,396 | ) | (3,273 | ) | ||||
|
Inventories |
(189 | ) | 2,601 | |||||
|
Contract assets |
(2,077 | ) | (526 | ) | ||||
|
Prepaid expenses and other current assets |
1,944 | 286 | ||||||
|
Right of use assets/lease liabilities, net |
(21 | ) | (152 | ) | ||||
|
Deposits and other assets |
(259 | ) | (1,184 | ) | ||||
|
Accounts payable |
(2,529 | ) | 351 | |||||
|
Accrued expenses |
1,950 | 1,264 | ||||||
|
Contract liabilities |
(1,421 | ) | 3,227 | |||||
|
NET CASH USED IN OPERATING ACTIVITIES |
(36,806 | ) | (9,926 | ) | ||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
|
Cash paid for acquisitions, net of cash received |
(36,890 | ) | (2,981 | ) | ||||
|
Purchases of property and equipment |
(6,594 | ) | (1,474 | ) | ||||
|
Deposits on financing lease property and equipment |
(481 | ) | — | |||||
|
Cash paid for working capital adjustment on Power group disposition |
— | (2,804 | ) | |||||
|
Sale of discontinued operations, net of cash |
— | (227 | ) | |||||
|
Proceeds from sale of property and equipment |
93 | 94 | ||||||
|
Purchase of other intangible assets |
(702 | ) | (10 | ) | ||||
|
Purchase of convertible notes receivable |
— | (260 | ) | |||||
|
Purchase of investment |
— | (210 | ) | |||||
|
Proceeds from notes receivable |
621 | — | ||||||
|
NET CASH USED IN INVESTING ACTIVITIES |
(43,953 | ) | (7,872 | ) | ||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
|
Proceeds from line of credit |
— | 100 | ||||||
|
Payments on line of credit |
(441 | ) | (99 | ) | ||||
|
Payments on financing lease obligations |
(897 | ) | (3 | ) | ||||
|
Proceeds from notes payable |
19,400 | 3,864 | ||||||
|
Payments on notes payable |
(7,490 | ) | (1,747 | ) | ||||
|
Proceeds from sales of common stock |
78,046 | — | ||||||
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
88,618 | 2,115 | ||||||
|
Effect of exchange rate changes on cash |
(28 | ) | (20 | ) | ||||
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
7,831 | (15,703 | ) | |||||
|
Cash, cash equivalents and restricted cash at beginning of period |
4,524 | 23,351 | ||||||
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
$ | 12,355 | $ | 7,648 | ||||
See accompanying notes to condensed consolidated financial statements
Orbital Energy Group, Inc.
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
See accompanying notes to condensed consolidated financial statements
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
|
1. |
NATURE OF OPERATIONS, BASIS OF PRESENTATION AND COMPANY CONDITIONS |
Nature of Operations
Orbital Energy Group, Inc. (Orbital Energy Group, "OEG," "The Company") is a platform company composed of three segments, the Electric Power and Solar Infrastructure Services segment, the Integrated Energy Infrastructure Solutions and Services segment, and the Other segment. In 2019, the Company divested of most of its previous Power and Electromechanical segment and the remaining portion of that segment was divested in 2020. The Other segment represents the remaining activities that are not included as part of the other reportable segments and represent primarily corporate activity.
The Electric Power and Solar Infrastructure Services segment consists of Orbital Power Services, Orbital Solar Services and Orbital Telecom Services. The segment provides comprehensive network solutions to customers in the electric power, telecom and solar industries. Services performed by Orbital Power Services generally include the design, installation, upgrade, repair and maintenance of electric power transmission and distribution infrastructure and substation facilities as well as emergency restoration services, including the repair of infrastructure damaged by inclement weather, and drilled shaft foundation construction services. Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility-scale solar construction. The Company serves a wide variety of project types, including commercial, substation, solar farms and public utility projects. Orbital Telecom Services began operations in April 2021 with the acquisition of Gibson Technical Services ("GTS"). Services provided by Orbital Telecom Services include the engineering, design, construction and maintenance services to the broadband and wireless telecommunications industries.
The Company’s Integrated Energy Infrastructure Solutions and Services segment is made up of Orbital Gas Systems Ltd. (Orbital-UK) and Orbital Gas Systems, North America, Inc. (Orbital North America), collectively referred to as ("Orbital Gas Systems"). Orbital-UK is based in the United Kingdom and Orbital North America is based in Houston, Texas. Orbital Gas Systems is a provider of natural gas infrastructure and advanced technology, including metering, odorization, remote telemetry units (‘‘RTU’’) and provides a diverse range of personalized gas engineering solutions to the gas utilities, power generation, emissions, manufacturing and automotive industries. GasPT® and VE Technology® products are sold through Orbital Gas Systems.
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information, which includes condensed consolidated financial statements. Accordingly, they do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2020. The Condensed Consolidated Balance Sheet as of December 31, 2020 has been derived from the audited financial statements as of that date included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
It is management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. All intercompany accounts and transactions have been eliminated in consolidation. The results for the interim period are not necessarily indicative of the results to be expected for the remaining quarters or year ending December 31, 2021.
Reconciliation of Cash, Cash Equivalents, and Restricted Cash on Condensed Consolidated Statements of Cash Flows
|
For the Nine Months |
||||||||
|
(in thousands) |
Ended September 30, |
|||||||
|
2021 |
2020 |
|||||||
|
Cash and cash equivalents at beginning of period |
$ | 3,046 | $ | 23,351 | ||||
|
Restricted cash at beginning of period (1) |
1,478 | — | ||||||
|
Cash, cash equivalents and restricted cash at beginning of period |
$ | 4,524 | $ | 23,351 | ||||
|
Cash and cash equivalents at end of period |
$ | 11,179 | $ | 4,060 | ||||
|
Restricted cash at end of period (1) |
1,176 | 3,588 | ||||||
|
Cash, cash equivalents and restricted cash at end of period |
$ | 12,355 | $ | 7,648 | ||||
(1) Restrictions on cash at September 30, 2021 and September 30, 2020 relate to collateral for several bank-issued letters of credit for contract guaranties.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s impairments and estimations of long-lived assets, revenue recognition on cost-to-cost-method type contracts, inventory valuation, warranty reserves, valuations of non-cash capital stock issuances, valuation for acquisitions, the valuation allowance on deferred tax assets, note receivable interest imputation, and the incremental borrowing rate used in determining the value of right of use assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different conditions.
Reclassifications
Certain reclassifications have been made to the 2020 classifications in order to conform to the 2021 presentation.
Company Conditions
Orbital Solar Services has seen increasing customer opportunities including its association with the Black Sunrise Investment fund. The fund has identified through its investors and others, several projects of scale and for which Orbital Solar Services is expected to be awarded significant work. Orbital Power Services began operations during the first quarter of 2020 with work progressing under master service agreements with several new customers, and extended the service capabilities in January 2021 to include drilled shaft foundation construction services. Orbital Telecom Services began operations in the second quarter of 2021 with the acquisition of GTS which had a positive impact on margins during the quarter and year-to-date periods. Orbital Gas Systems continues to face issues surrounding COVID-19, the overall economy in the United Kingdom, and the impact of pricing pressure on oil and gas industry customers.
The Company had a net loss of $36.3 million, a gross margin of $1.3 million, and cash used in operating activities of $36.8 million during the nine months ended September 30, 2021. As of September 30, 2021, our accumulated deficit is $186.0 million and we had negative working capital of $4.0 million.
Goodwill
Upon acquisition of Reach Construction Group, LLC, (name changed to Orbital Solar Services) the Company recorded $7.0 million of goodwill. Goodwill was valued as of April 1, 2020 by a third-party valuation expert and was recorded following the recognition of Orbital Solar Service's tangible assets and liabilities and $13.7 million of finite-lived identifiable intangible assets. Factors that contributed to the Company's goodwill are Orbital Solar Service's skilled workforce and reputation within its industry. The Company also expected to achieve future synergies between the Orbital Solar Services and Orbital Power Services businesses. These synergies were expected to be achieved in the form of power line work necessary when bringing new solar power systems online.
Upon acquisition of GTS, the Company recorded $12.3 million of goodwill. Goodwill was valued as of April 13, 2021 by a third-party valuation expert and was recorded following the recognition of GTS's tangible assets and liabilities and $22.8 million of identifiable intangible assets. Factors that contributed to the Company's goodwill are GTS's skilled workforce and reputation within its industry. Future synergies are expected with OPS with possibilities including shared equipment, shared engineering labor and telecommunication line work from OPS. Upon acquisition of IMMCO, the company recorded $11.0 million of goodwill. Goodwill was valued as of July 28, 2021 by a third-party valuation expert and was recorded following the recognition of IMMCO'S tangible assets and liabilities and $6.6 million of identifiable intangible assets. Factors that contributed to the Company's goodwill are skilled workforce, reputation with its industry and significant synergies to our telecom platform, GTS, by expanding the depth and breadth of the customer solutions we provide in a market with significant multi-year momentum driven by the rollout of 5G spectrum.
The Company tests for impairment of Indefinite-lived intangibles and Goodwill in the second quarter of each year and when events or circumstances indicate that the carrying amount of Goodwill exceeds its fair value and may not be recoverable. The Company’s qualitative assessment of impairment for indefinite-lived assets at May 31, 2021 followed the guidance in ASC 350-30-35-18A and 18B and determined there was no impairment of indefinite-lived intangibles at that time.
Under current accounting guidance, Orbital Energy Group is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance includes a number of factors to consider in conducting the qualitative assessment. The Company tests for goodwill impairment in the second quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable.
As detailed in ASC 350-20-35-3A, in performing its testing for impairment of goodwill as of May 31, 2021, management completed a quantitative analysis on the OSS reporting unit to determine whether it was more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.
To complete the review, management evaluated the fair value of the Goodwill and considered all known events and circumstances that might trigger an impairment of goodwill. The review of goodwill, prepared as of May 31, 2021, determined that there were not indicators present to suggest that it was more likely than not that the fair value of the Orbital Solar Services . In addition, we evaluated the OSS and GTS reporting units for possible triggering events of possible impairment as of the end of the quarter ended September 30, 2021, noting none.
COVID-19 Assessment and Liquidity
In March 2020, the World Health Organization categorized the current coronavirus disease (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. COVID-19 continues to spread throughout the United States and other countries across the world, and the duration and severity of its effects can be severe. While the Company expects the effects of the pandemic to negatively impact its results from operations, cash flows and financial position, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be reasonably estimated at this time. The Company has experienced customer delays and extensions for projects, supply chain delays, furloughs of personnel, increased utilization of telework, increased safety protocols to address COVID-19 risks, decreased field service work and other impacts from the COVID-19 pandemic. While the economic effects of COVID-19 are beginning to subside as a higher percentage of people become vaccinated, the highly transmissible delta variant and the slowing rates of vaccination has caused there to be uncertainty regarding the future affects of the pandemic. Events and changes in circumstances arising after September 30, 2021, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.
Management believes with the Company's present cash flows along with access to additional debt and equity raises OEG will meet its obligations for twelve months from the date these financial statements are available to be issued. Including our cash balance, we continue to manage working capital primarily related to trade accounts receivable, notes receivable, prepaid assets, contract assets and our inventory less current liabilities that we will manage during the next twelve months. In 2020 and the first nine months of 2021, the Company has entered into various long and short-term debt agreements (Note 16. Notes Payable). In addition, the Company has secured funding and has an available S-3 registration statement allowing the Company to issue various types of securities including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of $150 million. In July 2021, the Company utilized its registration statement and issued an updated prospectus to issue 10,410,959 additional common shares for an additional $38 million in proceeds before expenses, allowing for up to $112 million on its registration statement to be utilized in the future. The Company used $17.1 million of these proceeds on the acquisition of IMMCO, Inc. in July 2021, which was immediately accretive to earnings.
The Company’s available capital may be consumed faster than anticipated due to other events, including the length and severity of the global novel coronavirus disease pandemic and measures taken to control the spread of COVID-19, as well as changes in and progress of our development activities and the impact of commercialization efforts due to the COVID-19 pandemic. The Company may seek to obtain additional capital as needed through equity financings, debt or other financing arrangements, but given the impact of COVID-19 on the U.S. and global financial markets, the Company may be unable to access further equity or debt financing when needed. As such, there can be no assurance that the Company will be able to raise additional capital when needed or under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding common shares.
Restructuring Charges
During the fourth quarter of 2019, the Company completed the sale of its largest group within the Power and Electromechanical segment. The Company completed the sale of its Japan operations as of September 30, 2020. In conjunction with the 2019 sale, it was concluded that should the remaining power and electromechanical operations not sell, the Company would fulfill its backlog obligations and wind down the remaining operations of CUI-Canada during 2020. As of December 31, 2020, the Company had remaining an accrued liability for estimated employee termination costs of $0.4 million related to the discontinued operations. As of September 30, 2021, there remains $28 thousand to be paid out during the remainder of 2021.
Activity in the termination benefit liability in 2021 is as follows:
|
CUI-Canada termination benefits (in thousands) |
||||
|
December 31, 2020 |
$ | 371 | ||
|
Severance payouts |
(347 | ) | ||
|
Translation |
4 | |||
|
September 30, 2021 |
$ | 28 | ||
|
Estimated total termination benefits paid and to be paid |
$ | 2,823 |
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Our significant accounting policies are detailed in "Note 2 Summary of Significant Accounting Policies" within Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 30, 2021. Changes to the Company's accounting policies are discussed below:
Adoption of new accounting standards
On January 1, 2021, the Company adopted ASU No. 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 provides optional expedients and exceptions related to contract modifications and hedge accounting to address the transitions from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance permits an entity to consider contract modification due to reference rate reform to be an event that does not require contract re-measurement at the modification date or reassessment of a previous accounting determination. ASU 2020-04 also temporarily allows hedge relationships to continue without de-designation upon changes due to reference rate reform. The standard is effective upon issuance and can be applied as of March 12, 2020 through December 31, 2022. There was not a material effect on the Company's financial statements due to the Company not having any current financial instruments that are affected by this new guidance.
On January 1, 2021, the Company adopted ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivatives, and is expected to reduce diversity in practice and increase comparability of the accounting for these interactions. The amendments in ASU 2020-01 are effective for the Company's 2021 fiscal year, including interim periods. The new guidance does not have a material impact on the Company's consolidated financial statements due to the Company currently not having any equity-method investments or any derivative instruments.
On January 1, 2021, the Company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes, which is guidance intended to simplify various aspects related to accounting for income taxes, eliminate certain exceptions within ASC 740 and clarify certain aspects of the current guidance to promote consistency among reporting entities. The pronouncement is effective for the Company's 2021 fiscal year, including interim periods. The ASU does not have a material impact on the Company's consolidated financial statements.
|
3. |
DISCONTINUED OPERATIONS AND SALE OF A BUSINESS |
As part of the Company’s previously stated strategy to transform Orbital Energy Group, Inc. into a diversified infrastructure services platform serving North American and U.K. customers, in 2019 the Company’s Board of Directors made the decision to divest of its Power and Electromechanical businesses. On September 30, 2019, Orbital Energy Group, Inc. entered into an asset sale agreement by and among, CUI, Inc. ("Seller"), a wholly owned subsidiary of the Company ("Parent"), and Back Porch International, Inc. ("Buyer") to sell the Company’s Electromechanical business to a management led group. In November 2019, Orbital Energy Group, Inc. entered into an asset sale agreement by and among, the Seller and Bel Fuse, Inc. to sell the domestic Power supply business. Both sales closed in 2019. On September 30, 2020, the Company sold the CUI Japan operations to Back Porch International for approximately $163 thousand. The assets of the Company's CUI-Canada subsidiary were divested in the fourth quarter of 2020.
The associated results of operations of the discontinued Power and Electromechanical segment are separately reported as Discontinued Operations for 2020 on the Condensed Consolidated Statements of Operations. Cash flows from these discontinued businesses are included in the Condensed Consolidated Cash Flow statements. See below for additional information on operating and investing cash flows of the discontinued operations. Results from continuing operations for the Company and segment highlights exclude the former Power and Electromechanical segment, which is included in these discontinued operations.
The former Power and Electromechanical segment consisted of the wholly owned subsidiaries: CUI, Inc. (CUI), based in Tualatin, Oregon; CUI Japan, based in Tokyo, Japan; CUI-Canada, based in Toronto, Canada; and the entity that previously held the corporate building, CUI Properties. The subsidiaries were providers of power and electromechanical components for Original Equipment Manufacturers (OEMs).
Selected data for these discontinued businesses consisted of the following:
Reconciliation of the Major Classes of Line Items Constituting Pretax Income from
Discontinued Operations to the After-Tax Income from Discontinued Operations That Are
Presented in the Condensed Consolidated Statement of Operations
(Unaudited)
|
(in thousands) |
For the Three Months |
For the Nine Months |
||||||||||||||
|
Ended September 30, |
Ended September 30, |
|||||||||||||||
|
Major classes of line items constituting pretax profit of discontinued operations: |
2021 |
2020 |
2021 |
2020 |
||||||||||||
|
Revenues |
$ | — | $ | 8,579 | $ | — | $ | 14,523 | ||||||||
|
Cost of revenues |
— | (5,155 | ) | — | (10,402 | ) | ||||||||||
|
Selling, general and administrative expense |
— | (65 | ) | — | (870 | ) | ||||||||||
|
Other income |
— | 30 | — | 247 | ||||||||||||
|
Pretax income of discontinued operations |
— | 3,389 | — | 3,498 | ||||||||||||
|
Pretax gain on sale of electromechanical businesses |
— | 14 | — | 14 | ||||||||||||
|
Income tax expense |
— | 870 | — | 835 | ||||||||||||
|
Total income from discontinued operations |
$ | — | $ | 2,533 | $ | — | $ | 2,677 | ||||||||
There was $1 thousand net cash provided in investing activities of discontinued operations for the nine months ended September 30, 2020.
|
4. |
REVENUE FROM CONTRACTS WITH CUSTOMERS |
The Electric Power and Solar Infrastructure Services segment provides full service building, maintenance and support to the electrical power distribution, transmission, substation, renewables, and emergency response sectors of North America through Orbital Power Services. Orbital Solar Services provides engineering, procurement and construction (“EPC”) services that support the development of renewable energy generation focused on utility scale solar and community solar construction, and Orbital Telecom Services provides technical implementation, design, maintenance, emergency and repair support services in the broadband, wireless, and outside plant and building technologies.
The Integrated Energy Infrastructure Solutions and Services segment subsidiaries, collectively referred to as Orbital Gas Systems, generate their revenue from a portfolio of products, services and resources that offer a diverse range of personalized gas engineering solutions to the gas utilities, power generation, petrochemical, emissions, manufacturing and automotive industries among others.
Orbital Gas Systems accounts for a majority of its contract revenue proportionately over time. For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.
For our construction contracts, revenue is generally recognized over time. Our construction projects generally use a cost-to-cost input method or an output method to measure our progress towards complete satisfaction of the performance obligation as we believe these methods best depict the transfer of control to the customer. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Under the output method, progress towards completion is measured based on units or hours of work completed.
The timing of revenue recognition for Integrated Energy Infrastructure products also depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts where the Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced or for which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. These performance obligations use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date and we are not enhancing a customer controlled asset, we recognize revenue at the point in time when control is transferred to the customer, generally when the product is shipped.
For our service contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.
Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicates a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.
Under the output method, revenue is determined by actual work achieved. For time and materials jobs, revenue is recognized based on the output of hours of work completed multiplied by the contractual agreed upon rate per hour. For the remainder of jobs under the output method, revenue is earned based on each unit in the contract completed. We construct comprehensive revenue calculations based on quantifiable measures of actual units completed multiplied by the agreed upon contract prices per item completed. Revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service.
Product-type contracts (for example, sale of GasPT units) for which revenue does not qualify to be recognized over time are recognized at a point in time. Revenues from extended warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period. Extended warranties are not a material portion of our revenue.
Accounts Receivable, Contract Assets and Contract Liabilities
Accounts receivable are recognized in the period when our right to consideration is unconditional. We also assess our customer's ability and intention to pay, which is based on a variety of factors, including our historical payment experience with and the financial condition of our customers. Payment terms and conditions vary by contract, although our standard terms include a requirement of payment within 30 days. Accounts receivable are recognized net of an allowance for doubtful accounts.
The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenue recognized under the cost-to-cost or output method measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Also included in contract assets are retainage receivables and amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Condensed Consolidated Balance Sheets.
Contract liabilities from our construction contracts occur when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost or output method measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts and provision for future contract losses for those contracts estimated to close in a gross loss position. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue.
Balances and activity in the current contract liabilities as of and for the nine months ended September 30, 2021 and 2020 was as follows:
|
For the Nine Months |
||||||||
|
Ended September 30, |
||||||||
|
(in thousands) |
2021 |
2020 |
||||||
|
Total contract liabilities - beginning of period (1) |
$ | 6,996 | $ | 1,860 | ||||
|
Contract additions - acquisition |
100 | 3,349 | ||||||
|
Other contract additions, net |
3,040 | 4,796 | ||||||
|
Revenue recognized |
(2,726 | ) | (1,758 | ) | ||||
|
Contract settlements |
(3,140 | ) | — | |||||
|
Translation |
(14 | ) | (24 | ) | ||||
|
Total contract liabilities - end of period |
$ | 4,256 | $ | 8,223 | ||||
|
As of September 30, |
||||||||
|
(in thousands) |
2021 |
2020 |
||||||
|
Current contract liabilities |
$ | 4,188 | $ | 8,047 | ||||
|
Long-term contract liabilities (2) |
68 | 176 | ||||||
|
Total contract liabilities |
$ | 4,256 | $ | 8,223 | ||||
(1) For the beginning balance in 2021 and 2020, total contract liabilities included $186 thousand and $192 thousand, respectively that were classified as long term.
(2) Long-term contract liabilities are included in other long-term liabilities on the Condensed Consolidated Balance Sheets.
Performance Obligations
Remaining Performance Obligations
Remaining performance obligations represents the transaction price of contracts with customers for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of September 30, 2021, the Company's remaining performance obligations are generally expected to be filled within the next 12 months.
Any adjustments to net revenues, cost of revenues, and the related impact to operating income are recognized as necessary in the period they become known. These adjustments may result from positive program performance, and may result in an increase in operating income during the performance of individual performance obligations, if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations. Likewise, these adjustments may result in a decrease in operating income if we determine we will not be successful in mitigating these risks. Changes in estimates of net revenues, cost of revenues and the related impact to operating income are recognized on a cumulative catch-up basis in the period they become known, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. For separately priced extended warranty or product maintenance performance obligations, when estimates of total costs to be incurred on the performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.
Performance Obligations Satisfied Over Time
To determine the proper revenue recognition method for our contracts, we evaluate whether a single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to separate the single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.
For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. Less commonly, however, we may promise to provide distinct goods or services within a contract in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In cases where we do, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized customer specific solution, and in these cases we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.
Performance Obligations Satisfied at a Point in Time
Revenue from goods and services transferred to customers at a single point in time accounted for 21% and 12% of revenues for the three month periods ended September 30, 2021 and 2020, respectively and 18% and 19% for the nine month periods ended September 30, 2021 and 2020, respectively. Revenue on these contracts is recognized when the product is shipped and the customer takes control of the product. Determination of control transfer is typically determined by shipping terms delineated on the customer purchase orders and is generally when shipped.
Variable Consideration
The nature of our contracts gives rise to several types of variable consideration. In rare instances, we include in our contract estimates, additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. These amounts are included in our calculation of net revenue recorded for our contracts and the associated remaining performance obligations. Additionally, if the contract has a provision for liquidated damages in the case that the Company misses a timing target, or fails to meet any other contract benchmarks, we account for those estimated liquidated damages as variable consideration and will adjust revenue accordingly with periodic updates to the estimated variable consideration as the job progresses. Liquidated damages are recognized as variable consideration only when we estimate that they will be a factor in the performance of the contract and are not common.
Significant Judgments
Our contracts with certain customers may be subject to contract cancellation clauses. Contracts with other cancellation provisions may require judgment in determining the contract term, including the existence of material rights, transaction price and identifying the performance obligations and whether a contract should be accounted for over time or on a completed contract basis. Revenue is recognized for certain projects over time using cost-based input methods, in which significant judgement is required to evaluate assumptions including the amount of total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.
At times, customers may request changes that either amend, replace or cancel existing contracts. Judgment is required to determine whether the specific facts and circumstances within the contracts require the changes to be accounted for as a separate contract or as a modification. Generally, contract modifications containing additional goods and services that are determined to be distinct and sold at their stand-alone selling price are accounted for as a separate contract. For contract modifications where goods and services are not determined to be distinct and sold at their stand-alone selling price, the original contract is updated and the required adjustments to revenue and contract assets, liabilities, and other accounts will be made accordingly.
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately rather than together may require significant judgment. For, example, we consider many of our contracts that coordinate multiple products into an integrated system to be a single performance obligation, while the same products would be considered separate performance obligations if not so integrated.
In contracts where there are timing differences between when we transfer a promised good or service to the customer and when the customer pays for that good or service, we have determined that, our contracts do not include a significant financing component.
The following tables present the Company's revenues disaggregated by timing of revenue recognition:
|
For the Three Months |
For the Three Months |
|||||||||||||||||||||||
|
Ended September 30, 2021 |
Ended September 30, 2020 |
|||||||||||||||||||||||
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Total |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Total |
||||||||||||||||||
|
Revenues recognized at point in time |
$ | 4,845 | $ | 1,521 | $ | 6,366 | $ | — | $ | 1,573 | $ | 1,573 | ||||||||||||
|
Revenues recognized over time |
19,977 | 4,576 | 24,553 | 9,478 | 2,564 | 12,042 | ||||||||||||||||||
|
Total revenues |
$ | 24,822 | $ | 6,097 | $ | 30,919 | $ | 9,478 | $ | 4,137 | $ | 13,615 | ||||||||||||
|
For the Nine Months |
For the Nine Months |
|||||||||||||||||||||||
|
Ended September 30, 2021 |
Ended September 30, 2020 |
|||||||||||||||||||||||
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Total |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Total |
||||||||||||||||||
|
Revenues recognized at point in time |
$ | 5,187 | $ | 5,206 | $ | 10,393 | $ | — | $ | 5,078 | $ | 5,078 | ||||||||||||
|
Revenues recognized over time |
36,715 | 9,610 | 46,325 | 13,904 | 8,096 | 22,000 | ||||||||||||||||||
|
Total revenues |
$ | 41,902 | $ | 14,816 | $ | 56,718 | $ | 13,904 | $ | 13,174 | $ | 27,078 | ||||||||||||
The following tables present the Company's revenues disaggregated by region:
|
For the Three Months |
For the Three Months |
|||||||||||||||||||||||
|
Ended September 30, 2021 |
Ended September 30, 2020 |
|||||||||||||||||||||||
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Total |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Total |
||||||||||||||||||
|
North America |
$ | 24,031 | $ | 2,947 | $ | 26,978 | $ | 9,478 | $ | 1,184 | $ | 10,662 | ||||||||||||
|
Europe |
241 | 3,119 | 3,360 | — | 2,939 | 2,939 | ||||||||||||||||||
|
Other |
550 | 31 | 581 | — | 14 | 14 | ||||||||||||||||||
|
Total revenues |
$ | 24,822 | $ | 6,097 | $ | 30,919 | $ | 9,478 | $ | 4,137 | $ | 13,615 | ||||||||||||
|
For the Nine Months |
For the Nine Months |
|||||||||||||||||||||||
|
Ended September 30, 2021 |
Ended September 30, 2020 |
|||||||||||||||||||||||
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Total |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Total |
||||||||||||||||||
|
North America |
$ | 41,111 | $ | 5,278 | $ | 46,389 | $ | 13,904 | $ | 5,574 | $ | 19,478 | ||||||||||||
|
Europe |
241 | 9,486 | 9,727 | — | 7,443 | 7,443 | ||||||||||||||||||
|
Other |
550 | 52 | 602 | — | 157 | 157 | ||||||||||||||||||
|
Total revenues |
$ | 41,902 | $ | 14,816 | $ | 56,718 | $ | 13,904 | $ | 13,174 | $ | 27,078 | ||||||||||||
|
5. |
OTHER INTANGIBLE ASSETS |
In January 2021, the Company completed the acquisition of the VE Technology rights, which it has previously utilized the VE Technology through a licensing agreement with Endet Ltd. Orbital Gas Systems has the existing proprietary knowledge for the marketing, engineering and production of the VE Technology based solutions. The VE Technology, amortized over ten years, is the basis for a patented sampling system product line marketed by Orbital Gas Systems and utilized in many of its integrated solutions.
In 2020, the Company entered into an agreement to acquire the intellectual property rights and know-how associated with the VE Technology including patents for 1.5 million British pounds ("GBP"), or approximately $1.8 million. The completion of the acquisition was made upon the final payment towards this agreement. In June 2020, the parties to the agreement mutually agreed to extend the payments until January 15, 2021 in consideration of the financial consequences created by the COVID-19 pandemic in exchange for a technology fee of an additional 100,000 GBP. The Company paid the remaining 500,000 GBP in January 2021. The $1.9 million paid was recorded as an intangible asset upon making the final payment in January 2021 with $0.7 million paid in 2021 and $1.2 million reclassified from long-term deposits. See Note 19 Acquisition for more information on acquisition intangibles included in recent acquisitions during 2021 and 2020.
