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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
☒			Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2020

☐			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: 001-37480

Depreciation expense was $3.0 million for the twelve months ended December 31, 2020 and $2.9 million for the twelve months ended December 29, 2019.

Included in property, plant, and equipment are assets located in Mexico with a carrying amount of $3.7 million and $4.1 million at December 31, 2020 and December 29, 2019, respectively, and assets located in Canada with a carrying amount of $0.4 million and $0.6 million at December 31, 2020 and December 29, 2019, respectively.

7. Intangible Assets

Intangible assets of the Company consist of the following at December 31, 2020:

Intangible assets of the Company consist of the following at December 29, 2019:

UNIQUE FABRICATING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted average amortization period for all intangible assets is 8.96 years. Amortization expense for intangible assets totaled $4.0 million for the twelve months ended December 31, 2020 and $3.9 million for the twelve months ended December 29, 2019.

Estimated amortization expense for the next five years is as follows:

						Estimated Amortization Expense
						(In thousands)
2021						$	2,456
2022						1,305
2023						979
2024						759
2025						573
Thereafter						1,533
Total						$	7,605

8. Long-term Debt

The Company’s long-term debt consists of the following:

As of December 31, 2020 and December 29, 2019 the fair value of the Company’s debt approximates book value based on the variable terms.

The Company’s financial results for the six months ended December 31, 2020 have resulted in a violation of certain of its financial covenants, as defined in the Company’s Credit Agreement. The Company has been actively discussing its 2020 results and the Company’s failure to meet its financial covenants with the Administrative Agent and has entered into a forbearance agreement, providing a period commencing on April 9, 2021 and through and including June 15, 2021, during which the Company will be able to borrow on its Revolver, subject to the terms and conditions to making a revolving credit advance, including availability, and the Lenders have agreed, subject to the terms of the forbearance agreement, to forbear from enforcing their rights or seeking to collect payment of the Company’s debt or disposing of the collateral securing the debt. However, entering into a forbearance agreement will not alleviate the substantial doubt about the Company’s ability to continue as a going concern. The Company intends to use the forbearance period to continue negotiations with the Lenders to enter into an amendment and waiver to cure the defaults. There can be no assurance that the Company will be able to enter into an amendment or waiver with the Lenders or if it enters into an amendment, what the terms, restrictions, and covenants of the amendment will contain. As a result of the default all debt subject to the Credit Agreement has been classified as current maturities of long-term debt as of December 31, 2020.

Credit Agreement

On November 8, 2018, Unique Fabricating NA, Inc. (the “US Borrower”) and Unique-Intasco Canada, Inc. (the “CA Borrower” and together with US Borrower, the “Borrowers”) and Citizens Bank, National Association (“Citizens”), acting as lender and Administrative Agent, and other lenders (collectively, the “Lenders”), entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated the Original Credit Agreement entered into on April 29, 2016 (as amended, the “Original Credit Agreement”). The Amended and Restated Credit Agreement is a five-year agreement and provided for borrowings up to an aggregate principal amount of $73.0 million. The Amended and Restated Credit Agreement which is a senior secured credit facility comprised of a revolving line of credit of up to $30.0 million (the “Revolver”) to the US Borrower, a $26.0 million principal amount term loan (the “US Term Loan”) to the US Borrower, a $12.0 million principal amount term loan (the “CA Term Loan”) to the CA Borrower, and a two year line to fund capital expenditures of up to $2.5 million through November 8, 2019 and $5.0 million thereafter through November 8, 2020 to the US Borrower (the “Capital Expenditure Line”). The Amended and Restated Credit Agreement has a maturity date for all borrowings of November 7, 2023.