Other Intangible Assets
The following table provides the components of identifiable intangible assets:
|
Finite-lived intangible assets (in thousands) |
September 30, 2021 |
December 31, 2020 |
||||||||||||||||||||||||||||||
|
Estimated Useful Life (in years) |
Weighted average remaining amortization period |
Gross Carrying Amount |
Accumulated Amortization |
Identifiable Intangible Assets, less Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
Identifiable Intangible Assets, less Accumulated Amortization |
|||||||||||||||||||||||||
|
Electric Power and Solar Infrastructure Services Segment |
||||||||||||||||||||||||||||||||
|
Customer Relationships |
5 to 10 | 8.20 | $ | 28,610 | $ | (3,409 | ) | $ | 25,201 | $ | 8,647 | $ | (1,297 | ) | $ | 7,350 | ||||||||||||||||
|
Trade name - Reach Construction Group |
1 | — | 1,878 | (1,878 | ) | — | 1,878 | (1,409 | ) | 469 | ||||||||||||||||||||||
|
Technology-based asset |
4 | 3.83 | 1,470 | (61 | ) | 1,409 | ||||||||||||||||||||||||||
|
Computer software |
3 to 5 | 2.17 | 544 | (39 | ) | 505 | ||||||||||||||||||||||||||
|
Non-compete agreements |
5 | 3.64 | 3,597 | (1,000 | ) | 2,597 | 3,212 | (482 | ) | 2,730 | ||||||||||||||||||||||
|
Total Electric Power and Solar Infrastructure Services Segment |
36,099 | (6,387 | ) | 29,712 | 13,737 | (3,188 | ) | 10,549 | ||||||||||||||||||||||||
|
Integrated Energy Infrastructure Solutions and Services Segment |
||||||||||||||||||||||||||||||||
|
Order backlog |
2 | — | 2,998 | (2,998 | ) | — | 3,041 | (3,041 | ) | — | ||||||||||||||||||||||
|
Trade name - Orbital-UK |
10 | 1.50 | 1,612 | (1,370 | ) | 242 | 1,635 | (1,267 | ) | 368 | ||||||||||||||||||||||
|
Customer list - Orbital-UK |
10 | 1.50 | 6,269 | (5,328 | ) | 941 | 6,358 | (4,927 | ) | 1,431 | ||||||||||||||||||||||
|
Technology rights |
10 | 9.28 | 2,271 | (407 | ) | 1,864 | 341 | (254 | ) | 87 | ||||||||||||||||||||||
|
Technology-Based Asset - Know How |
12 | 3.50 | 2,540 | (1,799 | ) | 741 | 2,576 | (1,663 | ) | 913 | ||||||||||||||||||||||
|
Technology-Based Asset - Software |
10 | 1.50 | 550 | (468 | ) | 82 | 558 | (433 | ) | 125 | ||||||||||||||||||||||
|
Computer software |
3 to 5 | 1.58 | 743 | (615 | ) | 128 | 751 | (530 | ) | 221 | ||||||||||||||||||||||
|
Total Integrated Energy Infrastructure Solutions and Services Segment |
16,984 | (12,985 | ) | 3,998 | 15,260 | (12,115 | ) | 3,145 | ||||||||||||||||||||||||
|
Other category |
||||||||||||||||||||||||||||||||
|
Computer software |
3 to 5 | 0.27 | 713 | (712 | ) | 1 | 713 | (710 | ) | 3 | ||||||||||||||||||||||
|
Product certifications |
3 | — | 36 | (36 | ) | — | 36 | (36 | ) | — | ||||||||||||||||||||||
|
Total Other category |
749 | (748 | ) | 1 | 749 | (746 | ) | 3 | ||||||||||||||||||||||||
|
Total identifiable finite-lived other intangible assets |
53,832 | (20,120 | ) | 33,712 | 29,746 | (16,049 | ) | 13,697 | ||||||||||||||||||||||||
|
Identifiable indefinite-lived other intangible assets |
||||||||||||||||||||||||||||||||
|
Electric Power and Solar Infrastructure Services Segment |
||||||||||||||||||||||||||||||||
|
Trade Name - GTS |
6,388 | — | 6,388 | — | — | — | ||||||||||||||||||||||||||
|
Trade Name - IMMCO |
1,205 | — | 1,205 | — | — | — | ||||||||||||||||||||||||||
|
Total identifiable indefinite-lived other intangible assets |
7,593 | — | 7,593 | — | — | — | ||||||||||||||||||||||||||
|
Total identifiable other intangible assets |
$ | 61,424 | $ | (20,120 | ) | $ | 41,304 | $ | 29,746 | $ | (16,049 | ) | $ | 13,697 | ||||||||||||||||||
Estimated future amortization by category of finite-lived intangible assets at September 30. 2021was as follows:
|
(in thousands) |
For the Periods Ended December 31, | |||||||||||||||||||||||||||
|
2021 |
2022 |
2023 |
2024 |
2025 |
2026 and thereafter |
Totals |
||||||||||||||||||||||
|
Trademarks and trade name |
$ | 40 | $ | 162 | $ | 40 | $ | — | $ | — | $ | — | $ | 242 | ||||||||||||||
|
Customer lists/relationships |
1,088 | 4,353 | 3,882 | 3,726 | 2,429 | 10,664 | 26,142 | |||||||||||||||||||||
|
Technology rights |
50 | 201 | 201 | 201 | 201 | 1,010 | 1,864 | |||||||||||||||||||||
|
Technology-based assets |
159 | 634 | 593 | 579 | 267 | — | 2,232 | |||||||||||||||||||||
|
Computer software |
80 | 314 | 241 | — | — | — | 635 | |||||||||||||||||||||
|
Non-compete agreements |
180 | 719 | 719 | 719 | 238 | 22 | 2,597 | |||||||||||||||||||||
|
Total Amortization |
1,597 | 6,383 | 5,676 | 5,225 | 3,135 | 11,696 | 33,712 | |||||||||||||||||||||
|
6. |
INVENTORIES |
Inventories consist of raw materials, work-in-process and finished goods and are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method as a cost flow convention or through the moving average cost method. At September 30, 2021 and December 31, 2020, accrued liabilities included $0.9 million and $0.1 million of accrued inventory payable, respectively. At September 30, 2021 and December 31, 2020, inventory by category is valued net of reserves and consists of:
|
As of September 30, |
As of December 31, |
|||||||
|
(in thousands) |
2021 |
2020 |
||||||
|
Finished goods |
$ | 224 | $ | 255 | ||||
|
Raw materials |
1,031 | 217 | ||||||
|
Work-in-process |
535 | 651 | ||||||
|
Total inventories |
$ | 1,790 | $ | 1,123 | ||||
|
7. |
INVESTMENTS |
The Company has a minority ownership in Virtual Power Systems ("VPS"). Prior to the third quarter of 2020, based on its equity ownership and that the Company maintains a board seat and participated in operational activities of VPS, the Company maintained significant influence to account for the investment as an equity-method investment. Under the equity method of accounting, results are not consolidated, but the Company records a proportionate percentage of the profit or loss of VPS as an addition to or a subtraction from the VPS investment asset balance. During the nine months ended September 30, 2020, the Company recorded a $4.8 million loss on its equity method investment in VPS. The VPS investment basis at September 30, 2021 and December 31, 2020 was $1.1 million and $1.1 million, respectively, as reflected on the condensed consolidated balance sheets. With the decrease in ownership percentage following a Q3 2020 equity raise by VPS and additional board seats placed, OEG no longer has sufficient influence to recognize the investment under the equity method. The investment is held at September 30, 2021 under the cost method of accounting for investments.
The Company made a purchase of a convertible note receivable for $200 thousand from VPS in the three months ended March 31, 2020, which was increased to $260 thousand in the second quarter of 2020 via payments made to VPS and accrued interest recorded by the Company as part of the transition agreement between the Company and VPS. VPS chose to convert the note receivable to equity in the third quarter of 2020. In addition, the Company made additional cash investments of $0.1 million and a $0.3 million non-cash inventory investment in VPS during the third quarter of 2020 in exchange for additional equity.
|
8. |
LEASES |
Consolidated total lease costs were $2.2 million and $4.3 million for the three and nine months ended September 30, 2021 and $0.6 million and $1.5 million for the three and nine months ended September 30, 2020 and are included in cost of sales; selling, general and administrative expense; and other income (expense), on the condensed consolidated statement of operations.
Future minimum operating lease obligations at September 30, 2021 are as follows for the years ended December 31:
|
(in thousands) |
||||
|
2021 (remaining period) |
$ | 1,194 | ||
|
2022 |
4,581 | |||
|
2023 |
3,463 | |||
|
2024 |
1,929 | |||
|
2025 |
1,200 | |||
|
Thereafter |
2,450 | |||
|
Interest portion |
(1,894 | ) | ||
|
Total operating lease obligations |
$ | 12,923 |
Total lease cost and other lease information is as follows:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
|
(in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
|
Operating lease cost |
$ | 1,178 | $ | 511 | $ | 2,825 | $ | 1,321 | ||||||||
|
Short-term lease cost |
148 | 41 | 221 | 117 | ||||||||||||
|
Variable lease cost |
176 | 102 | 488 | 295 | ||||||||||||
|
Sublease income |
(129 | ) | (78 | ) | (372 | ) | (254 | ) | ||||||||
|
Total lease cost |
$ | 1,373 | $ | 576 | $ | 3,162 | $ | 1,479 | ||||||||
|
Other information - Operating leases (in thousands) |
For the Nine Months Ended September 30, |
|||||||
|
2021 |
2020 |
|||||||
|
Cash paid for amounts included in the measurement of lease obligations: |
||||||||
|
Operating cash flows from operating leases (includes discontinued operations in 2020) |
$ | (2,782 | ) | $ | (1,622 | ) | ||
|
Right-of-use assets obtained in exchange for new operating lease obligations |
$ | 7,290 | $ | 1,546 | ||||
|
Weighted-average remaining lease term - operating leases (in years) |
4.3 | 5.6 | ||||||
|
Weighted-average discount rate - operating leases |
6.5 | % | 6.6 | % | ||||
Variable lease costs primarily include common area maintenance costs, real estate taxes and insurance costs passed through to the Company from lessors.
Future minimum finance lease obligations are as follows:
|
(in thousands) |
||||
|
2021 (remaining period) |
$ | 1,102 | ||
|
2022 |
4,409 | |||
|
2023 |
4,408 | |||
|
2024 |
2,278 | |||
|
2025 |
136 | |||
|
Thereafter |
92 | |||
|
Interest portion |
(1,059 | ) | ||
|
Total financing lease obligations |
$ | 11,366 |
Total financing lease costs are as follows:
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
|
(in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
|
Depreciation of financing lease assets |
$ | 658 | $ | 1 | $ | 974 | $ | 3 | ||||||||
|
Interest on lease liabilities |
119 | — | 177 | — | ||||||||||||
|
Total finance lease cost |
$ | 777 | $ | 1 | $ | 1,151 | $ | 3 | ||||||||
|
Other information - Financing leases |
For the Nine Months Ended September 30, |
|||||||
|
(in thousands) |
2021 |
2020 |
||||||
|
Cash paid for amounts included in the measurement of lease obligations: |
||||||||
|
Operating cash flows from financing leases |
$ | (177 | ) | $ | — | |||
|
Financing cash flows from financing leases |
$ | (897 | ) | $ | (3 | ) | ||
|
Right-of-use assets obtained in exchange for new financing lease obligations |
$ | 12,190 | $ | — | ||||
|
Weighted-average remaining lease term - financing leases (in years) |
2.9 | 0.58 | ||||||
|
Weighted-average discount rate - operating leases |
6.5 | % | 5.0 | % | ||||
|
9. |
STOCK-BASED COMPENSATION AND EXPENSE |
The Company records its stock-based compensation expense on options issued in the past under its stock option plans and the Company also issues stock for services and royalties. The Company's current stock incentive award plan was approved in 2020 following the expiration of its previous stock incentive award plan in 2018. The Company did not issue any stock options during the nine months ended September 30, 2021 or 2020. A detailed description of the awards under these plans and the respective accounting treatment is included in the “Notes to the Consolidated Financial Statements” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 and filed with the SEC on March 30, 2021. For the nine months ended September 30, 2021 and 2020, the Company recorded stock-based compensation expense of $9.8 million and $12 thousand, respectively.
Restricted Stock
In March 2021, the Company granted 3 million restricted shares with an aggregate fair value of $16.4 million with a graded vesting schedule. One-third of which were vested in April 2021, one-third of which will vest in April 2022, and one-third of which will vest in April 2023. The Company recorded $1.4 million and $8.0 million in compensation expense related to the partial vesting of these grants in the three and nine months ended September 30, 2021, respectively, and total unrecognized share-based compensation for restricted stock was $8.4 million and will be recognized over the remaining vesting period.
Stock Appreciation Rights ("SARs")
In addition to stock-based compensation settled in stock, the Company also has cash settled stock appreciation rights ("SARs") which were granted in June 2020 as described in the Company's Form 10-K filed March 30, 2021 and additional grant made in April 2021 as reflected in the table below. Accrued compensation for SARs at September 30, 2021 and December 31, 2020 were $3.2 million and $0.6 million, respectively and were recorded in accrued expenses within the Condensed Consolidated Balance Sheets. Vesting expense for the three and nine months ended September 30, 2021 was ($0.1 million) and $2.5 million, respectively, compared with $84 thousand, and $0.1 million, respectively, for the three and nine months ended September 30, 2020 and was recorded within selling, general and administrative expense within the Condensed Consolidated Statements of Operations.
The fair value of cash-settled SARs is revalued (mark-to-market) each reporting period using a binomial lattice valuation model based on the company’s period-end stock price. Expected volatility is based on the historical volatility of the company’s stock for the length of time corresponding to the expected term of the SARs. The risk-free interest rate is based on the U.S treasury yield curve in effect as of the reporting date for the length of time corresponding to the expected term of the SARs.
The following weighted-average assumptions were used in calculating the fair value of cash-settled SARs outstanding as of September 30, 2021 and December 31, 2020.
|
As of |
||||||||
|
September 30, 2021 |
December 31, 2020 |
|||||||
|
Expected term of cash-settled SARs (in years) |
1.80 | 3.42 | ||||||
|
Expected volatility factor |
160.91 | % | 210.56 | % | ||||
|
Risk-free interest rate |
0.33 | % | 0.17 | % | ||||
Changes to the company’s non-vested cash-settled SARs during the nine months ended September 30, 2021, are as follows:
|
Cash-settled SARs |
Fair Value Price per Share* |
|||||||
|
(in thousands) |
||||||||
|
Non-vested cash-settled SARs at December 31, 2020 |
748 | $ | 2.12 | |||||
|
Granted |
3,771 | 2.26 | ||||||
|
Vested |
(946 | ) | 2.37 | |||||
|
Non-vested cash-settled SARs at September 30, 2021 |
3,573 | $ | 2.37 | |||||
* weighted-average
|
10. |
SEGMENT REPORTING |
Operating segments are defined in accordance with ASC 280-10 as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The measurement basis of segment profit or loss is income (loss) from operations. Management has identified three operating segments based on the activities of the Company in accordance with ASC 280-10. These operating segments have been aggregated into three reportable segments. The three reportable segments are Electric Power and Solar Infrastructure Services, Integrated Energy Infrastructure Solutions and Services, and Other.
The Electric Power and Solar Infrastructure Services segment consists of Orbital Power Services, Orbital Solar Services and Orbital Telecom Services providing a comprehensive network of infrastructure services to customers in the electric power, telecommunications and solar industries.
The Integrated Energy Infrastructure Solutions and Services segment is focused on the operations of Orbital Gas Systems Ltd. in the UK and Orbital Gas Systems, North America, Inc. which includes gas related test and measurement systems, including the GasPT.
The Other segment represents the remaining activities that are not included as part of the other reportable segments and represent primarily corporate activity. In 2019, the Company sold its domestic power and electromechanical businesses and reclassified the income of the former Power and Electromechanical segment to income from discontinued operations. The Company sold the remaining portions of the Power and Electromechanical segment in 2020.
The following information represents segment activity for the three months ended September 30, 2021:
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Other |
Total |
||||||||||||
|
Revenues from external customers |
$ | 24,822 | $ | 6,097 | $ | — | $ | 30,919 | ||||||||
|
Depreciation and amortization (1) |
2,483 | 404 | 12 | 2,899 | ||||||||||||
|
Interest expense |
128 | — | 1,138 | 1,266 | ||||||||||||
|
Loss from operations |
(6,486 | ) | (1,169 | ) | (4,078 | ) | (11,733 | ) | ||||||||
|
Expenditures for long-lived assets (2) |
1,861 | 3 | 38 | 1,902 | ||||||||||||
(1) For the Electric Power and Solar Infrastructure segment, depreciation and amortization includes $1.2 million, which was included in cost of revenues in the Condensed Consolidated Statements of Operations.
(2) Includes purchases of property, plant and equipment and other intangible assets.
The following information represents segment activity for the nine months ended September 30, 2021:
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Other |
Total |
||||||||||||
|
Revenues from external customers |
$ | 41,902 | $ | 14,816 | $ | — | $ | 56,718 | ||||||||
|
Depreciation and amortization (1) |
5,653 | 1,249 | 31 | 6,933 | ||||||||||||
|
Interest expense |
202 | 2 | 2,894 | 3,098 | ||||||||||||
|
Loss from operations |
(29,789 | ) | (4,067 | ) | (13,402 | ) | (47,258 | ) | ||||||||
|
Expenditures for long-lived assets (2) |
6,488 | 713 | 95 | 7,296 | ||||||||||||
(1) For the Electric Power and Solar Infrastructure segment, depreciation and amortization includes $2.3 million, which was included in cost of revenues in the Condensed Consolidated Statements of Operations.
(2) Includes purchases of property, plant and equipment and other intangible assets.
The following information represents selected balance sheet items by segment as of September 30, 2021:
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Other |
Total |
||||||||||||
|
Segment assets |
$ | 134,165 | $ | 17,988 | $ | 15,878 | $ | 168,031 | ||||||||
|
Goodwill |
30,337 | — | — | 30,337 | ||||||||||||
|
Other intangible assets, net |
37,305 | 3,998 | 1 | 41,304 | ||||||||||||
The following information represents segment activity for the three months ended September 30, 2020:
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Other |
Total |
||||||||||||
|
Revenues from external customers |
$ | 9,478 | $ | 4,137 | $ | — | $ | 13,615 | ||||||||
|
Depreciation and amortization (1) |
1,197 | 373 | 11 | 1,581 | ||||||||||||
|
Interest expense |
108 | 2 | 223 | 333 | ||||||||||||
|
Loss from operations |
(2,220 | ) | (1,827 | ) | (2,276 | ) | (6,323 | ) | ||||||||
|
Expenditures for long-lived assets (2) |
76 | 5 | 7 | 88 | ||||||||||||
(1) For the Electric Power and Solar Infrastructure Services segment, depreciation and amortization includes $0.1 million, which was included in cost of revenues in the Condensed Consolidated Statements of Operations.
(2) Includes purchases of property, plant and equipment and other intangible assets. The Other category includes expenditures for discontinued operations.
The following information represents segment activity for the nine months ended September 30, 2020:
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Other |
Total |
||||||||||||
|
Revenues from external customers |
$ | 13,904 | $ | 13,174 | $ | — | $ | 27,078 | ||||||||
|
Depreciation and amortization (1) |
2,477 | 1,109 | 30 | 3,616 | ||||||||||||
|
Interest expense |
237 | 3 | 229 | 469 | ||||||||||||
|
Loss from operations |
(7,293 | ) | (5,291 | ) | (7,999 | ) | (20,583 | ) | ||||||||
|
Expenditures for long-lived assets (2) |
1,380 | 24 | 80 | 1,484 | ||||||||||||
(1) For the Electric Power and Solar Infrastructure Services segment, depreciation and amortization includes $0.3 million, which was included in cost of revenues in the Condensed Consolidated Statements of Operations.
(2) Includes purchases of property, plant and equipment and other intangible assets. The Other category includes expenditures for discontinued operations.
The following information represents selected balance sheet items by segment as of December 31, 2020:
|
(in thousands) |
Electric Power and Solar Infrastructure Services |
Integrated Energy Infrastructure Solutions and Services |
Other |
Total |
||||||||||||
|
Segment assets |
$ | 35,825 | $ | 17,094 | $ | 13,126 | $ | 66,045 | ||||||||
|
Goodwill |
7,006 | — | — | 7,006 | ||||||||||||
|
Other intangible assets, net |
10,550 | 3,144 | 3 | 13,697 | ||||||||||||
The following represents revenue by country:
|
(dollars in thousands) |
For the Nine Months Ended September 30, |
|||||||||||||||
|
2021 |
2020 |
|||||||||||||||
|
Amount |
% |
Amount |
% |
|||||||||||||
|
USA |
$ | 46,385 | 82 | % | $ | 19,230 | 71 | % | ||||||||
|
United Kingdom |
8,664 | 15 | % | 6,388 | 24 | % | ||||||||||
|
All Others |
1,669 | 3 | % | 1,460 | 5 | % | ||||||||||
|
Total |
$ | 56,718 | 100 | % | $ | 27,078 | 100 | % | ||||||||
|
11. |
RECENT ACCOUNTING PRONOUNCEMENTS |
On October 28, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This guidance will require entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. This standard was designed to provide consistent recognition and measurement guidance for revenue contracts with customers. Legacy guidance requires entities to record contract assets and contract liabilities acquired to be recorded at fair value. The amendments will be effective for the Company beginning for fiscal years beginning after December 15, 2022. Early adoption is allowed. If an entity early adopts, the entity would be required to apply the new guidance to all acquisitions made in the year of the early adoption. The Company is still reviewing the standard and as of the reporting date of this filing has not elected to early adopt.
|
12. |
FAIR VALUE MEASUREMENTS |
The Company’s fair value hierarchy for its contingent consideration and convertible note payable as of September 30, 2021 and December 31, 2020 was as follows:
|
(in thousands) |
||||||||||||||||
|
September 30, 2021 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
|
Contingent consideration |
$ | — | $ | — | $ | 720 | $ | 720 | ||||||||
|
Total liabilities |
$ | — | $ | — | $ | 720 | $ | 720 | ||||||||
|
December 31, 2020 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
|
Convertible note payable |
$ | — | $ | — | $ | 1,955 | $ | 1,955 | ||||||||
|
Contingent consideration |
— | — | 720 | 720 | ||||||||||||
|
Total liabilities |
$ | — | $ | — | $ | 2,675 | $ | 2,675 | ||||||||
|
Changes in Fair Value Measurements |
|
Using Significant Unobservable Inputs (Level 3) |
|
(in thousands) |
Convertible note payable |
|||
|
Balance at December 31, 2020 |
$ | 1,955 | ||
|
Loss on extinguishment on amendment to remove convertible feature |
250 | |||
|
Amortization of original issue discount |
40 | |||
|
Accrued interest |
57 | |||
|
Extinguishment of note |
(2,302 | ) | ||
|
Balance at September 30, 2021 |
$ | — | ||
There were no transfers between Level 3 and Level 2 in the three months ended September 30, 2021 as determined at the end of the reporting period.
|
13. |
LOSS PER COMMON SHARE |
In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 260 (“FASB ASC 260”), “Earnings per Share,” Basic loss from continuing operations per share, basic income from discontinued operations per share and basic net income (loss) per share that is available to shareholders is computed by dividing the income or loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the respective loss available to common stockholders by the weighted average number of diluted shares outstanding during the period calculated using the treasury stock method. Due to the Company’s loss from continuing operations in the three and nine months ended September 30, 2021 and September 30, 2020, the assumed exercise of stock options and the unvested restricted stock that would otherwise increase diluted shares using the treasury stock method would have had an antidilutive effect and therefore 0.2 million shares related to stock options outstanding at September 30, 2021 and 2 million shares of restricted stock were excluded from the computation of diluted net loss per share for the three and nine months ended September 30, 2021 and 0.8 million shares related to stock options outstanding at September 30, 2020 were excluded for the three and nine months ended September 30, 2020. Accordingly, diluted earnings (loss) per share for continuing operations, discontinued operations and net income is the same as basic earnings (loss) per share for continuing operations, discontinued operations and net income for the three and nine months ended September 30, 2021 and 2020.
|
For the Three Months |
For the Nine Months |
|||||||||||||||
|
(in thousands, except share and per share amounts) |
Ended September 30, |
Ended September 30, |
||||||||||||||
|
2021 |
2020 |
2021 |
2020 |
|||||||||||||
|
Loss from continuing operations, net of income taxes |
$ | (10,147 | ) | $ | (5,735 | ) | $ | (36,312 | ) | $ | (22,585 | ) | ||||
|
Income from discontinued operations, net of income taxes |
— | 2,533 | — | 2,677 | ||||||||||||
|
Net loss |
$ | (10,147 | ) | $ | (3,202 | ) | $ | (36,312 | ) | $ | (19,908 | ) | ||||
|
Basic and diluted weighted average number of shares outstanding |
62,823,330 | 30,430,422 | 53,142,557 | 29,761,135 | ||||||||||||
|
Loss from continuing operations per common share - basic and diluted |
$ | (0.16 | ) | $ | (0.19 | ) | $ | (0.68 | ) | $ | (0.76 | ) | ||||
|
Income from discontinued operations - basic and diluted |
— | 0.08 | — | 0.09 | ||||||||||||
|
Loss per common share - basic and diluted |
$ | (0.16 | ) | $ | (0.11 | ) | $ | (0.68 | ) | $ | (0.67 | ) | ||||
|
14. |
INCOME TAXES |
The Company is subject to taxation in the U.S., as well as various state and foreign jurisdictions. The Company continues to record a full valuation allowance against the Company's U.S. and foreign net deferred tax assets as it is not more likely than not that the Company will realize a benefit from these assets in a future period. In future periods, tax benefits and related deferred tax assets will be recognized when management concludes realization of such amounts is more likely than not.
Total net income tax benefit of $2.1 million and $11.0 million was recorded to the income tax provision from continuing operations for the three and nine months ended September 30, 2021, respectively, resulting in an effective tax rate of 17.1% and 23.3%, respectively. The income tax benefit from continuing operations for the three and nine months ended September 30, 2021 was as a result of the release of valuation allowances currently held against the Company’s deferred tax assets as a result of the additional $11.2 million of deferred tax liabilities assumed in the April 2021 and July 2021 acquisitions of GTS and IMMCO. As a result, for the three and nine months ended September 30, 2021, the Company recorded a $2.2 million and $11.2 million tax benefit, respectively, for a reduction in prior recorded valuation allowances. All of the Company’s domestic and foreign net deferred tax assets were reduced by a full valuation allowance.
Total net income tax benefit of $61 thousand and $3.2 million for the three and nine months ended September 30, 2020 resulting in an effective tax rate of 1.1% and 12.4%, respectively. A net income tax expense of $0.9 million and $0.8 million was recorded to the income tax provision from discontinued operations for the three and nine months ended September 30, 2020, respectively. The income tax benefit from continuing operations for the nine months ended September 30, 2020 was due to application of ASC 740-20-45-7, domestic state minimum taxes, benefits from refundable tax credits from our United Kingdom operations and a reduction in our domestic valuation allowance on our net deferred tax assets as a result of additional deferred tax liabilities assumed as a part of the Reach Construction Group, LLC acquisition. All of the Company’s domestic and foreign net deferred tax assets were reduced by a full valuation allowance.
|
15. |
ACCUMULATED OTHER COMPREHENSIVE LOSS |
The components of accumulated other comprehensive loss are as follows:
|
(in thousands) |
As of September 30, 2021 |
As of December 31, 2020 |
||||||
|
Foreign currency translation adjustment |
$ | (4,291 | ) | $ | (4,406 | ) | ||
|
Accumulated other comprehensive loss |
$ | (4,291 | ) | $ | (4,406 | ) | ||
|
16. |
NOTES PAYABLE AND LINE OF CREDIT |
Notes payable is summarized as follows:
|
(in thousands) |
As of September 30, 2021 |
As of December 31, 2020 |
||||||
|
Note Payable - Financing notes (1) |
$ | 1,444 | $ | 1,163 | ||||
|
Pay-check protection loans (2) |
— | 1,924 | ||||||
|
Seller Financed notes payable - Reach Construction Group, LLC acquisition (3) |
3,480 | 6,480 | ||||||
|
Vehicle and equipment loans (4) |
294 | 195 | ||||||
|
Non-recourse payable agreements (5) |
— | 2,699 | ||||||
|
Notes payable - Institutional investor (6) |
22,475 | 2,245 | ||||||
|
Conditional settlement notes payable agreement (7) |
3,500 | 3,500 | ||||||
|
Subtotal |
31,193 | 18,206 | ||||||
|
Unamortized prepaid financing fees |
(1,164 | ) | (904 | ) | ||||
|
Total long-term debt |
30,029 | 17,302 | ||||||
|
Less: notes payable, current |
(25,175 | ) | (12,246 | ) | ||||
|
Notes payable, less current portion |
$ | 4,854 | $ | 5,056 | ||||
|
(1) |
Note payable with an original balance for $1.4 million to First Insurance Funding was executed in July 2020 by the Company for the purposes of financing a portion of the Company's insurance coverage. The Note had an annual percentage rate of 3.35% with nine monthly payments of approximately $159 thousand and was paid off in the three months ended June 30 ,2021. The Company financed two additional insurance policies in the fourth quarter of 2020 for $0.1 million and $0.4 million, respectively. The smaller of which matured in April 2021 and the other of which matured in September 2021, and for which had annual interest rates of 3.35% and 4.35%, respectively. The Company executed two additional notes payable in the third quarter of 2021 for $1.7 million and $54 thousand, respectively at interest rates of 3.00% and 4.35%, respectively. |
| (2) |
On April 30, 2020 and May 2, 2020, the Company entered into unsecured loans in the aggregate principal amount of approximately $1.9 million (the “Loans”) pursuant to the Paycheck Protection Program (the “PPP”), sponsored by the Small Business Administration (the “SBA”) as guarantor of loans under the PPP. The Loans, and interest accrued thereon, were forgivable, partially or in full, if certain conditions were met. The Loans were evidenced by four promissory notes, three with Bank of America, NA which were dated as of April 30, 2020 and one with Dogwood State Bank dated May 2, 2020. The Bank of America notes were to mature two years from funding date of the notes and the Dogwood State Bank note was to mature two years from the note date. Each of the notes bore interest at a fixed rate of 1.0% per annum with payments deferred. Prepayments on the Loans were permitted at any time prior to maturity with no prepayment penalties. All $1.9 million of the loans outstanding at December 31, 2020 were forgiven in the three months ending June 30, 2021. The remaining $1.4 million of Pay-check Protection loans were acquired as part of the GTS acquisition, and which were forgiven in the third quarter of 2021. The Company had a contingent receivable associated with the remaining PPP loan whereby the Company would be paid by the Sellers of GTS if the remaining PPP loan was not forgiven. Upon forgiveness of the loan, the receivable was relieved resulting in no gain or loss on the transaction.
|
| (3) | Includes two seller financed notes payable, one for $5 million and the second for $1.5 million. The $5 million note was amended from its original 18-month term to provide for installments of $1 million paid on March 3, 2021, a second $1 million payment to be made on October 31, 2021 and a final principal payment of $3 million on March 31, 2022. In August 2021, the Company paid $1 million in cash and exchanged 155,763 shares of common stock in exchange for an additional $1 million reduction in principal. The Company recorded this as an extinguishment of debt and a gain on extinguishment of $0.7 million. The new loan had a face value of $2.0 million at a rate of 6% per annum and was recorded based on an estimated market interest rate of 10% per annum with a discount of $48 thousand. The original payment terms called for the full $5 million principal to be paid no later than November 1, 2021 without separate installments. The second seller financed note payable is due 36-months from the April 1, 2020 acquisition date. Both notes had an original stated interest rate of 6% per annum. |
| (4) | Includes vehicle and equipment loans with interest rates ranging from 5.74% to 8.99%. |
| (5) | To refinance an earlier non-recourse note and to provide the Company with additional capital, the Company took out two non-recourse agreements with C6 Capital for the sale of future revenues in the total amount of $3.5 million. These agreements had no stated interest rate and the original issue discount including upfront fees amortized using an effective interest rate of approximately 117%. After combined weekly payments of approximately $54 thousand for the first four weeks, the combined payments increased to approximately $116 thousand until June 2021. As of June 30, 2021, the non-recourse note was paid off. |
| (6) |
On November 13, 2020, the Company completed a Securities Purchase Agreement with an institutional investor, pursuant to which the Company agreed to issue to the Investor an unsecured convertible instrument in the principal amount of $2.2 million (the “Convertible Security” or “Note”) to purchase shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”) against the payment of the applicable consideration therefore. Upon the closing on November 13, 2020, the Company received gross proceeds of $2.2 million before fees and other expenses associated with the transaction, including but not limited to, a $0.2 million original issue discount payable to the Investor. The net proceeds received by the Company were used primarily for working capital, debt repayment and general corporate purposes. The Note is payable in full within eighteen (18) months after the purchase price date in accordance with the terms set forth in the Note and accrues interest on the outstanding balance at the rate of ten percent (10%) per annum from the Purchase Price Date until the Note is paid in full. All interest shall compound daily and shall be payable in accordance with the terms of the Note. The Company has the right to prepay all or any portion of the outstanding balance in an amount equal to 115% multiplied by the portion of the outstanding balance to be prepaid. The creditor may request payment of up to $250 thousand per month beginning 6 months after initial issuance. Original issue discount is amortized over the expected life of the investment at an effective interest rate of approximately 29%. The Company elected the fair value option for this note and as a result did not bifurcate any potential embedded derivatives. In February 2021, the Company negotiated modified terms which effectively removed the convertible option from the note and the Company recorded a $250 thousand loss on extinguishment. In July 2021, the Company issued 248,509 shares of common stock in exchange for a payment against the debt of $1 million and in September 2021, the Company signed an exchange agreement to issue 83,333 shares of common stock in exchange for a payment against the debt of $250 thousand. The carrying value was $1.1 million at September 30, 2021. On March 23, 2021, the Company completed a second note payable with the same institutional investor with a face amount of $10.7 million, a stated interest rate of 9.0%, an estimated effective interest rate of 19.6%, an original issue discount of $1.0 million. In September 2021, the Company issued 333,333 shares of common stock in exchange for a payment against the debt of $1 million. The carrying value was $9.7 million at September 30, 2021. The note payable is payable within eighteen (18) months after the purchase date and the creditor may request payment of up to $1 million per month beginning 6 months after initial issuance.
On May 11, 2021, the Company completed a third note purchase agreement with the institutional investor with a face amount of $10.7 million, a stated interest of 9% per annum and a combined original issue discount and unamortized prepaid fees of $1.0 million and a carrying value of $10.5 million at September 30, 2021. The net proceeds were to be used for working capital, future acquisitions and general corporate purposes. Beginning six (6) months from the purchase price date, Investor has the right, in its sole and absolute discretion, to redeem all or any portion of the Note (such amount, the “Redemption Amount”) subject to the maximum monthly redemption amount of $1,000,000 per calendar month, by providing Company with a “Redemption Notice," and is payable in full within 18 months of issuance. The Company has not made any payments on this note as of September 30, 2021. |
| (7) | In October 2020, the Company entered into a conditional settlement agreement with a subcontractor to make payments of $3.5 million at zero interest over three years. The full balance of this settlement agreement is still owed as of September 30, 2021. In January 2021, the Company entered into a conditional settlement agreement with a subcontractor to make payments of $1.4 million over approximately 5 months at 12% annual interest rate with the final payment on or before June 30, 2021. This loan was paid off during the three months ended June 30, 2021. |
Line of Credit
On August 19, 2021, the Company's GTS subsidiary entered into a $4.0 million variable rate line of credit agreement. Interest accrues at a rate of 2.05% over the Daily Simple Secured Overnight Financing Rate ("SOFR") index rate. At September 30, 2021 the Company did not have an outstanding balance on the line of credit and $4.0 million was available for borrowing.
|
17. |
CONCENTRATIONS |
The Company's major product lines are energy infrastructure services including natural gas infrastructure solutions and services through Orbital Gas Systems; full-service building, maintenance and support to the electrical power distribution, transmission, substation, renewables, and emergency response sectors of North America through Orbital Power Services; EPC services that support the development of renewable energy generation focused on utility scale solar construction through Orbital Solar Services; and diversified telecommunications services provided by Orbital Telecom Services. The Company had the following revenue concentrations by customer greater than 10% of consolidated revenue:
| For the Three Months Ended September 30, | ||||||||
|
Customer |
2021 |
2020 |
||||||
|
Customer 1 |
13 | % |
<10% |
|||||
|
Customer 2 |
<10% | 41 | % | |||||
|
Customer 3 |
<10% |
12 | % | |||||
|
Total concentrations |
13 | % | 53 | % | ||||
| For the Nine Months Ended September 30, | ||||||||
| Customer |
2021 |
2020 | ||||||
| Customer 1 | 10 | % | <10% | |||||
| Customer 2 | <10% | 21 | % | |||||
| Total concentrations | 10 | % | 21 | % | ||||
The Company had the following geographic revenue concentrations outside the U.S.A. greater than 10% of consolidated revenue:
| For the Three Months Ended September 30, | ||||||||
|
Country |
2021 |
2020 |
||||||
|
United Kingdom |
<10% | 16 | % | |||||
|
Total concentrations |
<10% | 16 | % | |||||
| For the Nine Months Ended September 30, | ||||||||
|
Country |
2021 |
2020 |
||||||
|
United Kingdom |
15 | % | 24 | % | ||||
|
Total concentrations |
15 | % | 24 | % | ||||
The Company had the following gross trade accounts receivable concentrations by customer greater than 10% of gross trade accounts receivable:
|
As of September 30, |
As of December 31, |
|||||||
|
Customer |
2021 |
2020 |
||||||
|
Customer 1 |
11 | % | <10% | |||||
|
Customer 4 |
<10% |
19 | % | |||||
|
Customer 5 |
<10% | 12 | % | |||||
|
Customer 6 |
<10% | 11 | % | |||||
|
Total concentrations |
11 | % | 42 | % | ||||
The Company had the following geographic concentrations of gross trade accounts receivable outside of the U.S.A. greater than 10% of gross trade accounts receivable:
|
As of September 30, |
As of December 31, |
|||||||
|
Country |
2021 |
2020 |
||||||
|
United Kingdom |
<10% | 21 | % | |||||
|
Total concentrations |
<10% | 21 | % | |||||
The Company had no supplier concentration for the three months ended September 30, 2021 and one supplier concentration of approximately 19% in the three months ended September 30, 2020 in the Electric Power and Solar Infrastructure Services segment. There was no supplier concentration for the nine months ended September 30, 2021 or the nine months ended September 30, 2020.
|
18. |
OTHER EQUITY TRANSACTIONS |
S-3 registration
The Company filed an S-3 registration statement on July 17, 2020 containing a prospectus that was effective in September 2020. The Company utilized this filing in January 2021 to issue common stock for $45 million before costs of $2.6 million for net proceeds of $42.4 million in two separate equity raises. The Company has used and plans to use the remaining funds for general corporate purposes and future acquisitions. General corporate purposes may include operating expenses, working capital to improve and promote our commercially available products and service offerings, advance product and service offering candidates or share repurchases, expand our market presence and commercialization, general capital expenditures and satisfaction of debt obligations.
The Company filed a new S-3 shelf registration in January 2021, which, as amended, became effective in April 2021. With this filing, Orbital Energy Group may from time to time issue various types of securities, including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of $150 million. In July, the Company issued $38 million of stock before costs of approximately $2.3 million for net proceeds of approximately $35.7million.
|
19. |
ACQUISITIONS |
Acquisition of IMMCO
Effective July 28, 2021, the Company entered into a share purchase agreement to acquire IMMCO, Inc., an Atlanta-based telecommunications company providing enterprise solutions to the cable and telecommunications industries since 1992. The acquisition was effectuated pursuant to the Share Purchase Agreement (the “Agreement”), with the shareholders of IMMCO (the "Seller"). Orbital Energy Group paid $16 million and issued 874,317 shares of restricted common stock issued to the Seller ($2.5 million estimated fair value as of July 28, 2021) plus a $0.6 million working capital adjustment for a combined total of $19.1 million. Goodwill reflects the excess purchase price over the fair value of net assets. The Company recorded $11.0 million of goodwill as part of this transaction and all of this goodwill is deductible for tax purposes. Acquisition-related expenses incurred during the nine months ended September 30, 2021 for the IMMCO acquisitions were approximately $0.6 million before taxes, which were recognized within the Selling, general and administrative expense line of the Condensed Consolidated Statements of Operations.
The purchase consideration was as follows:
(in thousands)
|
Purchase Consideration |
||||
|
Cash payment |
$ | 16,597 | ||
|
Orbital Energy common stock issued - 874,317 restricted shares |
2,544 | |||
|
Total |
$ | 19,141 |
The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated preliminary fair values at the date of acquisition.
(in thousands)
|
Purchase price |
$ | 19,141 | ||
|
Cash and cash equivalents |
$ | 1,634 | ||
|
Trade accounts receivable, net |
1,254 | |||
|
Contract assets |
1,001 | |||
|
Prepaid expenses and other current assets |
1,088 | |||
|
Property and equipment |
760 | |||
|
Goodwill |
10,992 | |||
|
Intangible, customer relationships |
3,888 | |||
|
Intangible, trade name |
1,205 | |||
|
Intangible, technology know how |
1,470 | |||
|
Other long-term assets |
76 | |||
|
Deferred tax liability |
(2,127 | ) | ||
|
Liabilities assumed |
(2,100 | ) | ||
|
Purchase price allocation |
$ | 19,141 |
|
(in thousands) |
||||
|
Revenue since July 28, 2021 acquisition date |
$ | 1,301 | ||
|
Income from continuing operations, net of income taxes since July 28, 2021 acquisition date |
2,189 |
* |
* The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit in the nine months ended September 30, 2021 within the income tax benefit line of the Condensed Consolidated Statement of Operations and is included in the total.
Acquisition of Gibson Technical Services
Effective April 13, 2021, the Company entered into a share purchase agreement to acquire Gibson Technical Services, an Atlanta-based telecommunications company providing diversified telecommunications services nationally since 1990. The acquisition was effectuated pursuant to the Share Purchase Agreement (the “Agreement”), dated as of April 13, 2021, between Orbital Energy Group and the shareholders of GTS (the "Seller"). Orbital Energy Group paid $22 million and issued 5,929,267 shares of restricted common stock issued to the Seller ($16.9 million estimated fair value as of April 13, 2021) for a combined total of $38.9 million. Goodwill reflects the excess purchase price over the fair value of net assets. The Company recorded $12.3 million of goodwill as part of this transaction and all of this goodwill is deductible for tax purposes. Acquisition-related expenses incurred during the nine months ended September 30, 2021 were approximately $0.9 million before tax which were recognized within the Selling, general and administrative expense line of the Condensed Consolidated Statements of Operations.
The purchase consideration was as follows:
(in thousands)
|
Purchase Consideration |
||||
|
Cash payment |
$ | 22,000 | ||
|
Orbital Energy common stock issued - 5,929,267 restricted shares |
16,932 | |||
|
Total |
$ | 38,932 |
The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated preliminary fair values at the date of acquisition.
(in thousands)
|
Purchase price |
$ | 38,932 | ||
|
Cash and cash equivalents |
$ | 610 | ||
|
Trade accounts receivable |
7,871 | |||
|
Contract assets |
1,686 | |||
|
Contingent receivable |
1,424 | |||
|
Prepaid expenses and other current assets |
408 | |||
|
Property and equipment |
3,795 | |||
|
Right of use assets - Operating leases |
860 | |||
|
Goodwill |
12,269 | |||
|
Intangible, customer relationships |
16,075 | |||
|
Intangible, trade name |
6,388 | |||
|
Intangible, non-compete agreements |
385 | |||
|
Other long-term assets |
123 | |||
|
Deferred tax liability |
(8,978 | ) | ||
|
Liabilities assumed |
(3,984 | ) | ||
|
Purchase price allocation |
$ | 38,932 |
|
(in thousands) |
||||
|
Revenue since April 13, 2021 acquisition date |
$ | 13,515 | ||
|
Income from continuing operations, net of income taxes since April 13, 2021 acquisition date |
9,224 |
* |
* The deferred tax liability recorded at acquisition was offset against the Company's valuation allowance and recorded as a tax benefit in the nine months ended September 30, 2021 within the income tax benefit line of the Condensed Consolidated Statement of Operations and is included in the total.
The table below summarizes the unaudited condensed pro forma information of the results of operations of Orbital Energy Group, Inc. for the three and nine months ended September 30, 2021 and 2020 as though the acquisitions of GTS and IMMCO had been completed as of January 1, 2020.
|
For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
| (in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
|
Gross revenue |
$ | 31,462 | $ | 24,648 | $ | 69,867 | $ | 60,093 | ||||||||
|
Loss from continuing operations, net of income taxes |
$ | (13,919 | ) | $ | (5,748 | ) | $ | (41,876 | ) | $ | (24,855 | ) | ||||
Acquisition of Reach Construction Group, LLC
Effective April 1, 2020, the Company entered into an equity purchase agreement to acquire 100% of the assets of Reach Construction Group, LLC (Renamed "Orbital Solar Services"), an, industry-leading solar construction company. Headquartered in Sanford, NC, Orbital Solar Services is an EPC company with expertise in the renewable energy industry. The acquisition was effectuated pursuant to the Equity Purchase Agreement, dated as of April 1, 2020, between Orbital Energy Group and the Seller. Orbital Energy Group issued 2,000,000 shares of restricted common stock issued to Brandon Martin ($1.2 million estimated fair value as of April 1, 2020) along with two seller notes for a combined total of $35 million (Adjusted to $6.5 million following preliminary working capital adjustment as of April 1, 2020) and an earn-out not in excess of $30 million ($0.7 million estimated fair value as of April 1, 2020.) The seller notes were subject to a $28.5 million preliminary working capital adjustment.
The purchase consideration was as follows:
(in thousands)
|
Purchase Consideration |
||||
|
Orbital Energy Stock issued - 2 million shares |
$ | 1,224 | ||
|
18-Month Seller Note |
5,000 | |||
|
3-year Seller Note |
1,480 | |||
|
Contingent consideration |
720 | |||
|
Cash payment |
3,000 | |||
|
Total |
$ | 11,424 |
The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated preliminary fair values at the date of acquisition.
(in thousands)
|
Purchase price |
$ | 11,424 | ||
|
Cash and cash equivalents |
$ | 19 | ||
|
Trade accounts receivable, net of allowance |
6,972 | |||
|
Contract assets |
3,299 | |||
|
Prepaid expenses and other current assets |
427 | |||
|
Property and equipment |
382 | |||
|
Right of use assets - Operating leases |
890 | |||
|
Goodwill |
7,006 | |||
|
Intangible, customer relationships & backlog |
8,647 | |||
|
Intangible, trade name |
1,878 | |||
|
Intangible, non-compete agreements |
3,212 | |||
|
Deferred tax liability |
(1,570 | ) | ||
|
Liabilities assumed |
(19,738 | ) | ||
|
Purchase price allocation |
$ | 11,424 |
|
20. |
COMMITMENTS AND CONTINGENCIES |
Off-Balance Sheet Arrangements
Performance and Payment Bonds and Parent Guarantees
In the ordinary course of business, Orbital Energy Group and its subsidiaries are required by certain customers to provide performance and payment bonds for contractual commitments related to its projects. These bonds provide a guarantee to the customer that the Company will perform under the terms of a contract and that the Company will pay its subcontractors and vendors. If the Company fails to perform under a contract or to pay its subcontractors and vendors, the customer may demand that the surety make payments or provide services under the bond. The Company must reimburse the surety for expenses or outlays it incurs. Certain bonds are for open-ended contracts with multiple work orders so the value may increase as the work progresses and more work orders are started. The bonds will remain in place as the Company completes projects and resolves any disputed matters with the customers, vendors and subcontractors related to the bonded projects. As of September 30, 2021 the total amount of the outstanding performance and payment bonds was approximately $4.4 million.
Additionally, from time to time, we guarantee certain obligations and liabilities of our subsidiaries that may arise in connection with, among other things, contracts with customers, equipment lease obligations, and contractor licenses. These guarantees may cover all of the subsidiary’s unperformed, undischarged and unreleased obligations and liabilities under or in connection with the relevant agreement. For example, with respect to customer contracts, a guarantee may cover a variety of obligations and liabilities arising during the ordinary course of the subsidiary’s business or operations, including, among other things, warranty and breach of contract claims, third-party and environmental liabilities arising from the subsidiary’s work and for which it is responsible, liquidated damages, or indemnity claims.
Contingent Liabilities
Orbital Energy Group, Inc. is occasionally party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, negligence or gross negligence and/or property damages, wage and hour and other employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.
Regarding all lawsuits, claims and proceedings, Orbital Energy Group, Inc. records a reserve when it is probable that a liability has been incurred and the loss can be reasonably estimated. Other than the reserve on the item described below, the Company currently has no such reserves. In addition, Orbital Energy Group, Inc. discloses matters for which management believes a material loss is at least reasonably possible. Except as otherwise stated below, none of these proceedings are expected to have a material adverse effect on Orbital Energy Group, Inc.’s consolidated financial position, results of operations or cash flows. In all instances, management has assessed the matter based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought and the probability of success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation.
|
21. |
SUBSEQUENT EVENTS |
Acquisition
On October 22, 2021, the Company entered into a definitive share purchase agreement to acquire 100% of Full Moon Telecom, LLC (“Full Moon”). Full Moon is a Florida-based privately-owned telecommunications service provider that offers an extensive array of wireless service capabilities and experience including Layer 2/Layer 3 Transport, Radio Access Network (“RAN”) Integration, test and turn-up of Small Cell systems and Integration/Commissioning of Distributed Antenna (“DAS”) systems.
Subject to the terms and conditions set forth in the Purchase Agreement, the base purchase price for 100% of the ownership of Full Moon is $1,900,000, with the consideration structured as follows:
|
● |
$1,235,000 in cash paid at closing less the amount needed to pay certain outstanding debt of Full Moon; and plus or minus the amount needed for estimated closing working capital to equal a 2 to 1 ratio; and |
|
● |
227,974 shares of restricted common stock issued to the Full Moon owners with an aggregate value of $665,000 based upon a per share value of $2.917. |
The Purchase Agreement provides for the adjustment of the selling price to adjust the final closing working capital at the acquisition date as a post-closing adjustment for net working capital above or below a 2-1 ratio for the closing working capital ratio estimated on the acquisition date and to be finalized within 45 days after the closing date of October 22, 2021.
The acquisition will add revenues and be accretive to earnings beginning immediately. Subsequent to September 30, 2021, Full Moon will become a wholly-owned subsidiary of OEG, expanding Orbital Telecom Services service offerings to its customers. The Company has not completed the initial purchase price allocation for this transaction as it is still in the preliminary stages of assessing the fair value of the underlying tangible and intangible assets.
Exchange agreements to partially pay off notes payable
On October 19, 2021, the Company issued 500,000 shares of common stock to an institutional investor, and creditor of the Company in exchange for $1.25 million to decrease the outstanding balance of a $2.2 million loan originated in November 2020 by $250 thousand and a $10.7 million loan originated in March 2021 by $1 million.
Non-recourse financing agreement
On October 27, 2021 and October 29, 2021, the Company took out two non-recourse agreements with C6 Capital for the sale of future revenues in the combined amount of $10.8 million. The Company received approximately $7.8 million after the deduction of an original issue discount and upfront fees. This agreement has no stated interest rate and the original issue discount including upfront fees will be amortized using a weighted average effective interest rate of approximately 89.2%. After combined weekly payments of approximately $169 thousand for the first twelve weeks, the payments increase to approximately $439 thousand until June 2022.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Important Note about Forward-Looking Statements
The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements as of September 30, 2021 and notes thereto included in this document and the audited consolidated financial statements in the Company’s 10-K filing for the period ended December 31, 2020 and the notes thereto. In addition to historical information, the following discussion and other parts of this Form 10-Q contain forward-looking information that involves risks and uncertainties. The Company’s actual results could differ materially from those anticipated by such forward-looking information due to factors discussed elsewhere in this Form 10-Q.
The statements that are not historical constitute “forward-looking statements.” Said forward-looking statements involve risks and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements, express or implied by such forward-looking statements. These forward-looking statements are identified by their use of such terms and phrases as "expects,” “intends,” “goals,” “estimates,” “projects,” “plans,” “anticipates,” “should,” “future,” “believes,” and “scheduled.”
The variables which may cause differences include, but are not limited to, the following: general economic and business conditions; changes in regulatory environment; extraordinary external events such as the current pandemic health event resulting from COVID-19; competition; success of operating initiatives; operating costs; advertising and promotional efforts; the existence or absence of adverse publicity; changes in business strategy or development plans; the ability to retain management; availability, terms and deployment of capital; business abilities and judgment of personnel; availability of qualified personnel; labor and employment benefit costs; availability and costs of raw materials and supplies; and changes in, or failure to comply with various government regulations. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate; therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any person that the objectives and expectations of the Company will be achieved.
Orbital Energy Group is a platform company dedicated to maximizing shareholder value through greenfield development and the acquisition of, and investment in successful, entrepreneurial led companies to profitably grow revenues by providing end-to-end solutions to customers, primarily in the renewable, electric power transmission and distribution, and telecommunications infrastructure markets. Orbital Energy Group’s Electric Power and Solar Infrastructure Services segment provides comprehensive network solutions to customers in the electric power, telecommunications and solar industries. This segment includes Orbital Power Services, Orbital Solar Services, and Orbital Telecom Services. The Company started its Orbital Power Services operations during the first three months of 2020 as a full-service provider of building, maintenance and support to the electrical power distribution, transmission, substation, renewables, and emergency response sectors of North America. Eclipse Foundation Group, Inc., which began operations in January 2021 within Orbital Power Services, is a drilled shaft foundation construction company that specializes in providing services to the electric transmission and substation, industrial, communication towers and disaster restoration market sectors, with expertise in water, marsh and rock terrains. The Company acquired Orbital Solar Services (formerly Reach Construction Group, LLC) as of April 1, 2020, which provides engineering, procurement and construction services that support the development of renewable energy generation focused on utility scale solar and community solar projects. Orbital Telecom was launched through the acquisition of GTS in April 2021 and expanded its service offerings in July 2021 with the acquisition of IMMCO. The Telecom group provided both topside and bottom line benefits to the Company since acquisition.
The Company has more than doubled its third-quarter revenue year over year and has also more than doubled its revenue for the first nine months of 2021 compared to the similar period in 2020. This has been accomplished through the Company's acquisition and organic growth efforts. However, ramp-up costs at Orbital Power Services contributed to lower margins and increased SG&A in the Electric Power and Solar Infrastructure Services segment during the three and nine months ended September 30, 2021. The Company also continued to incur professional fees related to mergers and acquisitions as the Company continues to pursue both organic growth and growth through acquisitions. The Company's Integrated Energy Infrastructure Solutions and Services Segment include subsidiaries, Orbital Gas Systems, Ltd., and Orbital Gas Systems, North America, Inc., which are leaders in innovative gas solutions with more than 30 years of experience in design, installation and the commissioning of industrial gas sampling, measurement and delivery systems providing solutions to the energy, power and processing markets. Orbital Gas Systems manufactures and delivers a broad range of technologies including environmental monitoring, gas metering, process control, telemetry, gas sampling and BioMethane. The three-and nine-month periods ended September 30, 2021 for both segments continue to face headwinds due to the COVID-19 pandemic that has caused economic slowdowns throughout the world, but economic activity has begun to improve and backlogs are strong in the Electric Power and Solar Infrastructure segment.
In the first half of 2020, the Company launched Orbital Power Services. The first nine months of 2020 included set up costs related to Orbital Power Services and the establishment of the Company's shared services center in Dallas, Texas as well as elevated professional fees related to mergers and acquisitions as the Company pivoted from its legacy Power and Electromechanical business that was divested in the second half of 2019 with the remaining Canada and Japan business being divested in 2020. The second quarter of 2020 was affected by generally lower economic activity due to the COVID-19 pandemic that caused economic slowdowns throughout the world, which hampered growth in its electric power and solar infrastructure ventures. The first nine months of 2020 also included a $4.8 million net loss of affiliate in Virtual Power Systems ("VPS"), respectively primarily as a result of a $3.5 million impairment loss on the investment in the three months ended June 30, 2020.
For the three and nine months ended September 30, 2021, Orbital Energy Group, Inc. had consolidated loss from operations of $11.7 million and $47.3 million, respectively compared to consolidated loss from operations in the three and nine months ended September 30, 2020 of $6.3 million and $20.6 million. During the three and nine months ended September 30, 2021, Orbital Energy Group, Inc. had a consolidated loss from continuing operations of $10.1 million and $36.3 million, respectively compared to a loss of $5.7 million and $22.6 million, respectively, in the comparable prior-year period.
During the three and nine months ended September 30, 2021, Orbital Energy Group, Inc. had a consolidated net loss of $10.1 million and $36.3 million, respectively, compared to a consolidated net loss in the three and nine months ended September 30, 2020 of $3.2 million and $19.9 million, respectively. The greater net loss for the three months ended September 30, 2021, was primarily the result of stock-based compensation, start-up costs related to Orbital Power and ongoing merger and acquisition activity. Partially offsetting these costs were $9.0 million tax benefit related to the acquisition of GTS in the nine months ended September 30, 2021 and $2.5 million tax benefit related to the acquisition of IMMCO. These tax benefits partially offset higher cost of revenue and selling, general and administrative expense ("SG&A") in the Electric Power and Solar Infrastructure Services and Integrated Energy Infrastructure segments. Cost increases were associated with the inclusion of IMMCO since its July 28, 2021 acquisition, GTS since its April 13, 2021 acquisition and the inclusion of the Orbital Solar Services business since its April 1, 2020 acquisition, including amortization costs on IMMCO, GTS and Orbital Solar Service's acquisition intangibles, the ramp up of the Orbital Power Services operations, and stock-based compensation. As the Company adds new service crews in the Orbital Power Services business, there is a certain amount of upfront costs related to that, including equipment, supplies and training before the new crews can start generating income for the Company. As the Company aggressively has ramped up the Orbital Power Services business, it has absorbed more of these type set-up costs than it will need to once all teams are in place and operating at full capacity. SG&A cost increases in the Other segment relate to vesting and mark to market adjustments on cash-based executive stock appreciation rights and employee performance bonus payments as well as continuing merger and acquisition costs.
Revenues from continuing operations increased for the three and nine months ended September 30, 2021 due to the continued ramp-up of Orbital Power Services and the additions of GTS, IMMCO and Orbital Solar Services.
Continuing Results of Operations
The following tables set forth, for the period indicated, certain financial information regarding revenue and costs by segment.