The Amended and Restated Credit Agreement requires quarterly principal payments for the US Term Loan, which commenced on December 31, 2018, of $0.3 million through September 30, 2020, $0.6 million thereafter through September 30, 2021, and $0.8 million thereafter with a lump sum due at maturity. The Amended and Restated Credit Agreement requires quarterly principal payments for the CA Term Loan, which commenced on December 31, 2018, of $0.4 million with a lump sum due at maturity. The Capital Expenditure Line requires quarterly principal payments of 7.5% of the outstanding balance per annum beginning on December 31, 2019 through September 30, 2020, 10% per annum beginning December 31, 2020 through September 30, 2021, 12.5% per annum beginning December 31, 2021 and thereafter with a lump sum due at maturity.

In addition, the Amended and Restated Credit Agreement allows for increases in the principal amount of the Revolver and the US and CA Term Loans not to exceed a $10.0 million principal amount, in the aggregate, provided that before and after giving effect to the proposed increase (and any transactions to be consummated using proceeds of the increase), the total leverage and debt service coverage ratios do not exceed specified amounts. The Amended and Restated Credit Agreement also provides for the issuance of letters of credit with a face amount of up to a $2.0 million, in the aggregate, provided that any letter of credit that is issued will reduce availability under the Revolver.

The Amended and Restated Credit Agreement contains customary negative covenants and requires that the Company comply with various financial covenants, including a total leverage ratio and debt service coverage ratio, as defined in the Amended and Restated Credit Agreement. Additionally, the US Term Loan and CA Term Loan each contains a clause, effective December 30, 2018, that requires an excess cash flow payment to be made to the lenders to reduce the US Term Loan and CA Term Loan if the Company’s cash flow exceeds certain thresholds as defined by the Amended and Restated Credit Agreement.

As of December 31, 2020, $11.7 million was outstanding under the Revolver. This amount is gross of debt issuance costs which are further described in the next section. The Revolver had an effective interest rate of 5.25% percent per annum at December 31, 2020, and is secured by substantially all of the Company’s assets. The maximum amount available was further subject to borrowing base restrictions, resulting in a net availability of $5.7 million at December 31, 2020, which includes a reduction for a $0.1 million letter of credit issued for the benefit of the landlord of one of the Company’s leased facilities.

On May 7, 2019, the Borrowers entered into the Waiver and First Amendment (the “First Amendment”) to the Credit Agreement, as the Company was not in compliance with certain of the financial covenants in the Credit Agreement. The First Amendment temporarily waived the default on the March 31, 2019 covenant violation until the earlier of June 15, 2019 and the execution and delivery of a further amendment revising the calculation of the total leverage ratio and such other financial covenants as necessary taking into account the Borrowers current and future financial condition. As a result of this waiver, the lenders did not accelerate the maturity of the debt. On June 14, 2019 and June 28, 2019 the Borrowers entered into the Waiver and Second Amendment (the “Second Amendment”) to the Credit Agreement and the Waiver and Third Amendment (the “Third Amendment”) to the Credit Agreement, respectively. Each of these amendments revised the waiver period as defined by the First Amendment with respect to the March 31, 2019 covenant violation and resulting default until later dates.

On July 16, 2019, the Borrowers entered into the Waiver and Fourth Amendment (the “Fourth Amendment”) to the Credit Agreement. The Fourth Amendment provided a permanent waiver by the Lenders with respect to the Borrowers' non-compliance with the total leverage ratio financial covenant, as defined as of March 31, 2019. The Fourth Amendment also revised the definition of consolidated EBITDA and certain financial covenants, including the maximum total leverage ratio and the minimum debt service coverage ratio, as well as adding the requirement that the Company maintain minimum liquidity and minimum unadjusted consolidated EBITDA, each as defined. The Fourth Amendment permits distributions as long as the Borrower is in compliance with specified conditions including that the Borrower's liquidity, as defined, is not less than $5 million after giving effect to the distribution, total leverage ratio is not more than 2.00 to 1.00, post distribution, debt service coverage ratio (“DSCR"”, as defined, is not greater than 1.10 to 1.00, and Borrower is in compliance with financial covenants, before and after giving effect to the distributions.