For the Three Months Ended September 30, 2021:
|
(dollars in thousands) |
Electric Power and Solar Infrastructure Services |
Percent of Segment Revenues |
Integrated Energy Infrastructure Solutions and Services |
Percent of Segment Revenues |
Other |
Percent of Segment Revenues |
Total |
Percent of Total Revenues |
||||||||||||||||||||||||
|
$% |
$% |
$% |
$% |
|||||||||||||||||||||||||||||
|
Revenues |
$ | 24,822 | 100.0 | % | $ | 6,097 | 100.0 | % | $ | — | — | % | $ | 30,919 | 100.0 | % | ||||||||||||||||
|
Cost of revenue |
22,561 | 90.9 | % | 4,608 | 75.6 | % | (38 | ) | — | % | 27,131 | 87.7 | % | |||||||||||||||||||
|
Gross profit |
2,261 | 9.1 | % | 1,489 | 24.4 | % | 38 | — | % | 3,788 | 12.3 | % | ||||||||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||||||||||
|
Selling, general and administrative |
7,338 | 29.5 | % | 2,259 | 37.1 | % | 4,104 | — | % | 13,701 | 44.3 | % | ||||||||||||||||||||
|
Depreciation and amortization |
1,322 | 5.3 | % | 404 | 6.6 | % | 12 | — | % | 1,738 | 5.6 | % | ||||||||||||||||||||
|
Research and development |
— | — | % | 1 | — | % | — | — | % | 1 | — | % | ||||||||||||||||||||
|
Provision for (recovery of) bad debt |
93 | 0.4 | % | (6 | ) | (0.1 | )% | — | — | % | 87 | 0.3 | % | |||||||||||||||||||
|
Other operating Expenses |
(6 | ) | — | % | — | — | % | — | — | % | (6 | ) | — | % | ||||||||||||||||||
|
Total operating expenses |
8,747 | 35.2 | % | 2,658 | 43.6 | % | 4,116 | — | % | 15,521 | 50.2 | % | ||||||||||||||||||||
|
Loss from operations |
$ | (6,486 | ) | (26.1 | )% | $ | (1,169 | ) | (19.2 | )% | $ | (4,078 | ) | — | % | $ | (11,733 | ) | (37.9 | )% | ||||||||||||
|
(dollars in thousands) |
Electric Power and Solar Infrastructure Services |
Percent of Segment Revenues |
Integrated Energy Infrastructure Solutions and Services |
Percent of Segment Revenues |
Other |
Percent of Segment Revenues |
Total |
Percent of Total Revenues |
||||||||||||||||||||||||
|
$ |
% |
$ |
% |
$ |
% |
$ |
% |
|||||||||||||||||||||||||
|
Revenues |
$ | 9,478 | 100.0 | % | $ | 4,137 | 100.0 | % | $ | — | — | % | $ | 13,615 | 100.0 | % | ||||||||||||||||
|
Cost of revenue |
8,353 | 88.1 | % | 2,908 | 70.3 | % | — | — | % | 11,261 | 82.7 | % | ||||||||||||||||||||
|
Gross profit |
1,125 | 11.9 | % | 1,229 | 29.7 | % | — | — | % | 2,354 | 17.3 | % | ||||||||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||||||||||
|
Selling, general and administrative |
2,252 | 23.8 | % | 2,663 | 64.4 | % | 2,264 | — | % | 7,179 | 52.7 | % | ||||||||||||||||||||
|
Depreciation and amortization |
1,070 | 11.3 | % | 372 | 9.0 | % | 12 | — | % | 1,454 | 10.7 | % | ||||||||||||||||||||
|
Research and development |
— | — | % | 6 | 0.1 | % | — | — | % | 6 | — | |||||||||||||||||||||
|
Provision for bad debt |
— | — | % | 15 | 0.4 | % | — | — | % | 15 | 0.1 | % | ||||||||||||||||||||
|
Other operating expenses |
23 | 0.2 | % | — | 0.0 | % | — | — | % | 23 | 0.2 | % | ||||||||||||||||||||
|
Total operating expenses |
3,345 | 35.3 | % | 3,056 | 73.9 | % | 2,276 | — | % | 8,677 | 63.7 | % | ||||||||||||||||||||
|
Loss from operations |
$ | (2,220 | ) | (23.4 | )% | $ | (1,827 | ) | (44.2 | )% | $ | (2,276 | ) | — | % | $ | (6,323 | ) | (46.4 | )% | ||||||||||||
For the Nine Months Ended September 30, 2021:
|
(dollars in thousands) |
Electric Power and Solar Infrastructure Services |
Percent of Segment Revenues |
Integrated Energy Infrastructure Solutions and Services |
Percent of Segment Revenues |
Other |
Percent of Segment Revenues |
Total |
Percent of Total Revenues |
||||||||||||||||||||||||
| $ |
% |
$ |
% |
$ |
% |
$ |
% |
|||||||||||||||||||||||||
|
Revenues |
$ | 41,902 | 100.0 | % | $ | 14,816 | 100.0 | % | $ | — | — | % | $ | 56,718 | 100.0 | % | ||||||||||||||||
|
Cost of revenue |
45,032 | 107.5 | % | 10,452 | 70.5 | % | (84 | ) | — | % | 55,400 | 97.7 | % | |||||||||||||||||||
|
Gross profit (loss) |
(3,130 | ) | (7.5 | )% | 4,364 | 29.5 | % | 84 | — | % | 1,318 | 2.3 | % | |||||||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||||||||||
|
Selling, general and administrative |
23,194 | 55.3 | % | 7,207 | 48.7 | % | 13,455 | — | % | 43,856 | 77.3 | % | ||||||||||||||||||||
|
Depreciation and amortization |
3,387 | 8.1 | % | 1,250 | 8.4 | % | 31 | — | % | 4,668 | 8.2 | % | ||||||||||||||||||||
|
Research and development |
— | — | % | 2 | — | % | — | — | % | 2 | — | % | ||||||||||||||||||||
|
Provision for (Recovery of) bad debt |
93 | — | % | (28 | ) | (0.2 | )% | — | — | % | 65 | 0.1 | % | |||||||||||||||||||
|
Other operating expenses |
(15 | ) | — | % | — | — | % | — | — | % | (15 | ) | — | % | ||||||||||||||||||
|
Total operating expenses |
26,659 | 63.6 | % | 8,431 | 56.9 | % | 13,486 | — | % | 48,576 | 85.6 | % | ||||||||||||||||||||
|
Loss from operations |
$ | (29,789 | ) | (71.1 | )% | $ | (4,067 | ) | (27.4 | )% | $ | (13,402 | ) | — | % | $ | (47,258 | ) | (83.3 | )% | ||||||||||||
For the Nine Months Ended September 30, 2020:
|
(dollars in thousands) |
Electric Power and Solar Infrastructure Services |
Percent of Segment Revenues |
Integrated Energy Infrastructure Solutions and Services |
Percent of Segment Revenues |
Other |
Percent of Segment Revenues |
Total |
Percent of Total Revenues |
||||||||||||||||||||||||
|
$ |
% |
$ |
% |
$ |
% |
$ |
% |
|||||||||||||||||||||||||
|
Revenues |
$ | 13,904 | 100.0 | % | $ | 13,174 | 100.0 | % | $ | — | — | % | $ | 27,078 | 100.0 | % | ||||||||||||||||
|
Cost of revenue |
14,132 | 101.6 | % | 8,989 | 68.2 | % | — | — | % | 23,121 | 85.4 | % | ||||||||||||||||||||
|
Gross profit (loss) |
(228 | ) | (1.6 | )% | 4,185 | 31.8 | % | — | — | % | 3,957 | 14.6 | % | |||||||||||||||||||
|
Operating expenses: |
||||||||||||||||||||||||||||||||
|
Selling, general and administrative |
4,895 | 35.2 | % | 8,294 | 63.0 | % | 7,969 | — | % | 21,158 | 78.1 | % | ||||||||||||||||||||
|
Depreciation and amortization |
2,147 | 15.4 | % | 1,108 | 8.4 | % | 30 | — | % | 3,285 | 12.1 | % | ||||||||||||||||||||
|
Research and development |
— | — | % | 51 | 0.4 | % | — | — | % | 51 | 0.2 | % | ||||||||||||||||||||
|
Provision for bad debt |
— | — | % | 23 | 0.2 | % | — | — | % | 23 | 0.1 | % | ||||||||||||||||||||
|
Other operating expenses |
23 | 0.2 | % | — | — | % | — | — | % | 23 | 0.1 | % | ||||||||||||||||||||
|
Total operating expenses |
7,065 | 50.8 | % | 9,476 | 72.0 | % | 7,999 | — | % | 24,540 | 90.6 | % | ||||||||||||||||||||
|
Loss from operations |
$ | (7,293 | ) | (52.4 | )% | $ | (5,291 | ) | (40.2 | )% | $ | (7,999 | ) | — | % | $ | (20,583 | ) | (76.0 | )% | ||||||||||||
Revenue
(dollars in thousands)
|
For the Three Months Ended |
||||||||||||||||
|
Revenues by Segment |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Electric Power and Solar Infrastructure Services |
$ | 24,822 | $ | 9,478 | $ | 15,344 | 161.9 | % | ||||||||
|
Integrated Energy Infrastructure Solutions and Services |
6,097 | 4,137 | 1,960 | 47.4 | % | |||||||||||
|
Total revenues |
$ | 30,919 | $ | 13,615 | $ | 17,304 | 127.1 | % | ||||||||
|
For the Nine Months Ended |
||||||||||||||||
|
Revenues by Segment |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Electric Power and Solar Infrastructure Services |
$ | 41,902 | $ | 13,904 | $ | 27,998 | 201.4 | % | ||||||||
|
Integrated Energy Infrastructure Solutions and Services |
14,816 | 13,174 | 1,642 | 12.5 | % | |||||||||||
|
Total revenues |
$ | 56,718 | $ | 27,078 | $ | 29,640 | 109.5 | % | ||||||||
The Electric Power and Solar Infrastructure Services Segment held backlogs of customer orders of approximately $399.9 million as of September 30, 2021 and $30.3 million at December 31, 2020. Increases to the backlog are due to the acquisitions and growth of Orbital Telecom, the ramp up of the Orbital Power Services operations and an improved Orbital Solar Services backlog compared to December 31, 2020. The Integrated Energy Infrastructure Solutions and Services segment held backlogs of customer orders of approximately $10.7 million as of September 30, 2021, an increase from the December 31, 2020 backlog of $10.1 million due to the improvement in the business climate in both the U.S. and U.K. markets. Of the September 30, 2021 backlog totals, the amounts expected to be recognized in the twelve and eighteen months following Q3 were approximately $191.5 million and $270.4 million, respectively. The amounts expected to be recognized in the twelve and eighteen months following Q3, consisted of $180.7 million and $259.7 million, respectively, from the Electric Power and Solar Infrastructure Services segment and $10.7 million and 10.7 million, respectively, from the Integrated Energy Infrastructure Solutions and Services segment.
Cost of revenues
(dollars in thousands)
|
For the Three Months Ended |
||||||||||||||||
|
Cost of revenues by Segment |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Electric Power and Solar Infrastructure Services |
$ | 22,561 | $ | 8,353 | $ | 14,208 | 170.1 | % | ||||||||
|
Integrated Energy Infrastructure Solutions and Services |
4,608 | 2,908 | 1,700 | 58.5 | % | |||||||||||
|
Other |
(38 | ) | — | (38 | ) | (100.0 | )% | |||||||||
|
Total cost of revenues |
$ | 27,131 | $ | 11,261 | $ | 15,870 | 140.9 | % | ||||||||
|
For the Nine Months Ended |
||||||||||||||||
|
Cost of revenues by Segment |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Electric Power and Solar Infrastructure Services |
$ | 45,032 | $ | 14,132 | $ | 30,900 | 218.7 | % | ||||||||
|
Integrated Energy Infrastructure Solutions and Services |
10,452 | 8,989 | 1,463 | 16.3 | % | |||||||||||
|
Other |
(84 | ) | — | (84 | ) | (100.0 | )% | |||||||||
|
Total cost of revenues |
$ | 55,400 | $ | 23,121 | $ | 32,279 | 139.6 | % | ||||||||
For the three and nine months ended September 30, 2021, the cost of revenues as a percentage of revenue increased to 88% and 98% respectively from 83% and 85%, respectively from the prior-year period. This increase was primarily in the Electric Power and Solar Infrastructure Services segment and was attributable to ramp-up costs at the Company's Orbital Power Services group, and lower margin projects during the period for Orbital Solar Services. Ramp-up costs have included onboarding personnel, equipment and supplies in advance of projected work in order to obtain the necessary resources in a competitive market as we prepare for forward demand expectations. Additionally, adverse weather negatively impacted several of Orbital Power Services' fixed price jobs in the first quarter of 2021, which are now complete. Margin percentages will vary based upon the mix of natural gas systems sold, proprietary technology included in projects, contract labor necessary to complete gas related projects, mix of Orbital Power Services projects including emergency response services, new crew onboarding costs, Orbital Solar Services solar projects, the competitive markets in which the Company competes, and foreign exchange rates.
The three and nine months ended September 30, 2020 were affected by start-up costs at the Company's Orbital Power Services group, lower margin projects during the period for Orbital Solar Service and was also affected negatively by the COVID-19 pandemic and the resulting world-wide economic slowdown.
The Company expects improvement in margins during the remainder of 2021 as Orbital Power Services continues to gain efficiencies and increase revenues, Orbital Telecom Services benefits from the acquisitions of GTS and IMMCO, as companies continue to learn to cope with the COVID-19 pandemic, and several large Orbital Solar Services solar projects begin.
Selling, General and Administrative Expenses
(dollars in thousands)
|
For the Three Months Ended |
||||||||||||||||
|
Selling, general, and administrative expense by Segment |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Electric Power and Solar Infrastructure Services |
$ | 7,338 | $ | 2,252 | $ | 5,086 | 225.8 | % | ||||||||
|
Integrated Energy Infrastructure Solutions and Services |
2,259 | 2,663 | (404 | ) | (15.2 | )% | ||||||||||
|
Other |
4,104 | 2,264 | 1,840 | 81.3 | % | |||||||||||
|
Total selling, general and administrative expense |
$ | 13,701 | $ | 7,179 | $ | 6,522 | 90.8 | % | ||||||||
|
For the Nine Months Ended |
||||||||||||||||
|
Selling, general, and administrative expense by Segment |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Electric Power and Solar Infrastructure Services |
$ | 23,194 | $ | 4,895 | $ | 18,299 | 373.8 | % | ||||||||
|
Integrated Energy Infrastructure Solutions and Services |
7,207 | 8,294 | (1,087 | ) | (13.1 | )% | ||||||||||
|
Other |
13,455 | 7,969 | 5,486 | 68.8 | % | |||||||||||
|
Total selling, general and administrative expense |
$ | 43,856 | $ | 21,158 | $ | 22,698 | 107.3 | % | ||||||||
Selling, General and Administrative (SG&A) expenses include such items as wages, commissions, consulting, general office expenses, business promotion expenses and costs of being a public company, including legal and accounting fees, insurance and investor relations. SG&A expenses are generally associated with the ongoing activities to reach new customers, promote new product and service lines including Orbital Gas Systems, Orbital Power Services, Orbital Solar Services, Orbital Telecom Services and other new product and service introductions.
During the three and nine months ended September 30, 2021, SG&A increased $6.5 million and $22.7 million, respectively, compared to the prior-year comparative periods. The increase in SG&A for the quarter and year-to-date periods were due to increased SG&A costs in the Electric Power and Solar Infrastructure Services segment primarily due to ramp-up costs at Orbital Power Services group, which included increased payroll and insurance costs and start-up costs at Eclipse Foundation Group, as well as $1.4 million and $8.0 million of employee stock-based compensation vesting expense, for the three and nine month periods, respectively. The addition of GTS in April 2021, IMMCO in July 2021, and Orbital Solar Services in April 2020 compared to the first nine months of 2020, which only included Orbital Solar Services for six of the nine months ended September 30, 2020, also contributed to the increase in SG&A costs. Also contributing to the increase were increased corporate costs in the Other segment due to a $2.4 million increase in the mark to market adjustment to the executive cash-based stock appreciation rights and $0.8 million increase in employee performance bonuses paid year to date. These increases were partially offset by decreased SG&A costs in the Integrated Energy Infrastructure Solutions and Services segment due to cost saving measures.
Depreciation and Amortization
(dollars in thousands)
|
For the Three Months Ended |
||||||||||||||||
|
Depreciation and amortization expense by Segment |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Electric Power and Solar Infrastructure Services |
$ | 2,483 | $ | 1,197 | $ | 1,286 | 107.4 | % | ||||||||
|
Integrated Energy Infrastructure Solutions and Services |
404 | 373 | 31 | 8.3 | % | |||||||||||
|
Other |
12 | 11 | 1 | 9.1 | % | |||||||||||
|
Total depreciation and amortization |
$ | 2,899 | $ | 1,581 | $ | 1,318 | 83.4 | % | ||||||||
|
For the Nine Months Ended |
||||||||||||||||
|
Depreciation and amortization by Segment |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Electric Power and Solar Infrastructure Services |
$ | 5,653 | $ | 2,477 | $ | 3,176 | 128.2 | % | ||||||||
|
Integrated Energy Infrastructure Solutions and Services |
1,249 | 1,109 | 140 | 12.6 | % | |||||||||||
|
Other |
31 | 30 | 1 | 3.3 | % | |||||||||||
|
Total depreciation and amortization |
$ | 6,933 | $ | 3,616 | $ | 3,317 | 91.7 | % | ||||||||
Depreciation and amortization expenses are associated with depreciation on buildings, furniture, equipment, vehicles, and amortization of intangible assets over the estimated useful lives of the related assets.
Depreciation and amortization expense in the three and nine months ended September 30, 2021 were up compared to the three and nine months ended September 30, 2020 primarily due to additional amortization in the Electric Power and Solar Infrastructure Services segment including Orbital Solar Services and GTS and IMMCO acquisition intangibles that were acquired in the second quarter of 2020 and 2021 and depreciation of equipment used by Orbital Power Services which has been ramping up their capital expenditures as more crews are added.
Equity Method/Cost Method Investment
The Company owns a cost-basis investment in VPS with a book value at September 30, 2021 of $1.1 million. Through June 30, 2020, the Company accounted for its investment in VPS under the equity method of accounting and accordingly recorded income or loss of affiliate based on the equity method of accounting. The Company recorded losses in the three and nine months ended September 30, 2020 of zero and $4.8 million, respectively, related to its share of VPS's loss. Due to additional outside investments into VPS during the third quarter of 2020, which diluted OEG's ownership percentage coupled with increased board seats reducing OEG's board influence, the Company's management determined that it no longer met the qualification of having significant influence necessary to record its investment under the equity method of accounting. Following this change, the Company has recorded its investment under the cost method of accounting. There were no changes in the basis in the Company's investment in the three and nine months ended September 30, 2021.
Other Income (Expense), net
(dollars in thousands)
|
For the Three Months Ended |
||||||||||||||||
|
Other Income (Expense), net |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Foreign exchange gain (loss) |
$ | (395 | ) | $ | 707 | $ | (1,102 | ) | (155.9 | )% | ||||||
|
Interest income |
82 | 75 | 7 | 9.3 | % | |||||||||||
|
Rental income |
129 | 78 | 51 | 65.4 | % | |||||||||||
|
Gain on extinguishment of debt |
722 | — | 722 | 100.0 | % | |||||||||||
|
Other income |
216 | — | 216 | 100.0 | % | |||||||||||
|
Total Other income (expense) |
$ | 754 | $ | 860 | $ | (106 | ) | (12.3 | )% | |||||||
|
For the Nine Months Ended |
||||||||||||||||
|
Other Income (Expense), net |
September 30, |
|||||||||||||||
|
2021 |
2020 |
$ Change |
% Change |
|||||||||||||
|
Foreign exchange gain (loss) |
$ | (265 | ) | $ | (410 | ) | $ | 145 | (35.4 | )% | ||||||
|
Interest income |
245 | 218 | 27 | 12.4 | % | |||||||||||
|
Rental income |
372 | 254 | 118 | 46.5 | % | |||||||||||
|
Gain on extinguishment of debt |
2,412 | — | 2,412 | 100.0 | % | |||||||||||
|
Other income |
245 | — | 245 | 100.0 | % | |||||||||||
|
Total Other income (expense) |
$ | 3,009 | $ | 62 | $ | 2,947 | 4753.2 | % | ||||||||
Other income (expense) changes were primarily the result of gains on extinguishment of debt in the three and nine months ended September 30, 2021 of $0.7 million and $2.4 million, respectively, due to the forgiveness by the U.S. government of certain payroll protection loans and certain exchange agreements that Company entered into in the third quarter of 2021. For the nine month period, the gain on extinguishment was partially offset by the loss on the extinguishment of debt due to the amendment to remove the convertible equity feature of its convertible debt during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Foreign currency gain/loss fluctuations in the three and nine-month periods principally related to the fluctuation in the U.K. pound in both 2020 and 2021.
Interest Expense
For the three and nine months ended September 30, 2021, the Company incurred interest expense of $1.3 million and $3.1 million, respectively compared to interest for the three and nine months ended September 30, 2020 of $0.3 million and $0.5 million, respectively. The increase in interest expense in 2021 is related to the increase in notes payable outstanding in the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020. See note 16 for more information on the Company's notes payable.
Income Tax Expense (Benefit)
The Company is subject to taxation in the U.S., various state and foreign jurisdictions. The Company continues to record a full valuation allowance against the Company's U.S. and United Kingdom net deferred tax assets and partial valuation allowance against the Company’s Canada net deferred tax assets, as it is not more likely than not that the Company will realize a benefit from these assets in a future period.
In the three months ended September 30, 2021, as a result of the assets acquired and liabilities assumed related to the acquisition of IMMCO, the Company recorded a $2.5 million deferred tax liability. As a result, the Company recorded a $2.5 million tax benefit for a reduction in prior recorded valuation allowances.
In the three months ended June 30, 2021, as a result of the assets acquired and liabilities assumed related to the acquisition of GTS, the Company recorded a $9.0 million deferred tax liability. As a result, the Company recorded a $9.0 million tax benefit for a reduction in prior recorded valuation allowances.
In the three months ended June 30, 2020, as a result of the assets acquired and liabilities assumed related to the acquisition of Reach Construction, LLC, the Company recorded a $1.6 million deferred tax liability. As a result, the Company recorded a $1.6 million tax benefit for a reduction in prior recorded valuation allowances.
For the three and nine months ended September 30, 2020, the Company is allocating income tax expense (benefit) in accordance to ASC 740-20-45-7 to more than one financial statement component other than continuing operations. Prior period comparative allocations have also been made.
In the nine months ended September 30, 2020, as a result of HM Revenue & Customs review, the Company recorded a $1.6 million tax benefit for estimated prior year taxes related to refunds for the surrender for cash, United Kingdom net operating losses generated related to enhanced research and development deduction claims.
For additional analysis, see Note 14, "Income Taxes," of the condensed consolidated financial statements in Part I - Item I, "Financial Statements."
Restructuring Charges
During the fourth quarter of 2019, the Company completed the sale of its largest group within the Power and Electromechanical segment. The Company completed the sale of its Japan operations as of September 30, 2020 and completed the disposal of Canada's assets in the fourth quarter of 2020. The Company recorded an accrued liability of $4.0 million Canadian dollars ($3.1 million US dollars at December 31, 2019) for estimated employee termination costs. This accrual was adjusted down by $0.3 million Canadian dollars ($0.2 million US dollars) in 2020 based on updated estimates. The termination costs began to be paid out in the third quarter of 2020 and the majority of the remaining accrual was paid in the fourth quarter of 2020. The Company paid out an additional $0.3 million of termination benefits in the first nine months of 2021 and expect to pay the remaining $28 thousand during the remainder of 2021. For more information on the Company's restructuring charges, see Note 1 Nature of Operations, Basis of Presentation and Company Conditions under the Restructuring Charges subheading.
Liquidity and Capital Resources
General
As of September 30, 2021, the Company held cash and cash equivalents of $11.2 million and restricted cash of $1.2 million. Operations, investments, and equipment have been funded through cash on hand, the issuance of common stock authorized by its July 2020 and February 2021 S-3 filings, seller financing, the issuance of debt and financing through the sale of future revenues. The Company filed an S-3 in February of 2021 which became effective in April 2021 for the issuance of additional stock or public debt. In July, 2021, the Company issued 10,410,959 shares of common stock at $3.65 a share for a total raise of $38.0 million before expenses. In August of 2021, the Company opened a $4.0 million dollar line of credit to support additional funding. The Company's cash used in operations was more in the first nine months of 2021 than in the first nine months of 2020 primarily driven by a larger net loss. Major uses of cash in the first nine months of 2021 included the acquisitions of Gibson Technical Services and IMMCO Inc., purchases of property and equipment, completion of the purchase of the VE Technology and changes in working capital. The Company continues to work to improve its short-term liquidity through management of its working capital. Long-term liquidity is expected to benefit from revenue growth and earnings through its existing operations. Overall volume growth in the Company's businesses both organically and through acquisitions are expected to benefit cash flows as well.
Cash Used in Operations
Cash used in operations of $36.8 million was a $26.9 million increase in cash used compared to the nine-month period in 2020. Cash used in operations for the nine months ended September 30, 2021 were approximately $14.5 million in the other segment, $19.3 million in the Electric Power and Solar Infrastructure Services segment, $3.0 million in the Integrated Energy Infrastructure Solutions and Services segment. Included in the Other segment is a $0.3 million source of cash related to the former discontinued operations of the Power and Electromechanical segment, which was primarily the collection of trade accounts receivable. This compares to prior year nine-month-period cash used of approximately $7.7 million used in the Other segment, $2.9 million used for the Electric Power and Solar Infrastructure Services segment $1.2 million used by the Integrated Energy Infrastructure Solutions and Services segment and $1.9 million provided by discontinued Power and Electromechanical segment.
Increased uses of cash in the first nine months of 2021 are primarily for costs associated with mergers and acquisitions in the Electric Power and Solar Infrastructure Services segment in addition to normal administrative costs, ramp-up costs on the Company's Orbital Power Services group, and cash used by Orbital Solar Services operations. The Company believes that revenue generated by recent Orbital Telecom Services acquisitions Gibson Technical Services and IMMCO, Inc. will improve cash flow from operating activities. While the Company saw an initial cost increase from Orbital Power Services, management expects these groups to become cash flow positive, as the business environment normalizes and the Company continues to increase revenue-generating service crews deployed. The Company believes overall cash used in operations will improve through revenue growth associated with new customers and larger projects, the additional cash expected from operations of Orbital Solar Services when it begins work on contracts with solar developers including performing as company "of choice" for the recently-formed Black Sunrise Century Fund, which over the next three years is expected to build over 1 gigawatt of solar power.
The change in cash used in operating activities, exclusive of net loss, is primarily the result of the following line items: payment towards accounts payable increased cash used in operating activities by $2.5 million, increased cash used for right of use assets, which are partially offset by increased lease liabilities related to the ramp up of the Orbital Power Services group. Timing of cash receipts on trade accounts receivable was a $5.2 million increase in cash used in operating activities related to build up of accounts receivable at Orbital Gas Systems, Orbital Power Services partially offset by sources of cash at Orbital Solar Services, Orbital Telecom Services and receipts of final sales at CUI-Canada. Changes in prepaid expenses of $1.4 million was a source of cash and were due to timing of payments primarily related to changes in prepaid expenses at Orbital Gas Systems, Orbital Power Services, and the Other segment.
During the nine months ended September 30, 2021 and 2020, the Company recorded a total of $9.8 million and $12 thousand, respectively, for share-based compensation related to equity given, or to be given to directors, employees and consultants for services provided and as payment for royalties earned. The increase in expense during the first nine months of 2021 compared to the first nine months of 2020 is primarily due to employee stock-based bonuses and increased director stock-based compensation in 2021 compared to director stock-based compensation in the nine months of 2020 when director compensation was being accrued as cash compensation while the structure of their compensation was being evaluated. During the nine months ended the Company recorded $11.2 million of non-cash deferred tax benefits as a result of the acquisition of GTS and IMMCO, which allowed the Company to utilize deferred tax assets that had been fully reserved. Also during the nine months ended September 30, 2021, the Company recorded fair value adjustments of $2.5 million on unsettled stock appreciation rights held by corporate officers that will be settled in cash at a future date.
S-3 registration
The Company filed an S-3 registration statement on July 17, 2020 containing a prospectus that was effective in September 2020. The Company utilized this filing in January 2021 to issue common stock for $45 million before costs. The Company filed a new S-3 shelf registration in January 2021, which, as amended, became effective in April 2021. With this filing, Orbital Energy Group may from time-to-time issue various types of securities, including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of $150 million. The Company utilized this S-3 registration to issue additional common stock in July 2021 for $38 million before expenses.
As the Company focuses on growing its infrastructure services market presence both organically and through strategic acquisitions, technology development, product and service line additions, and increasing Orbital’s market presence, it will fund these activities together with related operating, sales and marketing efforts for its various product offerings with cash on hand, and possible proceeds from future issuances of equity through the S-3 registration statement, and available debt.
Orbital Energy Group may raise additional capital needed to fund the further development and marketing of its products and services as well as payment of its debt obligations.
See the section entitled Recent Sales of Unregistered Securities for a complete listing of all unregistered securities transactions.
Capital Expenditures and Investments
During the first nine months of 2021 and 2020, Orbital Energy Group invested $6.6 million and $1.5 million, respectively, in property and equipment. These purchases in 2021 were primarily for capital assets associated with the Company's Orbital Power Services and Orbital Telecom Services. These investments typically include additions to equipment including vehicles and equipment for powerline service and maintenance, engineering, furniture, computer equipment for office personnel, facilities improvements and other fixed assets as needed for operations. In addition, during the nine months ended September 30, 2021 and 2020, the Company paid cash for acquisitions, net of cash received of $36.9 million and $3.0 million respectively. The Company anticipates further investment in fixed assets and acquisitions during 2021 in support of its on-going business and continued development of its infrastructure services operations. The Company entered into a $3 million note receivable with Orbital Solar Services during the three months ended March 31, 2020 prior to the April 1 acquisition. This payment became part of the Company's purchase consideration upon the close of the acquisition.
Financing Activities
To date in 2021, the Company issued a total of 26.0 million shares of common stock in three separate equity raises with a face amount of $83.0 million for which the Company netted $78.0 million after expenses. For the nine months ended September 30, 2021, the Company received cash proceeds of $19.4 million for the issuance of debt with a face value of $23.4 million and a weighted average stated interest rate of 8.5% and a weighted average estimated effective rate of 18.3%. In the nine months ended September 30, 2021 and 2020 the Company made cash payments on notes payable of $7.5 million and $1.7 million, respectively, including $2.0 million in 2021 toward the seller notes payable related to the April 2020 acquisition of Orbital Solar Services. The Company also implemented several exchange agreements whereby shares of common stock were exchanged for additional debt reduction. The Company recorded a $0.7 million extinguishment of debt of the Reach Construction seller note due to the Company making an early cash payment in exchange for a portion of the loan being forgiven and a portion being paid by the Company with shares of its common stock. See Note 16 for more information on the Company's notes payable. In addition, the Company paid $0.4 million in the three months ended March 31, 2021 to close its line of credit that was acquired with the Orbital Solar Services business.
Recap of Liquidity and Capital Resources
At September 30, 2021, the Company had unrestricted cash and cash equivalents balances of $11.2 million. At September 30, 2021 the Company had $1.8 million of cash and cash equivalents balances at domestic financial institutions that were covered under the FDIC insured deposits programs and $0.1 million and $72 thousand, at foreign financial institutions covered under the United Kingdom Financial Services Compensation (FSC) and Canada Deposit Insurance Corporation (CDIC), respectively. At September 30, 2021, the Company had cash and cash equivalents of $1.0 million in European bank accounts and $72 thousand in Canadian bank accounts.
The Company had a net loss of $36.3 million and cash used in operating activities of $36.8 million during the nine months ended September 30, 2021. As of September 30, 2021, the Company's accumulated deficit is $186.0 million.
The Company expects the revenues from its continuing operations, and cash on hand, to cover operating and other expenses for the next twelve months of operations. However, in the short-term, the Company expects to continue to need cash support as the Company's businesses increase their market positions and revenue. The Company may issue additional debt or equity to support continuing operations and acquisition efforts in the remaining months of 2021.
Critical Accounting Policies
The Company has adopted various accounting policies to prepare the consolidated financial statements in accordance with Generally Accepted Accounting Principals, ("GAAP"). Certain of the Company's accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. In the Company's 2020 Annual Report on Form 10-K filed on March 30, 2021, the Company identified the critical accounting policies that affect the Company's more significant estimates and assumptions used in preparing the Company's consolidated financial statements.
Adoption of new accounting standards
See Note 2 Summary of Significant Accounting Policies - Update of the condensed consolidated financial statements in Part I—Item I, “Financial Statements” for a description of recent accounting pronouncement adoptions, including the dates of adoption and effects on financial position, results of operations and cash flows if any.
Recent Accounting Pronouncements
See Note 11 Recent Accounting Pronouncements of the condensed consolidated financial statements in Part I—Item I, “Financial Statements” for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on financial position, results of operations and cash flows.
Off-Balance Sheet Arrangements
See Note 20 Commitments and Contingencies of the condensed consolidated financial statements in Part I—Item I, “Financial Statements” for a description of the Company's off-balance sheet arrangements.
|
Quantitative and Qualitative Disclosure about Market Risk. |
The Company is exposed to market risk in the ordinary course of business. Market risk represents the risk of loss that may impact the Company’s financial position due to adverse changes in financial market prices and rates. This market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. The Company neither holds nor issues financial instruments for trading purposes.
The following sections provide quantitative information on the Company’s exposure to foreign currency exchange rate risk. The Company makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.
Foreign Currency Exchange Rates
The Company conducts continuing operations in two principal currencies: the U.S. dollar and the British pound sterling. These currencies operate primarily as the functional currency for the Company’s U.S. and U.K. operations, respectively. Cash is managed centrally within each of the two regions.
Because of fluctuations in currency exchange rates, the Company is subject to currency translation exposure on the results of its operations. Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to the Company’s reporting currency, the U.S. dollar, for consolidation purposes. As currency exchange rates fluctuate, translation of the Company’s statements of operations into U.S. dollars affects the comparability of revenues and operating expenses between years.
Revenues and operating expenses from continuing operations are primarily denominated in the currencies of the countries in which the Company’s operations are located, the U.S. and U.K. The Company’s consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.
The tables below detail the percentage of revenues and expenses from continuing operations by the two principal currencies:
|
British Pound |
||||||||
|
U.S. Dollar |
Sterling |
|||||||
|
For the Three Months Ended September 30, 2021 |
||||||||
|
Revenues |
90 | % | 10 | % | ||||
|
Operating expenses |
90 | % | 10 | % | ||||
|
For the Three Months Ended September 30, 2020 |
||||||||
|
Revenues |
78 | % | 22 | % | ||||
|
Operating expenses |
81 | % | 19 | % | ||||
|
British Pound |
||||||||
|
U.S. Dollar |
Sterling |
|||||||
|
For the Nine Months Ended September 30, 2021 |
||||||||
|
Revenues |
83 | % | 17 | % | ||||
|
Operating expenses |
90 | % | 10 | % | ||||
|
For the Nine Months Ended September 30, 2020 |
||||||||
|
Revenues |
69 | % | 31 | % | ||||
|
Operating expenses |
79 | % | 21 | % | ||||
To date, the Company has not entered into any hedging arrangements with respect to foreign currency risk and have limited activity with forward foreign currency contracts or other similar derivative instruments. The Company believes that during the three and nine months ended September 30, 2021, the effect of a hypothetical 100 basis point shift in foreign currency exchange rates applicable to the Company’s business would not have had a material impact on the Company’s condensed consolidated financial statements.
Brexit Risk
On January 31, 2020, the United Kingdom (“UK”) formally withdrew from the European Union (“EU”), entering a transitional period which came to an end on December 31, 2020. During this transitional period, EU law continued to apply in the UK while providing time for the UK and EU to negotiate the details of their future relationship. Now that the transition has ended, the two sides are free to negotiate new trade agreements. The impact of the withdrawal may adversely affect business activity, political stability and economic conditions in the UK, the European Union and elsewhere. The economic conditions and outlook could be further adversely affected by the uncertainty concerning new or modified trading arrangements between the UK and other countries. Any of these developments could negatively affect economic growth or business activity in the UK, the European Union and elsewhere, and could materially and adversely affect our business and results of operations. We continue to closely monitor the negotiations and the impact to foreign currency markets, however we cannot predict the direction of Brexit-related developments or the impact of those developments on our UK operations and the economies of the markets in which we operate.
Investment Risk
The Company has an Investment Policy that, among other things, provides an internal control structure that takes into consideration safety (credit risk and interest rate risk), liquidity and yield. The Company’s investment committee consists of two independent Directors and the CFO, who oversee the investment portfolio and compile a quarterly analysis of the investment portfolio, if any investments exist during the period.
Investments made by the Company are subject to Investment committee Charter and investment policy, which limits the Company’s risk of loss exposure by setting appropriate credit quality requirements for investments held, limiting maturities to be 1 year or less, and also setting appropriate concentration levels to prevent concentrations. This includes a requirement that no more than 3% of the portfolio, or $0.5 million, whichever is greater, may be invested in one particular issue. In 2019, since the investment in VPS was considered a strategic investment, the board and management reviewed and approved the investment above the board set limit for individual issuers.
Cash and cash equivalents are diversified and maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit, therefore, bear minimal credit risk.
The Company has trade receivable and revenues concentrations with large customers. Additionally, the Company has a large concentration of cash, trade receivables and revenues in foreign countries including the United Kingdom. Owning assets in a foreign country exposes the Company to foreign currency risk coupled with liquidity risk. Foreign owned assets may be difficult to timely convert to U.S. dollars if necessary.
|
Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation of the Company's Chief Executive Officer (CEO) and its Chief Financial Officer (CFO), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management is required to apply their judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, the Company's management, including the CEO and the CFO, concluded that, as of September 30, 2021, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2021, the Company, including certain of its subsidiaries, implemented an enterprise resource planning (“ERP”) system, in order to update existing technology and to integrate, simplify and standardize processes among the Company and its subsidiaries. Accordingly, we have made changes to our internal controls to address systems and/or processes impacted by the ERP implementation. Neither the ERP implementation nor the related control changes were undertaken in response to any deficiencies in the Company’s internal control over financial reporting.
Other than as discussed above, there have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) or Rule 15d-15(f) of the Exchange Act) during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Orbital Energy Group, Inc. is occasionally party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, negligence or gross negligence and/or property damages, wage and hour and other employment-related damages, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.
Regarding all lawsuits, claims and proceedings, Orbital Energy Group, Inc. records a reserve when it is probable that a liability has been incurred and the loss can be reasonably estimated. The Company currently has no such reserves. In addition, Orbital Energy Group, Inc. discloses matters for which management believes a material loss is at least reasonably possible. None of these proceedings are expected to have a material adverse effect on Orbital Energy Group, Inc.’s consolidated financial position, results of operations or cash flows. In all instances, management has assessed the matter based on current information and made a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought and the probability of success. Management’s judgment may prove materially inaccurate, and such judgment is made subject to the known uncertainties of litigation.
The following risk factor was added during the three months ended September 30, 2021:
Potential government imposed COVID-19 vaccine mandates could adversely affect our ability to attract and retain employees, which could have a material adverse impact on our business and results of operations.
On September 9, 2021, President Biden directed the Department of Labor’s Occupational Safety and Health Administration ("OSHA") to issue an Emergency Temporary Standard requiring that all employers with at least 100 employees ensure that their employees are fully vaccinated for COVID-19 or require employees to obtain a negative COVID-19 test at least once a week and wear a mask while in the workplace. On November 4, 2021, it was announced that the mask mandate deadline is December 5, 2021 and by January 4, 2022 companies must require their workers to be fully vaccinated or submit to weekly coronavirus testing. It is unclear, among other things, how compliance will be documented and enforced but could include investigating complaints through OSHA's whistle-blower system and penalties. As a company with more than 100 employees, we will be required to mandate COVID-19 vaccination of our workforce or have our unvaccinated employees undergo required weekly COVID-19 testing.
Any requirement to mandate COVID-19 vaccination of our workforce or require our unvaccinated employees to be tested weekly could result in employee attrition and difficulty securing future labor needs, and may have an adverse effect on our future revenues, costs and results of operations.
There were no other material changes from Risk Factors as previously disclosed in the Company’s Form 10-K filed with the Commission on March 30, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Common Stock Issued.
During the nine months ended September 30, 2021, the Company issued the following shares of common stock, which were not registered under the Securities Act. The Company relied on Section 4(2) of the Securities Act of 1933 as the basis for an exemption from registration for the following issuances.
* The cashless exercise consisted of an exercise of 552,663 shares for which 338,067 of those share options were returned to the Company in return for the 214,596 shares issued. Expense related to these stock options were recorded in prior periods as they were fully vested.
Appointment of new CFO
As of November 16, 2021, Nicholas M. Grindstaff, age 59, will be appointed to the position of Chief Financial Officer. Concurrent with Mr. Grindstaff's appointment on November 16, Daniel N. Ford will transition out of the Company but will assist with Mr. Grindstaff's transition through next spring. As OEG continues to increase in scope, size, and complexity, it is strategically important for the C-Suite to reside in one location, which is in Houston.
Nicholas M. Grindstaff served as Vice President – Finance since May 2011 and Treasurer since October 1999 for Quanta Services, Inc., a leading provider of specialty contracting services, delivering comprehensive infrastructure solutions for the electric and gas utility, communications, pipeline and energy industries primarily in the United States, Canada and Australia.
As an executive officer at Quanta Services, Inc. he was responsible for capital structure, which included numerous capital raises across various markets, managing acquisitions, financial planning and analysis, internal and SOX control compliance, procurement, working capital allocation, treasury operations as well as numerous other strategic initiatives. Mr. Grindstaff holds a Master of Science degree in Accounting.
Mr. Grindstaff signed a four-year employment agreement effective as of November 15, 2021. The agreement provides for an annual salary of $650,000 per year with minimum annual increases of 3% per year and minimum annual bonuses of 100% of his annual salary. Mr. Grindstaff will also receive long-term incentive compensation in the form of restricted stock units, which will vest monthly over thirty-six months.
The following exhibits are included as part of this Form 10-Q.
|
Exhibit No. |
Description |
| 10.114 | Employment agreement with Nicholas M. Grindstaff effective November 15, 2021. |
| 10.115 | $4,000,000 Business loan agreement line of credit between Gibson Technical Services, Inc. and Truist Bank |
|
31.1 1 |
|
|
31.2 1 |
|
|
32.1 1 |
|
|
32.2 1 |
|
|
101.INS 1 |
Inline XBRL Instance Document |
|
101.SCH 1 |
Inline XBRL Taxonomy Extension Schema Document |
|
101.CAL 1 |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF 1 |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
101.LAB 1 |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE 1 |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Footnotes to Exhibits:
1Filed herewith.
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 thereunto duly authorized.
Signed and submitted this 15th day of November 2021.
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Orbital Energy Group, Inc. |
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By: |
/s/ James F. O'Neil |
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James F. O'Neil, |
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Chief Executive Officer |
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(Principle Executive Officer) |
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By: |
/s/ Daniel N. Ford |
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Daniel N. Ford, |
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Chief Financial Officer |
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(Principle Financial Officer) |
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Exhibit 10.114
November 16, 2021
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement"), effective as of November 16, 2021, (the "Effective Date"), is made and entered into by and between ORBITAL ENERGY GROUP, INC., a Colorado corporation (the "Company"), and NICK GRINDSTAFF (the "Executive").
WITNESSETH:
WHEREAS, the Executive shall be employed as the Company's Chief Financial Officer and is expected to make, major contributions to the Company and its subsidiaries strategic short and long-term goals, growth, and financial strength of the Company; and
WHEREAS, the Company has determined that appropriate arrangements should be taken to hire Executive and to encourage the continued attention and dedication of the Executive to his assigned duties without distraction; and
WHEREAS, in consideration of the Executive's employment with the Company, the Company desires to provide the Executive with certain compensation and benefits as set forth in this Agreement; and
WHEREAS, the Executive is agreeable to the Restrictive Covenants, which is in the best interests of the Company and its shareholders as part of this Agreement; and
WHEREAS, the Compensation Committee has determined that entering into this Agreement is in the best interests of the Company and its shareholders.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the Company and the Executive agree as follows:
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1. |
Duties of Executive; Employment Rights; Terms. |
(a) Duties of Executive. The duties of Executive shall be those that are commensurate with the position of Chief Financial Officer and such duties shall be rendered at the Company's office and at such other place or places as the Company shall in good faith require or as the interest, needs, business, or opportunity of the Company shall require. Executive agrees that Executive will at all times faithfully, industriously, and to the best of Executive's ability, experience, and talents, perform all of the services and duties that may be required of and from Executive pursuant to the terms hereof. Executive shall during the term of his employment hereunder, subject to control of the board of directors and the Chief Executive Officer, have the executive powers of the chief financial officer and exercise active financial management and supervision over the business and affairs of the Company and its subsidiaries and its several officers, and shall perform such executive and/or administrative duties consistent with the office of Chief Financial Officer.
(b) Employment Rights. Nothing expressed or implied in this Agreement shall create any right or duty on the part of the Company or the Executive to have the Executive remain in the employment of the Company or any subsidiary prior to or following any Change in Control.
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2. |
Executive Compensation. |
(a) Annual Base Compensation. Executive’s Annual Base Salary shall equal $650,000 per annum. The Annual Base Salary payable in periodic installments in accordance with the Company’s customary payroll practices, but no less frequently than monthly. The Executive’s Annual Base Salary shall be reviewed at least annually by the Compensation Committee, and the Compensation Committee may, but shall not be required to, increase the Executive’s Annual Base Salary; providing, however, Executive’s Annual Base Salary shall be increased a minimum of 3% annually to cover “cost-of-living” adjustments. The Executive’s Annual Base Salary shall not be reduced without the written consent of the Executive.
(b) Short Term Incentive Plan (STIP). Executive shall be entitled to receive a minimum annual STIP payment of one hundred percent (100%) of his Annual Base Salary (“Target Bonus”) during the Term. Said bonus shall be based on performance objectives, goals, and milestones agreed to by the Executive, OEG’s CEO, and the Compensation Committee. Executive shall have the ability to earn a larger bonus based on performance criteria and the reasonable judgment and discretion of the Compensation Committee. The Executive shall have the right to have any bonuses paid in the form of restricted stock units or other equity incentive arrangements provided for under the proposed new Equity Incentive Plan. Any issuance of equity based compensation to the Executive shall be consistent with the provisions of NASDAQ Listing Rule 5635(c).
(c) Long Term Incentive Plan (LTI). Executive shall be granted, subject to the restrictions and understandings described below, $750,000 in Restricted Stock Units (RSU) annually on April 1 of each calendar year during the term (grant date). The number of RSU’s will be determined by the average stock price the last 10 trading days prior to the grant date. Such RSU’s shall vest in one-third increments with the first vest occurring at the date of grant and the remainder of the RSU increments vesting annually on the anniversary of the initial grant. The RSU’s shall immediately vest in the event of an involuntary termination, including death or disability of the Executive by the Company for any reason other than Cause, of this Agreement by Executive for Good Reason.
(d) PTO (Paid Time Off). Executive may take up to four (4) weeks of paid PTO in each calendar year at in accordance with the terms and conditions of such PTO policies generally applicable to Company's executive employees.
(e) Reimbursement of Expenses. During the term hereof, Executive shall be entitled to reimbursement for all normal and reasonable expenses necessarily incurred by Executive in the performance of his obligations hereunder, subject to such substantiation requirements as may be imposed by the Company.
(f) Other Benefits. Executive shall be entitled to participate in any other group hospitalization, health, dental care or sick-leave plan, life or other insurance or death benefit plan, travel or accident insurance, or executive contingent compensation plan, including, without limitation, stock option plan, retirement, income or pension plans, or other present or future group employee benefit plans, programs or arrangements of the Company for which executives are or shall become eligible, and Executive shall be eligible to receive during the term of this Agreement all benefits for which executives are eligible under every such plan, program or arrangement to the extent permissible under the general terms and provisions of such plans, programs or arrangements and in accordance with the provisions thereof.
(g) Life Insurance. The Company shall pay up to a $9,999 per year annual premium for a life insurance policy with a face amount equal to one (1) year’s salary plus the Target Bonus, which names the Executive’s estate as the beneficiary. Any premiums above $9,999 are the responsibility of the Executive.
(h) Past Bonuses. If Executive’s employment with the Company terminates for any reason other than Cause, any bonus amounts previously approved by the Compensation Committee but not yet paid to Executive shall be payable to the Executive within sixty (60) days of the Termination Date and require no further actions or approvals.
(i) Indemnification & Hold Harmless. The Company shall hold Executive harmless and indemnify him for any costs (including legal fees) associated with his previous Employment Agreement, including, but not limited to the Non-Competition clause contained therein.
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3. |
Involuntary Termination or Resignation for Good Reason. |
(a) Payments/Benefits. In no event will the Company involuntarily terminate the Executive’s employment for any reason other than death, disability or Cause for a period of one (1) year after the occurrence of a Change in Control event. In the event of: (i) an involuntary termination of Executive's employment by the Company for any reason other than Cause, death, or Disability, or (ii) Executive's resignation for Good Reason, Executive shall be entitled to the following benefits:
(i) 2.5 times the sum of Annual Base Salary and Target Bonus, paid in a single lump sum cash payment on or before the sixtieth (60th) day following Executive 's Termination Date. Annual Base Salary shall mean: Executive 's Annual Base Salary immediately prior to Executive’s Termination Date. Target Bonus shall mean Executive's Target Bonus immediately prior to Executive 's Termination Date.
(ii) For a period of up to eighteen (18) months following Executive 's Termination Date, Executive and, where applicable, Executive's spouse and eligible dependents, will continue to be eligible to receive medical coverage under the Company 's medical plans in accordance with the terms of the applicable plan documents; provided , however, that in order to receive such continued coverage at such rates, Executive will be required to pay the applicable premiums directly to the plan provider, and the Company will reimburse the Executive, within thirty (30) days following the date such monthly premium payment is due, an amount equal to the monthly COBRA premium payment , less applicable tax withholdings. Notwithstanding the foregoing, if Executive obtains full-time employment during the aforementioned eighteen (18) month period which employment entitles him and his spouse and eligible dependents to comprehensive medical coverage, Executive must immediately notify the Company in writing and no further reimbursements will be paid by the Company to the Executive pursuant to this subsection. In addition, if Executive does not pay the applicable monthly COBRA premium for a particular month at any time during the eighteen (18) month period and coverage is lost as a result, no further reimbursements will be paid by the Company to the Executive. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that it cannot provide the foregoing COBRA benefits without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof provide to Executive a taxable lump sum payment in an amount equal to the monthly (or then remaining) COBRA premium that Executive would be required to pay to continue his group health coverage in effect on the Termination Date (which amount shall be based on the premium for the first month of COBRA coverage). The payment of any tax relating to such lump-sum payment shall be the sole responsibility of Executive
(iii) Executive shall receive any amounts earned, accrued or owing but not yet paid to Executive as of his Termination Date, payable in a lump sum, and any benefits accrued or earned in accordance with the terms of any applicable benefit plans and programs of the Company on or before the sixtieth (60th) day following Executive’s Termination Date.
(iv) All unvested RSU’s, issued to Executive shall immediately vest in full, and shall be exercisable at any time prior to such instruments stated expiration date.
(v) Any deferred past bonuses that have been earned but not paid shall be payable in a lump sum on or before the sixtieth (60th) day following Executive’s Termination Date.
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4. |
Termination of Employment on Account of Disability, Death, Cause or Voluntarily Without Good Reason. |
(a) Termination on Account of Disability. Notwithstanding anything in this Agreement to the contrary, if Executive's employment terminates on account of Executive's Disability, Executive shall be entitled to receive (i) 75% of his then current Annual Base Salary for six (6) months payable over such six (6) month period, and (ii) disability benefits under any disability program maintained by the Company that covers Executive, and Executive shall not receive benefits pursuant to Section 3 hereof, except that, subject to the provisions of Section 6 hereof, the Executive shall be entitled to the following benefits provided that Executive executes and does not revoke the Release: For a period of up to eighteen (18) months following Executive's Termination Date, Executive and where applicable, Executive's spouse and eligible dependents, will continue to be eligible to receive medical coverage under the Company's medical plans in accordance with the terms of the applicable plan documents; provided , however, that in order to receive such continued coverage at such rates, Executive will be required to pay the applicable premiums directly to the plan provider, and the Company will reimburse the Executive, within thirty (30) days following the date such monthly premium payment is due, an amount equal to the monthly COBRA premium payment, less applicable tax withholdings. Notwithstanding the foregoing, if Executive obtains full-time employment during the aforementioned eighteen (18) month period that entitles him and his spouse and eligible dependents to comprehensive medical coverage, Executive must immediately notify the Company in writing and no further reimbursements will be paid by the Company to the Executive pursuant to this subsection (i) of Section 4(a). In addition, if Executive does not pay the applicable monthly COBRA premium for a particular month at any time during the eighteen (18) month period and coverage is lost as a result, no further reimbursements will be paid by the Company to the Executive pursuant to this subsection (i) of Section 4(a). Notwithstanding the above, if the Company determines in its sole discretion that it cannot provide the foregoing COBRA benefits without potentially violating applicable law (including, without limitation, Section 2716 of the Public Health Service Act), the Company shall in lieu thereof provide to Executive a taxable lump-sum payment in an amount equal to the monthly (or then remaining) COBRA premium that Executive would be required to pay to continue his group health coverage in effect on the Termination Date (which amount shall be based on the premium for the first month of COBRA coverage). The payment of any tax relating to such lump- sum payment shall be the sole responsibility of Executive.
(b) Termination on Account of Death. Notwithstanding anything in this Agreement to the contrary, if Executive's employment terminates on account of Executive's death, Executive shall be entitled to receive death benefits under any death benefit program maintained by the Company that covers Executive, and Executive not receive benefits pursuant to Sections 3 hereof.
(c) Termination on Account of Cause. Notwithstanding anything in this Agreement to the contrary, if Executive's employment terminates by the Company on account of Cause, Executive shall not receive benefits pursuant to Sections 3 hereof and all unvested options or other equity compensation interests shall be immediately forfeited.
(d) Termination on Account of Voluntary Resignation Without Good Reason. Notwithstanding anything in this Agreement to the contrary, if Executive's employment terminates on account of a resignation by Executive for no reason or any reason other than on account of Good Reason, Executive shall not receive benefits pursuant to Sections 3 hereof.
(e) Options and Other Equity Compensation Interests. Notwithstanding the foregoing, Executive, his estate or legal representation shall be entitled to all rights that are provided to Executive under under any stock options, restricted stock or other equity compensation arrangements through the expiration date for such instruments in the event of death, disability or termination of employment without Cause by the Company.
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5. |
[Reserved] |
6. Release. Notwithstanding the foregoing, no payments or other benefits under this Agreement shall be made to Executive unless Executive executes, and does not revoke, the Company's standard written release, substantially in the form as attached hereto as Annex “B” (the "Release"), of any and all claims against the Company and all related parties with respect to all matters arising out of Executive's employment with the Company (other than entitlements under the terms of this Agreement or under any other plans or programs of the Company in which Executive participated and under which Executive has accrued or become entitled to a benefit) or a termination thereof, with such release being effective not later than sixty (60) days following Executive's Termination Date.
7. No Mitigation Obligation. Except as otherwise provided herein, Executive shall not be required to mitigate the amount of any payment or benefit provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for herein be reduced by any compensation earned by other employment or otherwise.
8. Term of Agreement. This Agreement shall continue in full force and effect until the fourth (4th) anniversary of the Effective Date (the "Initial Term"). This Agreement shall be extended following the Initial Term (or any successor, extended, or renewal term, (a "Renewal Term") for continuing one year terms; provided, however, that within the ninety (90) day period prior to the expiration of the Initial Term or any Renewal Term, at its discretion, the Compensation Committee or the Board may propose for consideration by Executive, such amendments to the Agreement as it deems appropriate. If Executive's employment with the Company terminates during the Initial Term or a Renewal Term, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied or have expired.
9. Certain Defined Terms. In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters:
(a) "Annual Base Salary" means the Executive's annual base salary, exclusive of bonuses, commissions, and other incentive pay, as in effect immediately preceding Executive's Termination Date. For informational purposes, as of the Effective Date, Executive's Annual Base Salary is $650,000.00.
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control" means:
(i) any persons or entities becoming the beneficial owners, directly or indirectly, of securities of the Company representing greater than fifty percent (50%) of the total voting power of all of the Company's then outstanding voting securities in one or a series of related transactions;
(ii) a merger or consolidation of the Company in which the Company's voting securities immediately prior to such merger or consolidation do not represent, or are not converted into securities that represent, a majority of the voting power of all voting securities of the surviving entity immediately following the merger or consolidation;
(iii) a sale of substantially all of the assets of the Company or a liquidation or dissolution of the Company; or
(iv) individuals who, as of the date of execution of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date of execution of this Agreement, whose election, or nomination for election by the Company's stockholders, was approved by the vote of at least a majority of the directors then in office shall be deemed a member of the Incumbent Board.
(d) "Cause" means:
(i) Executive’s final conviction by a court of competent jurisdiction for fraud, misappropriation or embezzlement;
(ii) Executive’s material breach of this Agreement or serious, willful gross misconduct or willful gross neglect of duties (other than any such neglect resulting from Executive’s incapacity due to physical or mental illness or Disability or any such neglect after the issuance of a notice of termination by Executive for Good Reason), which breach or conduct is not cured or corrected by Executive within thirty (30) days of receiving written notice thereof from the Company; or
(iii) Executive’s material breach of any written policy of the Company, including but not limited to the Code of Ethics for the Chief Executive Officer and Senior Financial Officers, which breach is not cured or corrected by Executive within thirty (30) days of receiving written notice thereof from the Company.
(e) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended.
(f) "Compensation Committee" shall mean committee of the Board appointed in accordance with related listing requirements of NASDAQ, NYSE, AMEX or other exchange in which the Company’s securities are listed.
(g) "Disability" means (i) the Executive's incapacity by bodily injury, illness, or disease so as to prevent Executive from engaging in the performance of the Executive 's duties (provided, however, that the Company acknowledges its obligations to provide reasonable accommodation to the extent required by applicable law); (ii) such incapacity shall have continued for a period of six (6) consecutive months; and (iii) such incapacity will, in the opinion of a qualified physician to be selected by the Company, be permanent and continuous during the remainder of the Executive's life.
(h) "Good Reason" means
(i) a material diminution in the Executive's base compensation or target bonus below the amount as of the date of this Agreement, or as increased during the course of Executive's employment with the Company, excluding one or more reductions (totaling no more than twenty percent (20%) in the aggregate) generally applicable to all senior executives; or
(ii) any action or inaction that constitutes a material breach by the Company of this Agreement; provided, however, that for the Executive to be able to terminate his employment with the Company on account of Good Reason, Executive must provide notice of the occurrence of the event constituting Good Reason and his desire to terminate his employment with the Company on account of such within ninety (90) days following the initial existence of the condition constituting Good Reason. Thereafter, the Company shall have a period of thirty (30) days following receipt of such notice in which to cure the condition. If the Company does not cure the event constituting Good Reason within such thirty (30) day period, the Executive's Termination Date shall be the day immediately following the end of such thirty (30) day period, unless the Company provides for an earlier Termination Date.
(i) "Termination Date" means the last day of Executive 's employment with the Company.
(j) "Termination of Employment" means the termination of Executive's employment relationship with the Company, for any reason.
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Tax Matters. |
(a) Withholding of Taxes. The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as the Company is required to withhold pursuant to any applicable law, regulation, or ruling.
(b) Indemnity. If the Company breaches its covenant not to terminate the Executive involuntarily for any reason other than death, disability or Cause within one (1) year of a Change in Control event, as set forth in Section 3(a), then the Company shall indemnify the Executive for any taxes, penalties, interests, fees and costs, including accounting and legal fees, grossed up for any additional taxable income resulting from such indemnification that the Executive incurs relating to any IRS determinations or proceedings that would subject the Executive to assessment of the Excise Tax imposed by Section 4999 of the Internal Revenue Code, or any comparable successor provision.
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Section 409A of the Code. |
(a) Interpretation. Notwithstanding the other provisions hereof, this Agreement is intended to comply with the requirements of Section 409A of the Code, to the extent applicable, and this Agreement shall be interpreted to avoid any penalty sanctions under Section 409A of the Code. Accordingly, all provisions herein, or incorporated by reference, shall be construed and interpreted to comply with Section 409A of the Code and, if necessary, any such provision shall be deemed amended to comply with Section 409A of the Code and regulations thereunder. If any payment or benefit cannot be provided or made at the time specified herein without incurring sanctions under Section 409A of the Code, then such benefit or payment shall be provided in full at the earliest time thereafter when such sanctions will not be imposed. Any amount payable under this Agreement that constitutes deferred compensation subject to Section 409A of the Code shall be paid at the time provided under this Agreement or such other time as permitted under Section 409A of the Code. No interest will be payable with respect to any amount paid within a time period permitted by, or delayed because of, Section 409A of the Code. All payments to be made upon a termination of Executive's employment under this Agreement that are deferred compensation may only be made upon a "separation from service" under Section 409A of the Code. For purposes of Section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment. In no event may Executive, directly or indirectly, designate the calendar year of payment.
(b) Payment Delay. To the maximum extent permitted under Section 409A of the Code, the severance benefits payable under this Agreement are intended to comply with the "short- term deferral exception" under Treasury Regulation §l.409A-l(b)(4), and any remaining amount is intended to comply with the "separation pay exception" under Treasury Regulation §l.409A-1(b)(9)(iii); provided, however, any amount payable to Executive during the six (6) month period following Executive's Termination Date that does not qualify within either of the foregoing exceptions and constitutes deferred compensation subject to the requirements of Section 409A of the Code, then such amount shall hereinafter be referred to as the "Excess Amount". If at the time of Executive's separation from service, the Company's (or any entity required to be aggregated with the Company under Section 409A of the Code) stock is publicly-traded on an established securities market or otherwise and Executive is a "specified employee" (as defined in Section 409A of the Code and determined in the sole discretion of the Company (or any successor thereto) in accordance with the Company's (or any successor thereto) "specified employee" determination policy),then the Company shall postpone the commencement of the payment of the portion of the Excess Amount that is payable within the six (6) month period following Executive's Termination Date with the Company (or any successor thereto) for six (6) months following Executive's Termination Date with the Company (or any successor thereto). The delayed Excess Amount shall be paid in a lump sum to Executive within ten (10) days following the date that is six (6) months following Executive's Termination Date with the Company (or any successor thereto). If Executive dies during such six (6) month period and prior to the payment of the portion of the Excess Amount that is required to be delayed on account of Section 409A of the Code, such Excess Amount shall be paid to the personal representative of Executive's estate within sixty (60) days after Executive's death.
(c) Reimbursements. All reimbursements provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (i) any reimbursement is for expenses incurred during Executive's lifetime (or during a shorter period of time specified in this Agreement), (ii) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (iii) the reimbursement of an eligible expense will be made on or before the last day of the taxable year following the year in which the expense is incurred, and (iv) the right to reimbursement is not subject to liquidation or exchange for another benefit. Any tax gross up payments to be made hereunder shall be made not later than the end of Executive's taxable year next following Executive's taxable year in which the related taxes are remitted to the taxing authority.
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12. |
Restrictive Covenants. |
(a) Legitimate Business Interests. The Company is entitled to protection of its legitimate business interests, and the parties agree that these interests include without limitation: the Company's confidential business and professional information; the Company's substantial relationships with existing or prospective clients and customers, prospects and referral sources; the Company's trade secrets; the Company's patented and unpatented technology and user manuals; marketing plans; and business strategies. The parties further agree that the Company has a legitimate business interest in its employees and independent contractors who are an integral part of its business and a valuable resource due to the Company's substantial investment in the training of its employees and independent contractors. The parties further agree that the Company has a legitimate business interest in client and referral source goodwill associated with the marketing area in the United States. The parties agree that the Restrictive Covenants in this Section 12 are reasonably necessary to protect these legitimate business interests.
(b) Non-Competition. Executive covenants and agrees that during the Restricted Period, Executive will not directly or indirectly own, manage, operate, control, be employed by, act as an agent for, participate in or be connected in any manner with the ownership, management , operation or control of any business which is engaged in businesses which are competitive to the business of the Company. Executive agrees that this restrictive covenant shall encompass the United States. For purposes of this Section 12(b), the term "Restricted Period" shall mean the term of this Agreement (including any renewal or extended terms), and for a period of twenty-four (24) months following termination of this Agreement or termination of Executive's relationship with the Company, for any reason.
(c) Non-Solicitation.
(i) Non-Solicitation of Customers/Clients. Executive covenants and agrees that during the Restricted Period, Executive shall not, directly or indirectly, on behalf of himself or through another person or entity, solicit, induce, entice, divert, take away or interfere with or attempt to do any of the foregoing with respect to, or trade of or trade with, any Customer of the Company on behalf of a competing business. The term "Customer" shall include, without limitation, any client, customer, supplier, consultant, advisor, or contractor of the Company, as well as those current and prospective persons or entities having a business relationship with the Company during the term of Executive's employment or at the time of Executive's solicitation, inducement, enticement, diversion, take away or interference (or attempt) or at any time within the twenty-four (24) month period prior to such action by Executive . For purposes of this Section 12(c), the term "Restricted Period" shall mean the term of this Agreement (including any renewal or extended terms), and for a period of twenty-four (24) months following termination of this Agreement or termination of Executive's relationship with the Company for any reason.
(ii) Non-Solicitation of Employees. Executive covenants and agrees that during the Restricted Period, he shall not, directly or indirectly, solicit or induce or attempt to solicit or induce, initiate or have contact with any employee of the Company for the purpose of persuading them to leave the employ of the Company for any reason whatsoever , or offer such employee employment with anyone or otherwise hire or engage the services of any employee of the Company.
(d) Intellectual Property; Work for Hire. The following provisions shall apply with respect to the Company's Intellectual Property (as defined below):
(i) Executive has disclosed and will continue to disclose promptly to the Company all Intellectual Property made, conceived , created, discovered, reduced to practice or learned by Executive, either alone or jointly with others, during the term of this Agreement, including the period preceding the execution of this Agreement during which services may have been provided by Executive. As used in this Agreement, "Intellectual Property" means all intellectual property, including all Works (including all works of authorship), computer programs , methods, systems, processes, formulae, data, functional specifications, know-how, improvements, inventions, discoveries, developments, technique s, licenses, Confidential Information and all information relating thereto, patents, patent applications, copyrights, moral rights, trademarks, trade names, service marks and trade dress, in each case whether or not patentable , registrable under copyright or similar statutes, or subject to analogous protection.
(ii) All Works which are or may be protected by a copyright, are works made for hire within the meaning of applicable copyright laws and are the sole property of the Company. For purposes of this Agreement, "Works" means all subject matter invented, conceived, developed, created or enhanced by Executive in connection with the Company's Intellectual Property or while performing services prior to or during the term of this Agreement.
(iii) All Intellectual Property that Executive has, may have or may acquire prior to or during the term of this Agreement, is and will be the sole property of the Company . Executive assigns to the Company all of Executive's present rights, title and interests in and to that Intellectual Property. Executive waives and irrevocably quitclaims to the Company any claims that Executive now or in the future has for infringement of that Intellectual Property. Executive agrees to take all measures requested by the Company to witness and record the assignment of all of Executive 's rights, title and interests in or to that Intellectual Property to the Company or its designee. Executive agrees to take all measures requested by the Company to help the Company in obtaining protection for, and benefit from, that Intellectual Property. The Company will bear all costs of such measures taken by Executive.
(iv) Executive hereby grants to the Company a nonexclusive , royalty free, perpetual , irrevocable, worldwide license (with the right to sublicense) to make, have made, copy, modify, make derivative works of, publicly display and perform, use, sell and otherwise distribute any and all Intellectual Property that Executive made, conceived, created, discovered, reduced to practice or learned before the execution of this Agreement with the Company and that Executive incorporates or may incorporate into any products, process or other property of the Company.
(v) Executive hereby irrevocably designates and appoints the Company and his duly authorized officers and agents as the Executive's agent and attorney-in-fact in the following limited capacity: to act for and on Executive's behalf and to execute and file any such application or applications and to perform all other lawfully permitted acts to further the prosecution and issuance of patents, copyrights or similar protections with the same legal force and effect as if executed by Executive but only if the Company is unable, after reasonable effort, to secure Executive's cooperation.
(e) Confidentiality.
(i) Nature and Restriction. Executive agrees that during the term of this Agreement (including any renewal or extended terms), Executive shall not (i) disclose to any other person or entity, (ii) use for the benefit of Executive or persons or entities other than the Company, directly or indirectly, or (iii) provide for use by other persons or entities any Confidential Information of the Company. Executive also agrees that upon termination of this Agreement or of the relationship between Executive and the Company, for any reason, the Executive shall return to the Company any and all documents and materials of any type related to the Company's business or other documents and material, including any and all Confidential Information, that Executive received in connection within the scope of Executive's employment with the Company.
(ii) Confidential Information. For purposes of this Agreement, the term "Confidential Information" shall mean the Company 's (i) trade secrets, (ii) lists of existing and prospective clients, trade vendors, contractors, and other persons or entities with whom the Company has or contemplates business relationships, (iii) pricing and cost information related to the Business, (iv) marketing techniques, plans, and know-how, (v) computer programs and software, (vi) coding systems and processes, (vii) networking concepts and processes, (viii) contract terms and prospective contract terms with existing and prospective clients, accounts and other persons or entities with whom the Company has or contemplates business relationships, (ix) existing and prospective geographic locations, and (x) other business information, financing strategies and practices, training and operational procedures, strategies, methodologies and processes which are not generally and lawfully known of public record, public domain or by third parties.
(f) Non-Disparagement. Executive agrees that he will not, whether orally or in writing, make any disparaging statements or comments, either as fact or as opinion, about the Company or its products and services, business, technologies , market position, agents, representatives, directors, officers, shareholders, attorneys, employees, vendors, affiliates, successors or assigns, or any person acting by, through, under or in concert with any of them.
(g) Reasonableness of Restrictive Covenants. Executive has carefully read, reviewed, and considered the provisions of this Section 12 (collectively, "Restrictive Covenants"), and having done so, stipulates and agrees that that the understandings and restrictions set forth in the Restrictive Covenants are fair and reasonable, and are reasonably necessary for the protection of the interests of the Company. The parties acknowledge that legitimate business interests of the Company can be protected under applicable Florida law with respect to covenants like the Restrictive Covenants.
(h) Rights and Remedies Upon Breach of Restrictive Covenants. If Executive breaches, or threatens to commit a breach of, the Restrictive Covenants, the Company shall have the right to have the Restrictive Covenants specifically enforced or to have any actual or threatened breach thereof enjoined by a court having competent jurisdiction, including a temporary restraining order, in addition to any and all other remedies. The Company will not be required to post a bond or provide other collateral in any such proceeding. It is further expressly understood that and stipulated that a violation of the Restrictive Covenants by Executive will inherently result in irreparable harm to the Company. Executive hereby waives any adequate remedy at law defense and failure or lack of consideration defense to the remedy of injunctive relief. In the event of any litigation for the construction, interpretation, or enforcement of any of the terms or provisions of the Restrictive Covenants, reasonable attorney's fees and costs shall be awarded to the substantially prevailing party(ies). Executive covenants and agrees that the obligations contained herein shall be extended by the length of time which Executive shall have been in breach of any of said provisions. Accordingly, Executive recognizes that the time periods included in the Restrictive Covenants contained herein shall begin on the date a court of competent jurisdiction enters an order enjoining Executive from violating such provisions unless good cause can be shown as to why the periods described should not begin at that time.
(i) Considerations of the Restrictive Covenants. Executive acknowledges and understands that but for Executive's execution of this Agreement and the agreement to the Restrictive Covenants, the Company will/would not engage the continued services of Executive and that the offer to Executive, together with any compensation paid (including any compensation payable to Executive following termination), the Company considers sufficient consideration for the execution of this Agreement.
(j) Enforcement. Executive and the Company desire that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies of the State of Texas. Executive acknowledges and confirms that enforcement of the Restrictive Covenants shall not impair his ability to earn a livelihood. Executive acknowledges that the restrictions contained herein are reasonable. If a court of competent jurisdiction, however, determines that any restrictions imposed on Executive under this Agreement are unreasonable or unenforceable because of duration or otherwise, Executive and the Company agree and intend that the court shall enforce this Agreement to the maximum extent the court deems reasonable and that the court shall have the right to strike or change any provisions of this Agreement and substitute therefor different provisions to effect the intent of this Agreement to the maximum extent possible.
(k) Independent Covenants. The Restrictive Covenants set forth in this Section 12 are given and made by Executive to induce the Company to continue to employ Executive, and Executive hereby acknowledges the sufficiency of the consideration for such covenants, and acknowledges that but for such covenants, the Company would not have agreed to employ Executive. These covenants on the part of Executive shall be construed as an agreement independent of any other terms of employment, and the existence of any claim or cause of action of Executive against the Company shall not constitute a defense to the enforcement by the Company of these covenants.
|
13. |
Successors; Binding Agreement; Assignment. |
(a) This Agreement will be binding upon and inure to the benefit of the Company and any successor to the Company, including without limitation any persons acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise (and such successor will thereafter be deemed the " Company" for the purposes of this Agreement).
(b) This Agreement will inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, and legatees. This Agreement will supersede the provisions of any employment, severance or other agreement between the Executive and the Company that relate to any matter that is also the subject of this Agreement, and such provisions in such other agreements will be null and void.
(c) This Agreement is personal in nature and Executive shall not, without the consent of the Company, assign, transfer, or delegate this Agreement or any rights or obligations hereunder. Without limiting the generality or effect of the foregoing, the Executive's right to receive payments hereunder will not be assignable, transferable, or delegable, whether by pledge, creation of a security interest, or otherwise, other than by a transfer by the Executive's will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 13(c), the Company will have no liability to pay any amount so attempted to be assigned, transferred, or delegated. The rights and obligations of the Company under this Agreement (including, without limitation, the Restrictive Covenants in Section 12 hereof) may be assigned by the Company at any time without the consent of Executive, and shall inure to the benefit of and be enforceable by the successors and assigns of the Company.
14. Notices. For purposes of this Agreement ,all communications, including without limitation notices, consents, requests or approvals, required or permitted to be given hereunder will be in writing and will be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission (with receipt thereof orally confirmed), or five (5) business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid, or three (3) business days after having been sent by a nationally recognized overnight courier service such as FedEx or UPS, addressed to the Company (to the attention of the Secretary of the Company) at its principal executive office and to the Executive at his principal residence, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.
15. Gender, Etc. Words used herein, regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context indicates is appropriate.
16. Governing Law. The validity, interpretation, construction , and performance of this Agreement will be governed by and construed in accordance with the substantive laws of the State of Texas, without giving effect to the principles of conflict of laws of such State
17. Validity. If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstances will not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal will be reformed to the extent (and only to the extent) necessary to make it enforceable, valid or legal.
18. Miscellaneous. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party will be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement. References to Sections are to references to Sections of this Agreement . Any reference in this Agreement to a provision of a statute, rule or regulation will also include any successor provision thereto.
19. Indemnification and D&O Insurance. Executive will be provided indemnification to the maximum extent permitted by the Company' s and its subsidiaries' and affiliates' Articles of Incorporation or Bylaws, including, if applicable, any directors and officers insurance policies, with such indemnification to be on terms determined by the Board or any of its committees, but on terms no less favorable than provided to any other Company executive officer or director and subject to the terms of any separate written indemnification agreement.
20. Employee Benefits. Executive will be eligible to participate in the Company employee benefit plans, policies and arrangements that are applicable to other executive officers of the Company, as such plans, policies and arrangements may exist from time to time and on terms at least as favorable as provided to any other executive officer of the Company.
21. No Duplication of Benefits. The benefits provided to Executive in this Agreement shall offset substantially similar benefits provided to Executive pursuant to another Company policy , plan or agreement.
22. Survival. Notwithstanding any provision of this Agreement to the contrary, the parties ' respective rights and obligations under this Agreement, will survive any termination or expiration of this Agreement or the termination of the Executive's employment for any reason whatsoever.
23. Counterparts. This Agreement may be executed in multiple counterparts, and it is not necessary that signatures of all parties appear on the same counterpart, but such counterparts together will constitute a single binding agreement between and among all parties hereto. Counterparts may be executed by hand or by any electronic signature complying with the U.S. federal ESIGN Act of 2000 (the “ESIGN Act”). Executed counterparts may be delivered via facsimile, electronic mail or other similar transmission method, and any executed counterpart so delivered shall be valid and effective for all purposes. No party shall raise the use of any electronic signature that complies with the ESIGN Act (including www.docusign.com), or the use of a facsimile machine, electronic mail or other similar transmission method as a means to deliver a signature to this Agreement or any amendment hereto as a defense to the formation or enforceability of a contract and each party forever waives any such defense.
24. Headings; Captions. The headings and captions of the various Sections (including any subsections) herein contained are intended for ease of reference only and are not to be construed as evidence of the intent as to the content thereof.
25. Construction. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement, or any amendments or exhibits hereto or thereto.
26. Legal Fees. If a legal action is initiated by any party to this Agreement against the other party arising out of or relating to the alleged performance or non-performance of any right or obligation established hereunder, any and all fees, costs and expenses reasonably incurred by the successful party or his or its legal counsel in investigating, preparing for, prosecuting, defending against, or providing evidence, producing documents or taking any other actionin respect of, such action will be the obligation of and will be paid or reimbursed by the unsuccessful party.
27. Representation by Independent Legal Counsel. Executive hereby acknowledges that he has been provided with a copy of this Agreement for review prior to signing it, that he has been given the opportunity to have this Agreement reviewed by his own attorney prior to signing it, that he understands the purposes and effects of this Agreement and that the counsel for the Company, Johnson, Pope, Bokor, Ruppel & Burns, LLP prepared this Agreement on behalf of and in the course of its representation of the Company.
28. Supersedes all Prior Agreements. This Agreement supersedes and replaces in their entirety any previous written agreements or oral understandings regarding Executive’s employment relationship with the Company and its subsidiaries.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written.
| ORBITAL ENERGY GROUP, INC. | |||
| By: | /s/ William J. Clough | ||
| William J. Clough | |||
| Executive Chairman & CLO | |||
| “Company” | |||
| Nicholas M. Grindstaff | |||
| NICK GRINDSTAFF | |||
| “Executive” | |||
Exhibit 10.115
[redacted]
BUSINESS LOAN AGREEMENT
|
Principal $4,000,000.00 |
Loan Date 08-19-2021 |
Maturity 08-19-2022 |
Loan No [redacted] |
Call / Coll |
Account [redacted] |
Officer 28953 |
Initials |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
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| Borrower: | GIBSON TECHNICAL SERVICES, INC. | Lender: | TRUIST BANK |
| 230 MOUNTAIN BROOK CT | Greater Birmingham - Commercial Loans | ||
| CANTON, GA 30115-9019 | 2501 20th Pl S | ||
| Birmingham, AL 35223-1723 | |||
THIS BUSINESS LOAN AGREEMENT dated August 19, 2021, is made and executed between GIBSON TECHNICAL SERVICES, INC. ("Borrower") and TRUIST BANK ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement. This Agreement shall apply to any and all present and future loans, loan advances, extension of credit, financial accommodations and other agreements and undertakings of every nature and kind that may be entered into by and between Borrower and Lender now and in the future.
TERM. This Agreement shall be effective as of August 19, 2021, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.
LINE OF CREDIT. The Indebtedness includes a revolving line of credit.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insurance as required below; (5) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel.
Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Georgia. Borrower is duly authorized to transact business in the State of Alabama and all other states in which Borrower is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Borrower is doing business. Specifically, Borrower is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Borrower has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Borrower maintains an office at 230 MOUNTAIN BROOK CT, CANTON, GA 30115-9019. Unless Borrower has designated otherwise in writing, the principal office is the office at which Borrower keeps its books and records including its records concerning the Collateral. Borrower will notify Lender prior to any change in the location of Borrower's state of organization or any change in Borrower's name. Borrower shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Borrower and Borrower's business activities.
Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None.
Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower, do not require the consent or approval of any other person, regulatory authority, or governmental body, and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties. Borrower has the power and authority to enter into the Note and the Related Documents and to grant collateral as security for the Loan. Borrower has the further power and authority to own and to hold all of Borrower's assets and properties, and to carry on Borrower's business as presently conducted.
Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.
| BUSINESS LOAN AGREEMENT | ||
| Loan No: [redacted] | (Continued) | Page 2 |
Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.
Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of the Collateral, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall use, generate, manufacture, store, treat, dispose of or release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercially related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (1) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (2) Borrower has not withdrawn from any such plan or initiated steps to do so, (3) no steps have been taken to terminate any such plan or to appoint a trustee to administer such a plan, and (4) there are no unfunded liabilities other than those previously disclosed to Lender in writing.
Investment Company Act. Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended.
Public Utility Holding Company Act. Borrower is not a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended.
Regulations T and U. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System).
Information. All information previously furnished or which is now being furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated by this Agreement is, and all information furnished by or on behalf of Borrower to Lender in the future will be, true and accurate in every material respect on the date as of which such information is dated or certified; and no such information is or will be incomplete by omitting to state any material fact the omission of which would cause the information to be misleading.
Claims and Defenses. There are no defenses or counterclaims, offsets or other adverse claims, demands or actions of any kind, personal or otherwise, that Borrower, any Grantor, or any Guarantor could assert with respect to the Note, Loan, this Agreement, or the Related Documents.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:
Repayment. Repay the Loan in accordance with its terms and the terms of this Agreement.
| BUSINESS LOAN AGREEMENT | ||
| Loan No: [redacted] | (Continued) | Page 3 |
Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.
Financial Statements. Furnish Lender with the following:
Additional Requirements.
Audited Statements. As soon as available, but in no event later than 120 days after the end of each fiscal year, 12/31/2021, Borrower's financial statements for the year ended, audited by CPA.
All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements, as Lender may request from time to time.
Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower's books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender, and in all other loan agreements now or in the future existing between Borrower and any other party. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.
Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.
Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.
Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.
Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.
Change of Location. Immediately notify Lender in writing of any additions to or changes in the location of Borrower's businesses.
Title to Assets and Property. Maintain good and marketable title to all of Borrower's assets and properties.
Notice of Default, Litigation and ERISA Matters. Forthwith upon learning of the occurrence of any of the following, Borrower shall provide Lender with written notice thereof, describing the same and the steps being taken by Borrower with respect thereto: (1) the occurrence of any Event of Default, or (2) the institution of, or any adverse determination in, any litigation, arbitration proceeding or governmental proceeding, or (3) the occurrence of a Reportable Event under, or the institution of steps by Borrower to withdraw from, or the institution of any steps to terminate, any employee benefit plan as to which Borrower may have any liability.
Other Information. From time to time Borrower will provide Lender with such other information as Lender may reasonably request.
Employee Benefit Plans. So long as this Agreement remains in effect, Borrower will maintain each employee benefit plan as to which Borrower may have any liability, in compliance with all applicable requirements of law and regulations.
| BUSINESS LOAN AGREEMENT | ||
| Loan No: [redacted] | (Continued) | Page 4 |
Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.
Deposit Accounts. Maintain substantially all of its demand deposit/operating accounts with Lender.
FINANCIAL COVENANTS. Borrower covenants and agrees, from the date hereof until payment in full of the Loan, to maintain and comply with the financial covenants and ratios set forth below, as determined in accordance with GAAP unless otherwise specified, and which may be tested as set forth in said covenant and at such other times as determined by Lender in its sole discretion:
Fixed Charge Coverage: A ratio of (i) EBITDAR minus dividends, distributions and withdrawals by owners to (ii) the sum of interest expense, the prior year’s current maturities of long-term debt, lease expense and rent expense of not less than 1.2 to 1.0 and shall be tested at least annually, beginning 13/31/2020. EBITDAR means earnings (net income) before interest expense, taxes, depreciation, amortization, lease expense and rent expense.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note, or the maximum rate permitted by law, whichever is less, from the date incurred or paid by Lender to the date of repayment by Borrower. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:
Additional Financial Restrictions. Continuity of Operations. (1) Engage in business activities substantially different than those in which Borrower is presently engaged or, (2) cease operations, liquidate, merge, or restructure as a legal entity (whether by division or otherwise), consolidate with or acquire any other entity, change its name, convert to another type of entity or redomesticate, dissolve or transfer or sell Collateral out of the ordinary course of business.
Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Borrower fails to make any payment when due under the Loan.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf, or made by Guarantor, under this Agreement or the Related Documents in connection with the obtaining of the Loan evidenced by the Note or any security document directly or indirectly securing repayment of the Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.
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Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.
Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the Related Documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.
Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all or any portion of the Collateral.
Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than ten thousand dollars ($10,000.00) against Borrower and the failure by Borrower to discharge the same, or cause it to be discharged, or bonded off to Lender's satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.
Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Loan is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.
ADDITIONAL DOCUMENTS. Borrower shall provide Lender with the following additional documents:
Corporate Resolution. Borrower has provided or will provide Lender with a certified copy of resolutions properly adopted by Borrower's Board of Directors, and certified by Borrower's corporate secretary, assistant secretary, or other authorized officer, under which Borrower's Board of Directors authorized one or more designated officers or employees to execute this Agreement, the Note and any and all Security Agreements directly or indirectly securing repayment of the same, and to consummate the borrowings and other transactions as contemplated under this Agreement, and to consent to the remedies following any default by Borrower as provided in this Agreement and in any Security Agreements.
Opinion of Counsel. When required by Lender, Borrower has provided or will provide Lender with an opinion of Borrower's counsel certifying to and that: (1) Borrower's Note, any Security Agreements and this Agreement constitute valid and binding obligations on Borrower's part that are enforceable in accordance with their respective terms; (2) Borrower is validly existing and in good standing; (3) Borrower has authority to enter into this Agreement and to consummate the transactions contemplated under this Agreement; and (4) such other matters as may have been requested by Lender or by Lender's counsel.
CHOICE OF VENUE. Any legal action with respect to the Indebtedness evidenced by this instrument or agreement may be brought in the courts of the State/Commonwealth/District in which Lender's branch office set forth above is located or in the appropriate United States District Court situated in such State/Commonwealth/District, and Borrower hereby accepts and unconditionally submits to the jurisdiction of such courts. Borrower hereby waives any objection to the laying of venue based on the grounds of forum non conveniens with respect thereto.
REQUIRED INFORMATION FOR A NEW LOAN. To help the government fight the funding of terrorism and money laundering activities, federal law requires Lender to obtain, verify and record information that identifies each person or entity obtaining a loan including the Borrower’s legal name, address, tax identification number, date of birth, driver’s license, organizational documents or other identifying documents. Failure to provide the required information will result in a violation of the U.S. Patriot Act and will constitute a Default under this instrument or agreement. In addition, none of the Borrower, any of its affiliates, or any of their respective directors, officers, managers, partners, or any other authorized representatives is named as a "Specially Designated National and Blocked Person", on the list published by the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) at its official website.
CORRECTION OF ERRORS; FURTHER ASSURANCES. Borrower will and will cause any Grantor or Guarantor to cooperate with Lender to correct any errors in the Note or Related Documents and shall execute such documentation as is necessary to do so. In addition, Borrower, Grantor and Guarantor shall cooperate fully with Lender and execute such further instruments, documents and agreements, and shall do any and all such further acts, as may be reasonably requested by Lender to better evidence and reflect the transactions described herein and contemplated hereby and to carry into effect the intent and purposes of this Agreement, the Note and the Related Documents, including without limitation the granting and/or perfecting of a security interest in the Collateral.
APPLICATION OF LOAN AGREEMENT. To avoid any doubt, the parties hereto agree that the terms of this Loan Agreement shall apply to all indebtedness of the Borrower and shall continue in full force and effect after the payment in full of the Note until payment in full of all indebtedness; provided however, any construction loan agreement or any other loan agreement with a Schedule AA, BB, CC, DD, FC, GC, or SF, shall continue in full force and effect as to the indebtedness described therein.
CHANGES IN GAAP. If a change in GAAP becomes effective after the date of this Agreement that affects the computation of any ratio in a financial covenant or requirement set forth in this Agreement, and Borrower or Lender shall so reasonably request, Lender and Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (b) Borrower shall provide to Lender financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
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MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.
Borrower Information. Borrower consents to the release of information on or about Borrower by Lender in accordance with any court order, law or regulation and in response to credit inquiries concerning Borrower.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.
Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Alabama without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Alabama.
Non-Liability of Lender. The relationship between Borrower and Lender created by this Agreement is strictly a debtor and creditor relationship and not fiduciary in nature, nor is the relationship to be construed as creating any partnership or joint venture between Lender and Borrower. Borrower is exercising Borrower's own judgment with respect to Borrower's business. All information supplied to Lender is for Lender's protection only and no other party is entitled to rely on such information. There is no duty for Lender to review, inspect, supervise or inform Borrower of any matter with respect to Borrower's business. Lender and Borrower intend that Lender may reasonably rely on all information supplied by Borrower to Lender, together with all representations and warranties given by Borrower to Lender, without investigation or confirmation by Lender and that any investigation or failure to investigate will not diminish Lender's right to so rely.
Notice of Lender's Breach. Borrower must notify Lender in writing of any breach of this Agreement or the Related Documents by Lender and any other claim, cause of action or offset against Lender within thirty (30) days after the occurrence of such breach or after the accrual of such claim, cause of action or offset. Borrower waives any claim, cause of action or offset for which notice is not given in accordance with this paragraph. Lender is entitled to rely on any failure to give such notice.
Indemnification of Lender. Borrower agrees to indemnify, to defend and to save and hold Lender harmless from any and all claims, suits, obligations, damages, losses, costs and expenses (including, without limitation, Lender's attorneys' fees), demands, liabilities, penalties, fines and forfeitures of any nature whatsoever that may be asserted against or incurred by Lender, its officers, directors, employees, and agents arising out of, relating to, or in any manner occasioned by this Agreement and the exercise of the rights and remedies granted Lender under this, as well as by: (1) the ownership, use, operation, construction, renovation, demolition, preservation, management, repair, condition, or maintenance of any part of the Collateral; (2) the exercise of any of Borrower's rights collaterally assigned and pledged to Lender hereunder; (3) any failure of Borrower to perform any of its obligations hereunder; and/or (4) any failure of Borrower to comply with the environmental and ERISA obligations, representations and warranties set forth herein. The foregoing indemnity provisions shall survive the cancellation of this Agreement as to all matters arising or accruing prior to such cancellation and the foregoing indemnity shall survive in the event that Lender elects to exercise any of the remedies as provided under this Agreement following default hereunder. Borrower's indemnity obligations under this section shall not in any way be affected by the presence or absence of covering insurance, or by the amount of such insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under any insurance policy or policies affecting the Collateral and/or Borrower's business activities. Should any claim, action or proceeding be made or brought against Lender by reason of any event as to which Borrower's indemnification obligations apply, then, upon Lender's demand, Borrower, at its sole cost and expense, shall defend such claim, action or proceeding in Borrower's name, if necessary, by the attorneys for Borrower's insurance carrier (if such claim, action or proceeding is covered by insurance), or otherwise by such attorneys as Lender shall approve. Lender may also engage its own attorneys at its reasonable discretion to defend Borrower and to assist in its defense and Borrower agrees to pay the fees and disbursements of such attorneys.
Counterparts. This Agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same Agreement.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.
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Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Sole Discretion of Lender. Whenever Lender's consent or approval is required under this Agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender and Lender's decision shall be final and conclusive.
Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates.
Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.
Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence. Time is of the essence in the performance of this Agreement.
Return Payment Fee. Borrower shall pay to Lender a returned payment fee if the Borrower or any other obligor hereon makes any payment at any time by check or other instrument, or by any electronic means, which is returned to Lender because of nonpayment due to nonsufficient funds.
Business Purpose. This instrument is entered into for a business purpose, does not evidence or constitute a “consumer transaction”, as defined in the Uniform Commercial Code, and none of the proceeds of the loan evidenced hereby have been or will be used for personal, family or household purposes.
WAIVER OF JURY TRIAL. UNLESS EXPRESSLY PROHIBITED BY APPLICABLE LAW, EACH BORROWER AND LENDER, IF A PARTY HERETO, HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY MATTERS OR CLAIMS ARISING OUT OF THIS INSTRUMENT OR AGREEMENT, ANY OF THE OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR OUT OF THE CONDUCT OF THE RELATIONSHIP BETWEEN ANY BORROWER AND LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN AND ENTER INTO THIS INSTRUMENT OR AGREEMENT. EACH BORROWER HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE OF LENDER, NOR LENDER’S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. FURTHER, NEITHER ANY REPRESENTATIVE OF LENDER, NOR LENDER'S COUNSEL, HAS THE AUTHORITY TO WAIVE, CONDITION OR MODIFY THIS PROVISION.
Stamps and other fees. The Borrower shall pay all federal or state stamp and recording taxes, or other fees or charges, if any are payable or are determined to be payable by reason of the execution, delivery, or issuance of this Agreement or the Related Documents or any security granted to the Lender; and the Borrower and Guarantor agree to indemnify and hold harmless Lender against any and all liability in respect thereof. Borrower shall pay all fees incurred by Lender for the appraisal of the Collateral obtained at any time after the date of this Agreement which Lender requires pursuant to federal or state regulations, in connection with any default or event of default under this Agreement and the Related Documents or restructure of the Loan, any material damage to or condemnation of the Collateral, or in connection with any foreclosure or forbearance. Such appraisal fees shall be payable on demand, shall accrue interest at the default rate set forth in the Note(s) following demand and shall be secured by the security documents executed by Borrower or any Grantor.
Transactions with affiliates. Borrower shall not directly or indirectly, sell, lease, transfer, or otherwise dispose of any of its property to, or purchase any property from, or enter into any contract, agreement, understanding, loan, advance, guarantee or transaction (including the rendering of services) with or for the benefit of, any Affiliate (each of the foregoing, an “Affiliate Transaction”), unless (a) such Affiliate Transaction or series of Affiliate Transactions is (i) in the best interest of Borrower and (ii) on terms that are no less favorable to Borrower than those that would have been obtained in a comparable arm’s-length transaction by Borrower with a person that is not an Affiliate. For purposes of this section, “Affiliate” shall mean any Borrower, any relative of any Borrower, any Guarantor, or any relative of any Borrower or an entity which is a parent, subsidiary, or any person or entity controlled by, or under the common control of, any Borrower, Guarantor, Borrower parent or subsidiary, Guarantor parent or subsidiary, or any relative of any Borrower or Guarantor.
Limitation on damages. In no event shall any party hereto be entitled to any consequential, incidental, punitive, special, exemplary or indirect damages for any breach or default under this Agreement.
No third party beneficiaries. This Agreement is not intended to confer upon any person other than Borrower and Lender any rights or remedies hereunder.
Construction. Each party hereto hereby acknowledges that all parties hereto participated equally in the drafting and/or negotiation of this Agreement and that, accordingly, no court when interpreting this Agreement shall construe it more stringently against one party than the other.
UNIFORM COMMERCIAL CODE. All references to the Uniform Commercial Code or UCC herein shall be to the Uniform Commercial Code as adopted by and under the laws of the jurisdiction governing this instrument or agreement.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:
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Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf on a line of credit or multiple advance basis under the terms and conditions of this Agreement.
Agreement. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time.
Borrower. The word "Borrower" means GIBSON TECHNICAL SERVICES, INC. and includes all co-signers and co-makers signing the Note and all their successors and assigns.
Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise.
Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and including all regulations and published interpretations of the act.
Event of Default. The words "Event of Default" mean individually, collectively, and interchangeably any of the events of default set forth in this Agreement in the default section of this Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan, and, in each case, Borrower's successors, assigns, heirs, personal representatives, executors and administrators of any guarantor, surety, or accommodation party.
Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.
Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.
Lender. The word "Lender" means TRUIST BANK, its successors and assigns.
Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time, and further including any and all subsequent amendments, additions, substitutions, renewals and refinancings of any of Borrower's Loans.
Note. The word "Note" means the Note dated August 19, 2021 and executed by GIBSON TECHNICAL SERVICES, INC. in the principal amount of $4,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.
Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.
Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean, individually, collectively, and interchangeably, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.
| BUSINESS LOAN AGREEMENT | ||
| Loan No: [redacted] | (Continued) | Page 9 |
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED AUGUST 19, 2021.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER:
GIBSON TECHNICAL SERVICES, INC.
| By: | /s/ Jon A. Martin | (Seal) | X | ||
| JON A. MARTIN, Chief Operating Officer of GIBSON | Witness | ||||
| TECHNICAL SERVICES, INC. |
LENDER:
TRUIST BANK
| By: | /s/ Joshua C Petty | (Seal) | |
| JOSHUA C PETTY, SENIOR VICE PRESIDENT | |||
LaserPro, Ver. 21.1.0.222 Copr. Finastra USA Corporation 1997, 2021. All Rights Reserved. - AL C:\LPL-PROD\CFI\LPL\C40.FC TR-236989 PR-156
PROMISSORY NOTE
|
Principal $4,000,000.00 |
Loan Date 08-19-2021 |
Maturity 08-19-2022 |
Loan No [redacted] |
Call / Coll |
Account [redacted] |
Officer 28953 |
Initials |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
|||||||
| Borrower: | GIBSON TECHNICAL SERVICES, INC. | Lender: | TRUIST BANK |
| 230 MOUNTAIN BROOK CT | Greater Birmingham - Commercial Loans | ||
| CANTON, GA 30115-9019 | 2501 20th Pl S | ||
| Birmingham, AL 35223-1723 | |||
| Principal Amount: $4,000,000.00 | Date of Note: August 19, 2021 |
PROMISE TO PAY. GIBSON TECHNICAL SERVICES, INC. ("Borrower") promises to pay to TRUIST BANK ("Lender"), or order, in lawful money of the United States of America, the principal amount of Four Million & 00/100 Dollars ($4,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on August 19, 2022. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning September 19, 2021, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law, payments will be applied to any unpaid collection costs, late and other charges and fees, accrued unpaid interest, and principal in such order as Lender may determine in its sole and absolute discretion. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the Daily Simple SOFR as described in the attached Addendum (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. Interest on the unpaid principal balance of this Note will be calculated as described in the "INTEREST CALCULATION METHOD" paragraph using a rate of 2.050 percentage points over the Index (the "Margin"). If Lender determines, in its sole discretion, that the Index has become unavailable or unreliable, either temporarily, indefinitely, or permanently, during the term of this Note, Lender may amend this Note by designating a substantially similar substitute index. Lender may also amend and adjust the Margin to accompany the substitute index. The change to the Margin may be a positive or negative value, or zero. In making these amendments, Lender may take into consideration any then-prevailing market convention for selecting a substitute index and margin for the specific Index that is unavailable or unreliable. Such an amendment to the terms of this Note will become effective and bind Borrower 10 business days after Lender gives written notice to Borrower without any action or consent of the Borrower. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law.
INTEREST CALCULATION METHOD. Interest on this Note is computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method. This calculation method results in a higher effective interest rate than the numeric interest rate stated in this Note.
REAMORTIZATION. In addition to other rights herein, Lender reserves the right in its sole discretion, from time to time, to (a) adjust any periodic fixed payment in such amounts and at such times to repay principal at the amortization period originally agreed upon and accruals of interest as the same becomes due, and (b) increase Borrower’s payments to pay all accruals of interest for the period and accruals of unpaid interest from previous periods.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked "paid in full", "without recourse", or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes "payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: TRUIST BANK, Greater Birmingham - Commercial Loans, 2501 20th Pl S, Birmingham, AL 35223-1723.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final maturity, the interest rate on this Note shall be increased by adding an additional 4.000 percentage point margin ("Default Rate Margin"). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. However, in no event will the interest rate exceed the maximum interest rate limitations under applicable law.
DEFAULT. Each of the following shall constitute an event of default ("Event of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this Note.
Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.
Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf, or made by Guarantor, or any other guarantor, endorser, surety, or accommodation party, under this Note or the related documents in connection with the obtaining of the loan evidenced by this Note or any security document directly or indirectly securing repayment of this Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
| PROMISSORY NOTE | ||
| Loan No: [redacted] | (Continued) | Page 2 |
Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.
Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the related documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.
Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all or any portion of the Collateral.
Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than ten thousand dollars ($10,000.00) against Borrower and the failure by Borrower to discharge the same, or cause it to be discharged, or bonded off to Lender's satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor, or any other guarantor, endorser, surety, or accommodation party of any of the indebtedness or any Guarantor, or any other guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.
LENDER'S RIGHTS. Upon the occurrence of any default described in the "Death or Insolvency" or "Creditor or Forfeiture Proceedings" clauses, to the extent that any such default by a guarantor relates to the matters described in the clause "Death or Insolvency" of the paragraph entitled "DEFAULT", the entire unpaid principal balance under this Note and all accrued unpaid interest shall become immediately due, without notice, declaration or other action by Lender, and then Borrower will pay that amount. Upon the occurrence of any other default described in that paragraph, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount.
RETURN PAYMENT FEE. Borrower shall pay to Lender a returned payment fee if the Borrower or any other obligor hereon makes any payment at any time by check or other instrument, or by any electronic means, which is returned to Lender because of nonpayment due to nonsufficient funds.
LENDER'S REMEDIES. Upon an Event of Default, in addition to Lender’s rights set forth above, Lender may, at its option and without notice to Borrower (i) cease making advances or disbursements; (ii) advance funds necessary to remedy any default or pay any lien filed against any of the Collateral; (iii) take possession of the Collateral or any part thereof; (iv) foreclose Lender’s security interest and/or lien on any Collateral in accordance with applicable law; (v) make demand upon any or all Guarantors; and (vi) exercise any other right or remedy which Lender has under the Note or any related documents or which is otherwise available at law or in equity. Upon an Event of Default, Lender may immediately apply the rate specified in the Interest After Default provision set forth above until the Indebtedness has been paid in full or until the default has been satisfactorily cured which may be allowed at the sole discretion of the Lender, and such rate shall apply after judgment. All of Lender’s rights and remedies shall be cumulative and may be exercised singularly or concurrently. Any election by Lender to pursue any remedy shall not exclude the right to pursue any other remedy unless expressly prohibited by law, and any election by Lender to make expenditures or to take action to perform an obligation of Borrower, or of any Grantor, shall not affect Lender’s right to declare a default and exercise its rights and remedies.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.
GOVERNING LAW. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Alabama without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Alabama.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph.
COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instruments listed herein:
A. a Commercial Security Agreement dated August 19, 2021 made and executed between GIBSON TECHNICAL SERVICES, INC. and Lender on collateral described as: inventory, chattel paper, accounts, equipment and general intangibles.
B. an Assignment of Deposit Account dated August 19, 2021 made and executed between GIBSON TECHNICAL SERVICES, INC. and Lender on collateral described as a deposit account.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs.
| PROMISSORY NOTE | ||
| Loan No: [redacted] | (Continued) | Page 3 |
FINANCIAL STATEMENTS. Borrower agrees to provide Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request.
REQUIRED INFORMATION FOR A NEW LOAN. To help the government fight the funding of terrorism and money laundering activities, federal law requires Lender to obtain, verify and record information that identifies each person or entity obtaining a loan including the Borrower’s legal name, address, tax identification number, date of birth, driver’s license, organizational documents or other identifying documents. Failure to provide the required information will result in a violation of the U.S. Patriot Act and will constitute a Default under this instrument or agreement. In addition, none of the Borrower, any of its affiliates, or any of their respective directors, officers, managers, partners, or any other authorized representatives is named as a "Specially Designated National and Blocked Person", on the list published by the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) at its official website.
BUSINESS PURPOSE. This instrument is entered into for a business purpose, does not evidence or constitute a “consumer transaction”, as defined in the Uniform Commercial Code, and none of the proceeds of the loan evidenced hereby have been or will be used for personal, family or household purposes.
USURY SAVINGS CLAUSE. It is the intention of Lender and Borrower to comply strictly with all applicable usury laws; and, accordingly, in no event shall Lender ever be entitled to charge, collect, or apply as interest any interest, fees, charges, or other payments equivalent to interest, in excess of the maximum rate which the Lender may lawfully charge under applicable state and federal statutes and laws from time to time in effect; and, in the event that Lender ever receives, collects, or applies as interest, any such excess, such amount which, but for this provision, would be excessive interest shall be applied to the reduction of the unpaid principal amount of the Note; and, if said principal amount and all lawful interest thereon is paid in full, any remaining excess shall be refunded to Borrower. All interest paid or agreed to be paid shall, to the maximum extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of the loan, including any renewals, until payment in full of the principal. Any provision hereof, or of any other agreement between Lender and Borrower, that operates to bind, obligate, or compel Borrower to pay interest in excess of such maximum lawful contract rate shall be construed to require the payment of the maximum rate only. The provisions of this paragraph shall be given precedence over any other provision contained herein or in any other agreement between Lender and Borrower that is in conflict with the provisions of this paragraph.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.
CHOICE OF VENUE. Any legal action with respect to the Indebtedness evidenced by this instrument or agreement may be brought in the courts of the State/Commonwealth/District in which Lender's branch office set forth above is located or in the appropriate United States District Court situated in such State/Commonwealth/District, and Borrower hereby accepts and unconditionally submits to the jurisdiction of such courts. Borrower hereby waives any objection to the laying of venue based on the grounds of forum non conveniens with respect thereto.
WAIVER OF JURY TRIAL. UNLESS EXPRESSLY PROHIBITED BY APPLICABLE LAW, EACH BORROWER AND LENDER, IF A PARTY HERETO, HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY MATTERS OR CLAIMS ARISING OUT OF THIS INSTRUMENT OR AGREEMENT, ANY OF THE OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR OUT OF THE CONDUCT OF THE RELATIONSHIP BETWEEN ANY BORROWER AND LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN AND ENTER INTO THIS INSTRUMENT OR AGREEMENT. EACH BORROWER HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE OF LENDER, NOR LENDER’S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. FURTHER, NEITHER ANY REPRESENTATIVE OF LENDER, NOR LENDER'S COUNSEL, HAS THE AUTHORITY TO WAIVE, CONDITION OR MODIFY THIS PROVISION.
NOTICES. Any notice required to be given under this Note shall be given in writing, and shall be effective when actually delivered, when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Note. Any party may change its address for notices under this Note by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party’s address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower’s current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.
SEVERABILITY. If a court of competent jurisdiction finds any provision of this Note to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision, illegal, invalid, or unenforceable as to any other circumstances. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Note. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Note shall not affect the legality, validity of enforceability of any other provision of this Note.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Note.
INTERPRETATION. In all cases where there is more than one Borrower, then all words used in this Note in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Note or when this Note is executed by more than one Borrower, the words “Borrower” shall mean all and any one or more of them. The words “Borrower” and “Lender” include the heirs, successors, assigns, and transferees of each of them. Wherever possible, the provisions of this Note shall be interpreted in such a manner to be effective and valid under applicable law, but if any provision shall be determined to be invalid under such law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note. If any one or more of Borrower are corporations, partnerships, limited liability companies, or similar entities, it is not necessary for Lender to inquire into the powers of Borrower or of the officers, directors, partners, managers, or other agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Note.
UNIFORM COMMERCIAL CODE. All references to the Uniform Commercial Code or UCC herein shall be to the Uniform Commercial Code as adopted by and under the laws of the jurisdiction governing this instrument or agreement.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several.
| PROMISSORY NOTE | ||
| Loan No: [redacted] | (Continued) | Page 4 |
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
THIS NOTE IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS NOTE IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER:
GIBSON TECHNICAL SERVICES, INC.
| By: | /s/ Jon A. Martin | (Seal) | X | ||
| JON A. MARTIN, Chief Operating Officer of GIBSON | Witness | ||||
| TECHNICAL SERVICES, INC. | |||||
LaserPro, Ver. 21.1.0.222 Copr. Finastra USA Corporation 1997, 2021. All Rights Reserved. - AL C:\LPL
COMMERCIAL SECURITY AGREEMENT
|
Principal $4,000,000.00 |
Loan Date 08-19-2021 |
Maturity 08-19-2022 |
Loan No [redacted] |
Call / Coll |
Account [redacted] |
Officer 28953 |
Initials |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
|||||||
| Grantor: | GIBSON TECHNICAL SERVICES, INC. | Lender: | TRUIST BANK |
| 230 MOUNTAIN BROOK CT | Greater Birmingham - Commercial Loans | ||
| CANTON, GA 30115-9019 | 2501 20th Pl S | ||
| Birmingham, AL 35223-1723 | |||
THIS COMMERCIAL SECURITY AGREEMENT dated August 19, 2021, is made and executed between GIBSON TECHNICAL SERVICES, INC. ("Grantor") and TRUIST BANK ("Lender").
GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.
COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement:
All inventory, equipment, accounts (including but not limited to all health-care-insurance receivables), chattel paper, instruments (including but not limited to all promissory notes), letter-of-credit rights, letters of credit, documents, deposit accounts, investment property, money, other rights to payment and performance, and general intangibles (including but not limited to all software and all payment intangibles); together with, all insurance policies and refunds, all good will, all records and data and embedded software, all equipment, inventory and software to utilize, create, maintain and process any records and data on electronic media, and all supporting obligations relating to the foregoing property; all whether now existing or hereafter arising, whether now owned or hereafter acquired and wherever located; and all accessions, additions, substitutions, replacements, products and proceeds (including but not limited to all insurance payments) of or relating to the foregoing.
In addition, the word "Collateral" also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:
(A) All accessions, attachments, accessories, tools, parts, supplies, replacements of and additions to any of the collateral described herein, whether added now or later.
(B) All products and produce of any of the property described in this Collateral section.
(C) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section.
(D) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party's insurer, whether due to judgment, settlement or other process.
(E) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.
CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable.
FUTURE ADVANCES. In addition to the Note, this Agreement secures all future advances made by Lender to Grantor regardless of whether the advances are made a) pursuant to a commitment or b) for the same purposes.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that:
Organization. Grantor is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Georgia. Grantor is duly authorized to transact business in the State of Alabama and all other states in which Grantor is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Grantor is doing business. Specifically, Grantor is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Grantor has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Grantor maintains an office at 230 MOUNTAIN BROOK CT, CANTON, GA 30115-9019. Unless Grantor has designated otherwise in writing, the principal office is the office at which Grantor keeps its books and records including its records concerning the Collateral. Grantor will notify Lender prior to any change in the location of Grantor's state of organization or any change in Grantor's name. Grantor shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Grantor and Grantor's business activities.
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Authorization. Grantor's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Grantor, do not require the consent or approval of any other person, regulatory authority, or governmental body, and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Grantor's articles of incorporation or organization, or bylaws, or (b) any agreement or other instrument binding upon Grantor or (2) any law, governmental regulation, court decree, or order applicable to Grantor or to Grantor's properties. Grantor has the power and authority to enter into the Note and the Related Documents and to grant collateral as security for the Indebtedness. Grantor has the further power and authority to own and to hold all of Grantor's assets and properties, and to carry on Grantor's business as presently conducted.
Perfection of Security Interest. Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender.
Notices to Lender. Grantor will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor's name; (2) change in Grantor's assumed business name(s); (3) change in the management of the Corporation Grantor; (4) change in the authorized signer(s); (5) change in Grantor's principal office address; (6) change in Grantor's state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor's name or state of organization will take effect until after Lender has received notice. Grantor represents and warrants to Lender that Grantor has provided Lender with Grantor's correct Employer Identification Number. Grantor promptly shall notify Lender should Grantor apply for or obtain a new Employer Identification Number.
No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or previously shipped or delivered pursuant to a contract of sale, or for services previously performed by Grantor with or for the account debtor. So long as this Agreement remains in effect, Grantor shall not, without Lender's prior written consent, compromise, settle, adjust, or extend payment under or with regard to any such Accounts. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.
Location of the Collateral. Except in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts or general intangibles, the records concerning the Collateral) at Grantor's address shown above or at such other locations as are acceptable to Lender. Upon Lender's request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located. Collateral consisting of inventory and other goods is not currently located and, as long as this Agreement remains in effect, will not be kept in a field or public warehouse or with a bailee, and shall be kept only at locations approved by Lender. Grantor will not permit any of the Collateral to be incorporated in or placed upon any real (immovable) property in such a way that it becomes immobilized under applicable Georgia law. Upon Lender's request, Grantor shall cause any owners or mortgagees of the real property upon which any of of the Collateral may be located to furnish to Lender waivers with respect to any rights in or to the Collateral.
Removal of the Collateral. Except in the ordinary course of Grantor's business, including the sales of inventory, Grantor shall not remove the Collateral from its existing location without Lender's prior written consent. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Georgia, without Lender's prior written consent. If Grantor moves from Grantor's address shown above to another location within the same state, Grantor may move the Collateral to Grantor's new address, but only if Grantor gives Lender the new address in writing prior to Grantor's moving. In any event, Grantor agrees to keep Lender informed at all times of Grantor's current address. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral.
Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor's business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons.
Collateral Schedules and Locations. As often as Lender shall require, and insofar as the Collateral consists of accounts and general intangibles, Grantor shall deliver to Lender schedules of such Collateral, including such information as Lender may require, including without limitation names and addresses of account debtors and agings of accounts and general intangibles. Insofar as the Collateral consists of inventory and equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descriptions, and designations of such Collateral as Lender may require to identify the nature, extent, and location of such Collateral. Such information shall be submitted for Grantor and each of its subsidiaries or related companies.
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Inspection of Collateral. Lender and Lender's designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located.
Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings.
Repairs and Maintenance. Grantor shall keep and maintain and shall cause others to keep and maintain the Collateral in good order, repair and merchantable condition. Grantor shall further make and/or cause all necessary repairs to be made to the Collateral, including the repair and restoration of any portion of the Collateral that may be damaged, lost or destroyed. In addition, Grantor shall not, without the prior written consent of Lender, make or permit to be made any alterations to any of the Collateral that may reduce or impair the Collateral's use, value or marketability. Furthermore, Grantor shall not, nor shall Grantor permit others to abandon, commit waste, or destroy the Collateral or any part or parts thereof. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized.
Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify and defend shall survive the payment of the Indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses "single interest insurance," which will cover only Lender's interest in the Collateral.
Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness.
Required Insurance. So long as this Agreement remains in effect, Grantor shall, at its sole cost, keep and/or cause others, at their expense, to keep the Collateral constantly insured against loss by fire, by hazards included within the term "extended coverage," and by such other hazards (including flood insurance where applicable) as may be required by Lender.
Insurance Proceeds. Lender shall have the right to directly receive the proceeds of all insurance protecting the Collateral. In the event that Grantor should receive any such insurance proceeds, Grantor agrees to immediately turn over and to pay such proceeds directly to Lender. All insurance proceeds may be applied, at its sole option and discretion, and in such a manner as Lender may determine (after payment of all reasonable costs, expenses and attorneys' fees necessarily paid or fees necessarily paid or incurred by Lender in this connection), for the purpose of: (1) repairing or restoring the lost, damaged or destroyed Collateral; or (2) reducing the then outstanding balance of Grantor's Indebtedness.
Lender's receipt of such insurance proceeds and the application of such proceeds as provided herein shall not, however, affect the lien of this Agreement. Nothing under this section shall be deemed to excuse Grantor from its obligations promptly to repair, replace or restore any lost or damaged Collateral, whether or not the same may be covered by insurance, and whether or not such proceeds of insurance are available, and whether such proceeds are sufficient in amount to complete such repair, replacement or restoration to the satisfaction of Lender. Furthermore, unless otherwise confirmed by Lender in writing, the application or release of any insurance proceeds by Lender shall not be deemed to cure or waive any Event of Default under this Agreement. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness.
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Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.
Prior Encumbrances. To the extent applicable, Grantor shall fully and timely perform any and all of Grantor's obligations under any prior Encumbrances affecting the Collateral. Without limiting the foregoing, Grantor shall not commit or permit to exist any breach of or default under any such prior Encumbrances. Grantor shall further promptly notify Lender in writing upon the occurrence of any event or circumstances that would, or that might, result in a breach of or default under any such prior Encumbrance. Grantor shall further not modify or extend any of the terms of any prior Encumbrance or any indebtedness secured thereby, or request or obtain any additional loans or other extensions of credit from any third party creditor or creditors whenever such additional loan advances or other extensions of credit may be directly or indirectly secured, whether by cross-collateralization or otherwise, by the Collateral, or any part or parts thereof, with possible preference and priority over Lender's security interest. Grantor additionally agrees to obtain, upon Lender's request, and in form and substance as may then be satisfactory to Lender, appropriate waivers and subordinations of any lessor's liens or privileges, vendor's liens or privileges, purchase money security interests, and any other Encumbrances that may affect the Collateral at any time.
Future Encumbrances. Grantor shall not, without the prior written consent of Lender, grant any Encumbrance that may affect the Collateral, or any part or parts thereof, nor shall Grantor permit or consent to any Encumbrance attaching to or being filed against any of the Collateral in favor of anyone other than Lender. Grantor shall further promptly pay when due all statements and charges of mechanics, materialmen, laborers and others incurred in connection with the alteration, improvement, repair and maintenance of the Collateral, or otherwise furnish appropriate security or bond, so that no future Encumbrance may ever attach to or be filed against any Collateral. In the event that the Collateral or any part or parts thereof is and/or may be located in and/or on leased premises, Grantor shall promptly pay the full amount of such rental or lease payments whenever the same shall be due so that no lessor's lien or privilege may ever attach to or affect any of the Collateral with possible preference and priority over the lien of this Agreement. In the event that any of the Collateral is purchased or otherwise acquired by Grantor on a credit or deferred payment sales basis, Grantor shall promptly pay the full amount of the purchase or acquisition price of such Collateral so that no vendor's lien or privilege, or purchase money security interest, may ever attach to or be asserted against any of the Collateral with possible preference and priority over the lien of this Agreement. Grantor additionally agrees to obtain, upon request by Lender, and in form and substance as may then be satisfactory to Lender, appropriate waivers and/or subordinations of any lessor's liens or privileges, vendor's liens or privileges, purchase money security interests, and any other Encumbrances that may affect the Collateral at any time.
As long as this Agreement remains in effect, Grantor will not permit any levy, attachment or restraint to be made affecting any of the Collateral, or permit any notice of lien to be filed with respect to the Collateral or any part or parts thereof, or permit any receiver, trustee, custodian or assignee for the benefit of creditors to be appointed to take possession of any of the Collateral. Notwithstanding the foregoing, Grantor may, at its sole expense, contest in good faith by appropriate proceedings the validity or amount of any levy, attachment, restraint or lien filed against or affecting the Collateral, or any part or parts thereof; provided that (1) Grantor notifies Lender in advance of Grantor's intent to contest such a levy, attachment, restraint or lien, and (2) Grantor provides additional security to Lender, in form and amount satisfactory to Lender.
Notice of Encumbrances. Grantor shall immediately notify Lender in writing upon the filing of any attachment, lien, judicial process, claim, or other Encumbrance. Grantor additionally agrees to notify Lender immediately in writing upon the occurrence of any default, or event that with the passage of time, failure to cure, or giving of notice, might result in a default under any of Grantor's obligations that may be secured by any presently existing or future Encumbrance, or that might result in an Encumbrance affecting the Collateral, or should any of the Collateral be seized or attached or levied upon, or threatened by seizure or attachment or levy, by any person other than Lender.
Books and Records. Grantor will keep proper books and records with regard to Grantor's business activities and the Collateral in which a security interest is granted hereunder, in accordance with GAAP, applied on a consistent basis throughout, which books and records shall at all reasonable times be open to inspection and copying by Lender or Lender's designated agents. Lender shall also have the right to inspect Grantor's books and records, and to discuss Grantor's affairs and finances with Grantor's officers and representatives, at such reasonable times as Lender may designate.
Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement.
Grantor’s Name. The Grantor’s exact legal name is as set forth in the first paragraph of this Agreement.
CONSIDERATION. Grantor represents to Lender that the granting of the loan or other financial accommodations from Lender to Borrower will benefit, directly or indirectly, Grantor. Grantor acknowledges that Lender is relying upon this representation in extending the loan or other financial accommodations to Borrower.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.
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ADDITIONAL COVENANTS. Grantor additionally agrees:
No Settlement or Compromise. Grantor will not, without the prior written consent of Lender, compromise, settle, adjust or extend payment under any of the Collateral.
Books and Records. Grantor will keep proper books and records with regard to Grantor's business activities and the Collateral, which books and records shall at all times be open to inspection and copying by Lender or its designated agent. Lender shall also have the right to inspect Grantor's books and records, and to discuss Grantor's affairs and finances with Grantor at such reasonable times as Lender may designate.
Aging of Accounts. Grantor will periodically, at such intervals requested by Lender, furnish Lender with an aging of that part of the Collateral consisting of accounts, together with a certificate executed by an officer of Grantor, in such form and containing such representations and warranties regarding the accounts as Lender may reasonably require.
Lock Box. Grantor agrees that Lender may at any time require Grantor to institute procedures whereby the proceeds and/or payments of any accounts subject to this Agreement shall be paid by the debtors thereof under a lock box arrangement to Lender, or to Lender's agent, or to one or more financial institutions designated by Lender. Grantor further agrees that, if no Event of Default exists under this Agreement, any and all of such funds received under such a lock box arrangement shall, at Lender's sole election and discretion, either be: (a) paid and/or turned over to Grantor; (b) deposited into one or more accounts for the benefit of Grantor (which deposit accounts shall be subject to collateral assignment and pledge in favor of Lender as provided under this Agreement); (c) deposited into one or more accounts for the joint benefit of Grantor and Lender (which deposit accounts shall likewise be subject to assignment and pledge in favor of Lender as provided under this Agreement); (d) paid and/or turned over to Lender to be applied to the Indebtedness in such order and priority as Lender may determine within its sole discretion; or (e) any combination of the foregoing as Lender shall determine from time to time. Grantor further agrees that, should one or more Events of Default exist under this Agreement, any and all funds received under such a lock box arrangement shall be paid and/or turned over to Lender to be applied to principal, accrued interest, costs, expenses, attorneys' fees and other fees and charges under the Indebtedness, again in such order and priority as Lender may determine within its sole discretion.
Notice to Obligors. Upon request by Lender, Grantor immediately will notify individual obligors with regard to the Collateral, advising such obligors of the fact that Lender has been granted a security interest in their obligations. In the event that Grantor should fail to provide such notices for any reason upon Lender's request, Grantor agrees that Lender may forward appropriate notices to such obligors and debtors either in Lender's name or in Grantor's name.
Additional Documents. Grantor shall at any time, from time to time, one or more times, upon Lender's written request, execute and deliver such further documents and do any and all such further acts and things as Lender may reasonably request, within Lender's sole discretion, to effect the purposes of this Agreement.
Verifications. Grantor additionally agrees that Lender or Lender's agents may periodically contact individual debtors whose notes, instruments and chattel paper have been assigned and pledged under this Agreement in order to verify the amounts then owing under such obligations, to determine whether such debtors have any offsets or counterclaims against Grantor, and with respect to such other matters about which Lender may inquire.
Notification of Lender. Grantor will promptly deliver to Lender all written notices, and will promptly give Lender written notice of any other notices received by Grantor with respect to the Collateral and Rights, and Lender will promptly give like notice to Grantor of any such notices received by Lender or its nominee.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note, or the maximum rate permitted by law, whichever is less, from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of any Event of Default.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Grantor fails to make any payment when due under the Indebtedness.
Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor.
Default in Favor of Third Parties. Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor's property or ability to perform Grantor's obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf, or made by Guarantor, or any other guarantor, endorser, surety, or accommodation party, under this Agreement or the Related Documents in connection with the obtaining of the Indebtedness evidenced by the Note or any security document directly or indirectly securing repayment of the Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.
| COMMERCIAL SECURITY AGREEMENT | ||
| Loan No: [redacted] | (Continued) | Page 6 |
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.
Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the Related Documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.
Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all or any portion of the Collateral.
Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than ten thousand dollars ($10,000.00) against Grantor and the failure by Grantor to discharge the same, or cause it to be discharged, or bonded off to Lender's satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor, or any other guarantor, endorser, surety, or accommodation party of any of the Indebtedness or Guarantor, or any other guarantor, endorser, surety, or accommodation party dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.
Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Georgia Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness, including any prepayment penalty which Grantor would be required to pay, immediately due and payable, without notice of any kind to Grantor.
Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person's right to notification of sale. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.
Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.
Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender's discretion transfer any Collateral into Lender's own name or that of Lender's nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.
Election of Remedies. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies.
NO MARSHALLING. Grantor hereby waives the right to (i) require Lender to marshal the Collateral or any other assets or Property of Grantor or (ii) require that Lender resort to any particular Property or any part thereof.
CHOICE OF VENUE. Any legal action with respect to the Indebtedness evidenced by this instrument or agreement may be brought in the courts of the State/Commonwealth/District in which Lender's branch office set forth above is located or in the appropriate United States District Court situated in such State/Commonwealth/District, and Grantor hereby accepts and unconditionally submits to the jurisdiction of such courts. Grantor hereby waives any objection to the laying of venue based on the grounds of forum non conveniens with respect thereto.
| COMMERCIAL SECURITY AGREEMENT | ||
| Loan No: [redacted] | (Continued) | Page 7 |
ADDITIONAL INDEBTEDNESS SECURED. This Agreement shall secure the Indebtedness and any other amounts as set forth herein which Grantor or Borrower may owe to Lender, whether direct or indirect, now existing or hereafter arising, contingent or otherwise, and whether arising under this security instrument or otherwise, including without limitation (i) any advances made by Lender to pay drawings on any irrevocable standby or commercial letter of credit issued on the account of Grantor or Borrower pursuant to an application therefor, (ii) any obligation under a Hedge Agreement. “Hedge Agreement” means an agreement between Borrower and Lender, now existing or hereafter entered into, which provides for an interest rate, credit, commodity, equity swap, cap floor, collar, spot or forward foreign exchange transaction, currency swap, cross-currency rate swap, currency option or any similar transaction or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging Grantor’s or Borrower’s exposure to fluctuations in interest or exchange rates, loan, credit, exchange, security or currency valuations or currency prices pursuant to any ISDA Master agreement executed by Grantor or Borrower and all Schedules and Confirmations entered into in connection therewith or otherwise, (iii) all amounts expended to preserve or protect the Property, and (iv) all Lender’s Expenditures as set forth herein, all of which shall be included in the Indebtedness, as defined herein.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Subject to any limits under applicable law, costs and expenses include fifteen percent (15%) of the principal plus accrued interest collected as Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Governing Law. With respect to procedural matters related to the perfection and enforcement of Lender's rights against the Collateral, this Agreement will be governed by federal law applicable to Lender and to the extent not preempted by federal law, the laws of the State of Georgia. In all other respects, this Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Alabama without regard to its conflicts of law provisions. However, if there ever is a question about whether any provision of this Agreement is valid or enforceable, the provision that is questioned will be governed by whichever state or federal law would find the provision to be valid and enforceable. The loan transaction that is evidenced by the Note and this Agreement has been applied for, considered, approved and made, and all necessary loan documents have been accepted by Lender in the State of Alabama.
Non-Liability of Lender. The relationship between Grantor and Lender created by this Agreement is strictly a debtor and creditor relationship and not fiduciary in nature, nor is the relationship to be construed as creating any partnership or joint venture between Lender and Grantor. Grantor is exercising Grantor's own judgment with respect to Grantor's business. All information supplied to Lender is for Lender's protection only and no other party is entitled to rely on such information. There is no duty for Lender to review, inspect, supervise or inform Grantor of any matter with respect to Grantor's business. Lender and Grantor intend that Lender may reasonably rely on all information supplied by Grantor to Lender, together with all representations and warranties given by Grantor to Lender, without investigation or confirmation by Lender and that any investigation or failure to investigate will not diminish Lender's right to so rely.
Notice of Lender's Breach. Grantor must notify Lender in writing of any breach of this Agreement or the Related Documents by Lender and any other claim, cause of action or offset against Lender within thirty (30) days after the occurrence of such breach or after the accrual of such claim, cause of action or offset. Grantor waives any claim, cause of action or offset for which notice is not given in accordance with this paragraph. Lender is entitled to rely on any failure to give such notice.
Indemnification of Lender. Grantor agrees to indemnify, to defend and to save and hold Lender harmless from any and all claims, suits, obligations, damages, losses, costs and expenses (including, without limitation, Lender's attorneys' fees), demands, liabilities, penalties, fines and forfeitures of any nature whatsoever that may be asserted against or incurred by Lender, its officers, directors, employees, and agents arising out of, relating to, or in any manner occasioned by this Agreement and the exercise of the rights and remedies granted Lender under this, as well as by: (1) the ownership, use, operation, construction, renovation, demolition, preservation, management, repair, condition, or maintenance of any part of the Collateral; (2) the exercise of any of Grantor's rights collaterally assigned and pledged to Lender hereunder; (3) any failure of Grantor to perform any of its obligations hereunder; and/or (4) any failure of Grantor to comply with the environmental and ERISA obligations, representations and warranties set forth herein. The foregoing indemnity provisions shall survive the cancellation of this Agreement as to all matters arising or accruing prior to such cancellation and the foregoing indemnity shall survive in the event that Lender elects to exercise any of the remedies as provided under this Agreement following default hereunder. Grantor's indemnity obligations under this section shall not in any way be affected by the presence or absence of covering insurance, or by the amount of such insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under any insurance policy or policies affecting the Collateral and/or Grantor's business activities. Should any claim, action or proceeding be made or brought against Lender by reason of any event as to which Grantor's indemnification obligations apply, then, upon Lender's demand, Grantor, at its sole cost and expense, shall defend such claim, action or proceeding in Grantor's name, if necessary, by the attorneys for Grantor's insurance carrier (if such claim, action or proceeding is covered by insurance), or otherwise by such attorneys as Lender shall approve. Lender may also engage its own attorneys at its reasonable discretion to defend Grantor and to assist in its defense and Grantor agrees to pay the fees and disbursements of such attorneys.
No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
| COMMERCIAL SECURITY AGREEMENT | ||
| Loan No: [redacted] | (Continued) | Page 8 |
Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.
Power of Attorney. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Sole Discretion of Lender. Whenever Lender's consent or approval is required under this Agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender and Lender's decision shall be final and conclusive.
Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.
Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full.
Time is of the Essence. Time is of the essence in the performance of this Agreement.
WAIVER OF JURY TRIAL. UNLESS EXPRESSLY PROHIBITED BY APPLICABLE LAW, EACH GRANTOR AND LENDER, IF A PARTY HERETO, HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY MATTERS OR CLAIMS ARISING OUT OF THIS INSTRUMENT OR AGREEMENT, ANY OF THE OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR OUT OF THE CONDUCT OF THE RELATIONSHIP BETWEEN ANY GRANTOR AND LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN AND ENTER INTO THIS INSTRUMENT OR AGREEMENT. EACH GRANTOR HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE OF LENDER, NOR LENDER’S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. FURTHER, NEITHER ANY REPRESENTATIVE OF LENDER, NOR LENDER'S COUNSEL, HAS THE AUTHORITY TO WAIVE, CONDITION OR MODIFY THIS PROVISION.
UNIFORM COMMERCIAL CODE. All references to the Uniform Commercial Code or UCC herein shall be to the Uniform Commercial Code as adopted by and under the laws of the jurisdiction governing this instrument or agreement.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:
Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.
Borrower. The word "Borrower" means GIBSON TECHNICAL SERVICES, INC. and includes all co-signers and co-makers signing the Note and all their successors and assigns.
Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.
Encumbrance. The word "Encumbrance" means any and all presently existing or future mortgages, liens, privileges and other contractual and statutory security interests and rights, of every nature and kind, whether in admiralty, at law, or in equity, that now and/or in the future may affect the Collateral or any part or parts thereof.
Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.
Event of Default. The words "Event of Default" mean individually, collectively, and interchangeably any of the events of default set forth in this Agreement in the default section of this Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
Grantor. The word "Grantor" means GIBSON TECHNICAL SERVICES, INC..
Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Indebtedness, and, in each case, Grantor's successors, assigns, heirs, personal representatives, executors and administrators of any guarantor, surety, or accommodation party.
Guaranty. The word "Guaranty" means the guaranty from Guarantor, or any other guarantor, endorser, surety, or accommodation party to Lender, including without limitation a guaranty of all or part of the Note.
Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.
| COMMERCIAL SECURITY AGREEMENT | ||
| Loan No: [redacted] | (Continued) | Page 9 |
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes the future advances set forth in the Future Advances provision, together with all interest thereon and all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement.
Lender. The word "Lender" means TRUIST BANK, its successors and assigns.
Note. The word "Note" means the Note dated August 19, 2021 and executed by GIBSON TECHNICAL SERVICES, INC. in the principal amount of $4,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.
Property. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement.
Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.
Rights. The word "Rights" means individually, collectively and interchangeably any and all of Grantor's additional rights granted and pledged to Lender as provided under this Agreement.
GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 19, 2021.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR:
GIBSON TECHNICAL SERVICES, INC.
| By: | /s/ Jon A. Martin | (Seal) | X | ||
| JON A. MARTIN, Chief Operating Officer of GIBSON | Witness | ||||
| TECHNICAL SERVICES, INC. | |||||
LaserPro, Ver. 21.1.0.222 Copr. Finastra USA Corporation 1997, 2021. All Rights Reserved. - GA/AL C:\LPL-PROD\CFI\LPL\E40.FC TR-236989 PR-156
ASSIGNMENT OF DEPOSIT ACCOUNT
|
Principal $4,000,000.00 |
Loan Date 08-19-2021 |
Maturity 08-19-2022 |
Loan No [redacted] |
Call / Coll |
Account [redacted] |
Officer 28953 |
Initials |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
|||||||
| Grantor: | GIBSON TECHNICAL SERVICES, INC. | Lender: | TRUIST BANK |
| 230 MOUNTAIN BROOK CT | Greater Birmingham - Commercial Loans | ||
| CANTON, GA 30115-9019 | 2501 20th Pl S | ||
| Birmingham, AL 35223-1723 | |||
THIS ASSIGNMENT OF DEPOSIT ACCOUNT dated August 19, 2021, is made and executed between GIBSON TECHNICAL SERVICES, INC. ("Grantor") and TRUIST BANK ("Lender").
ASSIGNMENT. For valuable consideration, Grantor assigns and grants to Lender a security interest in the Collateral, including without limitation the deposit account(s) described below, to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.
COLLATERAL DESCRIPTION. The word "Collateral" means the following described deposit account(s) ("Account"):
Checking Account Number [redacted] with Lender
together with (A) all interest, whether now accrued or hereafter accruing; (B) all additional deposits hereafter made to the Account; (C) any and all proceeds from the Account; and (D) all renewals, replacements and substitutions for any of the foregoing.
CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise, and whether recovery upon such amounts may be or hereafter may become barred by any statute of limitations, and whether the obligation to repay such amounts may be or hereafter may become otherwise unenforceable.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph.
GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that:
Ownership. Grantor is the lawful owner of the Collateral free and clear of all loans, liens, encumbrances, and claims except as disclosed to and accepted by Lender in writing.
Right to Grant Security Interest. Grantor has the full right, power, and authority to enter into this Agreement and to assign the Collateral to Lender.
No Prior Assignment. Grantor has not previously granted a security interest in the Collateral to any other creditor.
No Further Transfer. Grantor shall not sell, assign, encumber, or otherwise dispose of any of Grantor's rights in the Collateral except as provided in this Agreement.
No Defaults. There are no defaults relating to the Collateral, and there are no offsets or counterclaims to the same. Grantor will strictly and promptly do everything required of Grantor under the terms, conditions, promises, and agreements contained in or relating to the Collateral.
Proceeds. Any and all replacement or renewal certificates, instruments, or other benefits or proceeds related to the Collateral that are received by Grantor shall be held by Grantor in trust for Lender and immediately shall be delivered by Grantor to Lender to be held as part of the Collateral.
Validity; Binding Effect. This Agreement is binding upon Grantor and Grantor's successors and assigns and is legally enforceable in accordance with its terms.
Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement.
LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. While this Agreement is in effect, Lender may retain the rights to possession of the Collateral, together with any and all evidence of the Collateral, such as certificates or passbooks. This Agreement will remain in effect until (a) there no longer is any Indebtedness owing to Lender; (b) all other obligations secured by this Agreement have been fulfilled; and (c) Grantor, in writing, has requested from Lender a release of this Agreement.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note, or the maximum rate permitted by law, whichever is less, from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of any Event of Default.
| ASSIGNMENT OF DEPOSIT ACCOUNT | ||
| Loan No: [redacted] | (Continued) | Page 2 |
LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical preservation and custody of any certificate or passbook for the Collateral but shall have no other obligation to protect the Collateral or its value. In particular, but without limitation, Lender shall have no responsibility (A) for the collection or protection of any income on the Collateral; (B) for the preservation of rights against issuers of the Collateral or against third persons; (C) for ascertaining any maturities, conversions, exchanges, offers, tenders, or similar matters relating to the Collateral; nor (D) for informing the Grantor about any of the above, whether or not Lender has or is deemed to have knowledge of such matters.
DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:
Payment Default. Grantor fails to make any payment when due under the Indebtedness.
Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor.
Default in Favor of Third Parties. Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Grantor's property or ability to perform Grantor's obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf, or made by Guarantor, or any other guarantor, endorser, surety, or accommodation party, under this Agreement or the Related Documents in connection with the obtaining of the Indebtedness evidenced by the Note or any security document directly or indirectly securing repayment of the Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.
Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.
Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the Related Documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.
Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all or any portion of the Collateral.
Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than ten thousand dollars ($10,000.00) against Grantor and the failure by Grantor to discharge the same, or cause it to be discharged, or bonded off to Lender's satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.
Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor, or any other guarantor, endorser, surety, or accommodation party of any of the Indebtedness or Guarantor, or any other guarantor, endorser, surety, or accommodation party dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.
Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an Event of Default, or at any time thereafter, Lender may exercise any one or more of the following rights and remedies, in addition to any rights or remedies that may be available at law, in equity, or otherwise:
Accelerate Indebtedness. Lender may declare all Indebtedness of Grantor to Lender immediately due and payable, without notice of any kind to Grantor.
Application of Account Proceeds. Lender may take directly all funds in the Account and apply them to the Indebtedness. If the Account is subject to an early withdrawal penalty, that penalty shall be deducted from the Account before its application to the Indebtedness, whether the Account is with Lender or some other institution. Any excess funds remaining after application of the Account proceeds to the Indebtedness will be paid to Grantor as the interests of Grantor may appear. Grantor agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Account to the Indebtedness. Lender also shall have all the rights of a secured party under the Georgia Uniform Commercial Code, even if the Account is not otherwise subject to such Code concerning security interests, and the parties to this Agreement agree that the provisions of the Code giving rights to a secured party shall nonetheless be a part of this Agreement.
Transfer Title. Lender may effect transfer of title upon sale of all or part of the Collateral. For this purpose, Grantor irrevocably appoints Lender as Grantor's attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable.
| ASSIGNMENT OF DEPOSIT ACCOUNT | ||
| Loan No: [redacted] | (Continued) | Page 3 |
Other Rights and Remedies. Lender shall have and may exercise any or all of the rights and remedies of a secured creditor under the provisions of the Georgia Uniform Commercial Code, at law, in equity, or otherwise.
Deficiency Judgment. If permitted by applicable law, Lender may obtain a judgment for any deficiency remaining in the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this section.
Election of Remedies. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies.
Cumulative Remedies. All of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies.
WAIVER OF JURY TRIAL. UNLESS EXPRESSLY PROHIBITED BY APPLICABLE LAW, EACH GRANTOR AND LENDER, IF A PARTY HERETO, HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY MATTERS OR CLAIMS ARISING OUT OF THIS INSTRUMENT OR AGREEMENT, ANY OF THE OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR OUT OF THE CONDUCT OF THE RELATIONSHIP BETWEEN ANY GRANTOR AND LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN AND ENTER INTO THIS INSTRUMENT OR AGREEMENT. EACH GRANTOR HEREBY CERTIFIES THAT NEITHER ANY REPRESENTATIVE OF LENDER, NOR LENDER’S COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT LENDER WOULD NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. FURTHER, NEITHER ANY REPRESENTATIVE OF LENDER, NOR LENDER'S COUNSEL, HAS THE AUTHORITY TO WAIVE, CONDITION OR MODIFY THIS PROVISION.
CHOICE OF VENUE. Any legal action with respect to the Indebtedness evidenced by this instrument or agreement may be brought in the courts of the State/Commonwealth/District in which Lender's branch office set forth above is located or in the appropriate United States District Court situated in such State/Commonwealth/District, and Grantor hereby accepts and unconditionally submits to the jurisdiction of such courts. Grantor hereby waives any objection to the laying of venue based on the grounds of forum non conveniens with respect thereto.
CONSIDERATION. Grantor represents to Lender that the granting of the loan or other financial accommodations from Lender to Borrower will benefit, directly or indirectly, Grantor. Grantor acknowledges that Lender is relying upon this representation in extending the loan or other financial accommodations to Borrower.
RIGHT TO PLACE HOLD ON ACCOUNT. Grantor agrees that Lender will place a hold on funds in the Account in the amount of $2,000,000.00 on the date hereof, and Grantor may withdraw only such funds in excess of the amount on hold without Lender’s written consent]. Upon the occurrence of a Default or Event of Default, Lender may, without notice to Borrower or Grantor, elect to place a hold or freeze on all funds in the Account and not permit any of the funds therein to be withdrawn or otherwise removed from the Account without the written consent of Lender.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Subject to any limits under applicable law, costs and expenses include fifteen percent (15%) of the principal plus accrued interest collected as Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.
Governing Law. With respect to procedural matters related to the perfection and enforcement of Lender's rights against the Collateral, this Agreement will be governed by federal law applicable to Lender and to the extent not preempted by federal law, the laws of the State of Georgia. In all other respects, this Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Alabama without regard to its conflicts of law provisions. However, if there ever is a question about whether any provision of this Agreement is valid or enforceable, the provision that is questioned will be governed by whichever state or federal law would find the provision to be valid and enforceable. The loan transaction that is evidenced by the Note and this Agreement has been applied for, considered, approved and made, and all necessary loan documents have been accepted by Lender in the State of Alabama.
Non-Liability of Lender. The relationship between Grantor and Lender created by this Agreement is strictly a debtor and creditor relationship and not fiduciary in nature, nor is the relationship to be construed as creating any partnership or joint venture between Lender and Grantor. Grantor is exercising Grantor's own judgment with respect to Grantor's business. All information supplied to Lender is for Lender's protection only and no other party is entitled to rely on such information. There is no duty for Lender to review, inspect, supervise or inform Grantor of any matter with respect to Grantor's business. Lender and Grantor intend that Lender may reasonably rely on all information supplied by Grantor to Lender, together with all representations and warranties given by Grantor to Lender, without investigation or confirmation by Lender and that any investigation or failure to investigate will not diminish Lender's right to so rely.
Notice of Lender's Breach. Grantor must notify Lender in writing of any breach of this Agreement or the Related Documents by Lender and any other claim, cause of action or offset against Lender within thirty (30) days after the occurrence of such breach or after the accrual of such claim, cause of action or offset. Grantor waives any claim, cause of action or offset for which notice is not given in accordance with this paragraph. Lender is entitled to rely on any failure to give such notice.
Indemnification of Lender. Grantor agrees to indemnify, to defend and to save and hold Lender harmless from any and all claims, suits, obligations, damages, losses, costs and expenses (including, without limitation, Lender's attorneys' fees), demands, liabilities, penalties, fines and forfeitures of any nature whatsoever that may be asserted against or incurred by Lender, its officers, directors, employees, and agents arising out of, relating to, or in any manner occasioned by this Agreement and the exercise of the rights and remedies granted Lender under this, as well as by: (1) the ownership, use, operation, construction, renovation, demolition, preservation, management, repair, condition, or maintenance of any part of the Collateral; (2) the exercise of any of Grantor's rights collaterally assigned and pledged to Lender hereunder; (3) any failure of Grantor to perform any of its obligations hereunder; and/or (4) any failure of Grantor to comply with the environmental and ERISA obligations, representations and warranties set forth herein. The foregoing indemnity provisions shall survive the cancellation of this Agreement as to all matters arising or accruing prior to such cancellation and the foregoing indemnity shall survive in the event that Lender elects to exercise any of the remedies as provided under this Agreement following default hereunder. Grantor's indemnity obligations under this section shall not in any way be affected by the presence or absence of covering insurance, or by the amount of such insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under any insurance policy or policies affecting the Collateral and/or Grantor's business activities. Should any claim, action or proceeding be made or brought against Lender by reason of any event as to which Grantor's indemnification obligations apply, then, upon Lender's demand, Grantor, at its sole cost and expense, shall defend such claim, action or proceeding in Grantor's name, if necessary, by the attorneys for Grantor's insurance carrier (if such claim, action or proceeding is covered by insurance), or otherwise by such attorneys as Lender shall approve. Lender may also engage its own attorneys at its reasonable discretion to defend Grantor and to assist in its defense and Grantor agrees to pay the fees and disbursements of such attorneys.
| ASSIGNMENT OF DEPOSIT ACCOUNT | ||
| Loan No: [redacted] | (Continued) | Page 4 |
No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.
Power of Attorney. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (1) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (2) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (3) to settle or compromise any and all claims arising under the Collateral, and in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (4) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender.
Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.
Sole Discretion of Lender. Whenever Lender's consent or approval is required under this Agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender and Lender's decision shall be final and conclusive.
Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.
Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full.
Time is of the Essence. Time is of the essence in the performance of this Agreement.
DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:
Account. The word "Account" means the deposit account(s) described in the "Collateral Description" section.
Agreement. The word "Agreement" means this Assignment of Deposit Account, as this Assignment of Deposit Account may be amended or modified from time to time, together with all exhibits and schedules attached to this Assignment of Deposit Account from time to time.
Borrower. The word "Borrower" means GIBSON TECHNICAL SERVICES, INC. and includes all co-signers and co-makers signing the Note and all their successors and assigns.
Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.
Event of Default. The words "Event of Default" mean individually, collectively, and interchangeably any of the events of default set forth in this Agreement in the default section of this Agreement.
Grantor. The word "Grantor" means GIBSON TECHNICAL SERVICES, INC..
Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Indebtedness, and, in each case, Grantor's successors, assigns, heirs, personal representatives, executors and administrators of any guarantor, surety, or accommodation party.
Guaranty. The word "Guaranty" means the guaranty from Guarantor, or any other guarantor, endorser, surety, or accommodation party to Lender, including without limitation a guaranty of all or part of the Note.
| ASSIGNMENT OF DEPOSIT ACCOUNT | ||
| Loan No: [redacted] | (Continued) | Page 5 |
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement.
Lender. The word "Lender" means TRUIST BANK, its successors and assigns.
Note. The word "Note" means the Note dated August 19, 2021 and executed by GIBSON TECHNICAL SERVICES, INC. in the principal amount of $4,000,000.00, together with all renewals of, extensions of, modifications of, refinancings of, consolidations of, and substitutions for the note or credit agreement.
Property. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement.
Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.
GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS ASSIGNMENT OF DEPOSIT ACCOUNT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 19, 2021.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
GRANTOR:
GIBSON TECHNICAL SERVICES, INC.
| By: | /s/Jon A. Martin | (Seal) | |
| JON A. MARTIN, Chief Operating Officer of GIBSON | |||
| TECHNICAL SERVICES, INC. | |||
LaserPro, Ver. 21.1.0.222 Copr. Finastra USA Corporation 1997, 2021. All Rights Reserved. - GA/AL C:\LPL-PROD\CFI\LPL\E90.FC TR-23698
DISBURSEMENT REQUEST AND AUTHORIZATION
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Principal $4,000,000.00 |
Loan Date 08-19-2021 |
Maturity 08-19-2022 |
Loan No [redacted] |
Call / Coll |
Account [redacted] |
Officer 28953 |
Initials |
|
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations. |
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| Borrower: | GIBSON TECHNICAL SERVICES, INC. | Lender: | TRUIST BANK |
| 230 MOUNTAIN BROOK CT | Greater Birmingham - Commercial Loans | ||
| CANTON, GA 30115-9019 | 2501 20th Pl S | ||
| Birmingham, AL 35223-1723 | |||
LOAN TYPE. This is a Variable Rate Nondisclosable Revolving Line of Credit Loan to a Corporation for $4,000,000.00 due on August 19, 2022.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
|
☐ |
Personal, Family, or Household Purposes or Personal Investment. |
|
☒ |
Business (Including Real Estate Investment). |
SPECIFIC PURPOSE. The specific purpose of this loan is: 8000-WKCP-Temp Expansion of current assets.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Lender's conditions for making the loan have been satisfied. Please disburse the loan proceeds of $4,000,000.00 as follows:
| Other Disbursements: | $ | 4,000,000.00 | ||
| $4,000,000.00 Un-advanced funds | ||||
| Note Principal: | $ | 4,000,000.00 |
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges:
| Prepaid Finance Charges Paid in Cash: | $ | 0.00 | ||
| Other Charges Paid in Cash: | $ | 3,000.00 | ||
| $3,000.00 Loan Origination Fee Paid by DDA [redacted] | ||||
| Total Charges Paid in Cash: | $ | 3,000.00 |
AUTOMATIC PAYMENTS. Borrower hereby authorizes Lender automatically to deduct from Borrower's Demand Deposit - Checking account, numbered [redacted], the amount of any loan payment. If the funds in the account are insufficient to cover any payment, Lender shall not be obligated to advance funds to cover the payment. At any time and for any reason, Borrower or Lender may voluntarily terminate Automatic Payments.
OTHER FEES AND CHARGES. This Disbursement Request and Authorization may not include all fees and charges to be paid by the Borrower in regards to this loan and any related loan documents, including but not limited to fees related to the recording or filing of real estate documents or financing statements such as recording taxes or fees, documentary stamp taxes, intangible taxes, or transfer taxes. Borrower acknowledges that some fees and charges may not be listed herein but will be due and payable in cash or otherwise deducted from the proceeds of the loan.
WIRE TERMS AND CONDITIONS. Borrower understands and agrees that any wires, at this time or in the future, initiated by Borrower in connection with this Loan shall be subject to the following terms and conditions.
Acceptance and Execution of Wire Transfer Request by Lender. Borrower’s request is considered accepted by Lender when Lender executes it. Borrower acknowledges that the Lender maintains deadlines for accepting wire transfer requests. If Borrower’s request is received prior to the deadline, it will be executed by Lender that wire transfer business day. A Borrower’s request received after the deadline may be executed the next wire transfer business day. Wire transfer deadlines are subject to change from time to time at the sole discretion of the Lender.
Cancellation or Amendment of Wire Transfer Request. Borrower may not be able to cancel or amend a request after it is received by Lender. However, Lender may, at its discretion, use reasonable efforts to act on the Borrower’s request for cancellation or amendment. Borrower agrees to indemnify and hold Lender harmless from any and all liabilities, costs, and expenses Lender may incur in attempting to cancel or amend the wire transfer.
Erroneous, Inaccurate or Incorrect Requests. Borrower acknowledges and agrees that when the Borrower provides Lender with a name and account number when requesting a wire transfer, that payment may be made solely on the basis of the account number even if the account number identifies a beneficiary different from the beneficiary named by Borrower. Borrower furthermore agrees that its obligation to pay the amount of the wire transfer to Lender is not excused in such circumstances.
Borrower’s Obligation to Review and Report. Borrower should review all wire transfer information contained herein or any other such Lender notice for any discrepancies in connection with wire transfers. If Borrower thinks a wire transfer is wrong or needs more information about a wire transfer, Borrower must contact Lender in writing upon discovery of the error or within 14 days after Borrower receives the first notice of a discrepancy, whichever is earlier. Failure to do so will relieve Lender of any obligation to compensate Borrower for the amount of an unauthorized or erroneous wire transfer.
Method Used to Make the Wire Transfer. Lender may select any means for the transmission of funds which it considers suitable, including but not limited to Lender’s own internal systems or Fedwire. Lender is not responsible for performance failure as a result of an interruption in transfer facilities, labor disputes, power failures, equipment malfunctions, suspension of payment by another bank, refusal or delay by another bank to accept the wire transfer, war, emergency conditions, fire, earthquake, or other circumstances not within Lender’s control.
| DISBURSEMENT REQUEST AND AUTHORIZATION | ||
| Loan No: [redacted] | (Continued) | Page 2 |
Duty of Reasonable Care. Lender shall exercise good faith and reasonable care in processing Borrower’s wire transfers. Borrower shall similarly exercise good faith and reasonable care in communicating wire transfer requests to Lender, and in reviewing notices or information for any discrepancies. Borrower is responsible for ensuring the accuracy of requests and Lender has no duty whatsoever to verify the accuracy of requests, nor will it be liable for losses or damages arising out of requests containing erroneous information. Lender is not liable in any case for any special, indirect, exemplary, or consequential damages (including lost profits) of any kind.
Choice of Law. The rights, duties, and liabilities of the parties shall be subject to Uniform Commercial Code Article 4A as in effect in accordance with the governing law provision of the note. If any part of the wire transfer involves the use of the Fedwire, the rights and obligations of the Lender and Borrower regarding that wire transfer are governed by the Regulation J of the Federal Reserve Board.
Fees and Charges. In addition to Lender’s fees and charges, Borrower shall be responsible for payment of all fees and charges of each domestic or foreign correspondent bank which facilitates a wire transfer or payment. It is customary that such fees and charges are assessed and withheld from the amount of the wire transfer or if assessed to the Lender, passed on to the Borrower.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS AUTHORIZATION IS DATED AUGUST 19, 2021.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
BORROWER:
GIBSON TECHNICAL SERVICES, INC.
| By: | /s/ Jon A. Martin | (Seal) | |
| JON A. MARTIN, Chief Operating Officer of GIBSON | |||
| TECHNICAL SERVICES, INC. | |||
LaserPro, Ver. 21.1.0.222 Copr. Finastra USA Corporation 1997, 2021. All Rights Reserved. - AL C:
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Rule 13a-14 or 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James F. O'Neil, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Orbital Energy Group, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and; |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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By: /s/ James F. O'Neil |
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Dated: November 15, 2021 |
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James F. O'Neil, |
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Chief Executive Officer |
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Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Rule 13a-14 or 15d-14(a) of the Securities Exchange Act of 1934, as Amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Daniel N. Ford, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Orbital Energy Group, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and; |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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By: /s/ Daniel N. Ford |
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Dated: November 15, 2021 |
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Daniel N. Ford |
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Chief Financial Officer |
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Exhibit 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Orbital Energy Group, Inc. (the "Company"), on Form 10-Q of the quarter ended September 30, 2021, I hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
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(1) |
The quarterly report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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By: /s/ James F. O'Neil |
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Dated: November 15, 2021 |
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James F. O'Neil, |
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Chief Executive Officer |
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Exhibit 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report of Orbital Energy Group, Inc. (the "Company"), on Form 10-Q of the quarter ended September 30, 2021, I hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
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(1) |
The quarterly report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the quarterly report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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By: /s/ Daniel N. Ford |
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Dated: November 15, 2021 |
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Daniel N. Ford |
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Chief Financial Officer |
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