On August 7, 2019, the Borrowers entered into the Fifth Amendment to the Credit Agreement (the “Fifth Amendment”). The Fifth Amendment amended the definition of unadjusted consolidated EBITDA to include consolidated net income plus the sum of interest expense, tax expense, depreciation and amortization expense, and non-cash impairment charges of goodwill.

On April 3, 2020, the Borrowers entered into the Sixth Amendment to the Credit Agreement (the “Sixth Amendment”). The Sixth Amendment, amended the definition of consolidated EBITDA to include, as an addition to consolidated net income, an amount equal to $0.6 million resulting from a non-cash inventory write-off taken during the third fiscal quarter in fiscal 2019, amended the definition of “fiscal year” to reflect that we changed our fiscal year to end on December 31, commencing with the 2020 fiscal year, eliminated the requirement for a monthly Covenant Compliance Report and provided for payment of the Capital Expenditure Line principal installment that was due December 31, 2019, but was not paid due to an internal system miscalculation by the Agent.

Due to the impact of the COVID-19 pandemic on the Company and the global automotive industry, the Company anticipated that it was likely that the EBITDA for the twelve months ended June 30, 2020 was likely to result in the Company not being in compliance with its financial covenants. In response to the anticipated impact of COVID-19, on April 23, 2020, the Borrowers entered into the Seventh Amendment (the “Seventh Amendment”) to the Credit Agreement. The Seventh Amendment, among other things, (i) permitted additional indebtedness in the form of unsecured loans authorized pursuant to and in compliance with the CARES Act under the Paycheck Protection Program of the U.S. Small Business Administration, in an aggregate amount not to exceed $6.0 million; (ii) deferred the June 30, 2020 principal payments on the US Term Loan, CA Term Loan, and Capital Expenditure Line, with the deferred principal amounts payable at the existing maturity dates; (iii) waived the requirement to test Maximum Total Leverage Ratio, Minimum Debt Service Coverage Ratio and Minimum Unadjusted Consolidated EBITDA for the fiscal quarter ended June 30, 2020; (iv) allowed the release of the lien on the Evansville, Indiana property and for the net cash proceeds from its sale to be applied against any outstanding balance on the Revolver, without permanently reducing the Revolving Credit Aggregate Commitment; (v) added a weekly requirement for the Borrowers to deliver a 13-week cash flow forecast until September 30, 2020; and (vi) added a 1.0% LIBOR Floor and 2.0% Base Rate Floor.

On August 7, 2020, the Company entered into the Eighth Amendment (the “Eighth Amendment”) to the Credit Agreement and Loan Documents, as amended. The Eighth Amendment to the Credit Agreement and Loan Documents, among other things, amended the definition of Consolidated EBITDA and made changes to the calculations of financial covenants. The definition of Consolidated EBITDA has been amended to include as an addition to Consolidated Net Income (i) costs and expenses incurred in connection with the Eighth Amendment not to exceed $175,000, (ii) restructuring expenses not to exceed $500,000 in any 12 month period, (iii) costs incurred with respect to the purchase and implementation of the ERP system not to exceed (A) $200,000 during each fiscal quarter in 2020 and (B) $100,000 during each fiscal quarter in 2021, and (iv) to the extent added in calculating Consolidated Net Income any portion of the PPP loan that has been forgiven and cancelled. The Eighth Amendment also amended the calculation of certain financial covenants based upon 12 month results to effectively exclude results of the quarter ended June 30, 2020. The calculation of Maximum Total Leverage Ratio has been amended, commencing with the quarter ending September 30, 2020 and through and including the quarter ending March 31, 2021, to annualize Consolidated

EBITDA for the periods beginning July 1, 2020 through the date of calculation. The calculation of Minimum Debt Service Coverage Ratio for the quarters ended September 30, 2020, December 31, 2020 and March 31, 2021 are based upon results for one, two and three quarters, respectively. The Eighth Amendment further adds a Minimum Liquidity requirement to be calculated monthly through June 30, 2021 and Minimum Consolidated EBITDA for each measurement period, as defined, through June 30, 2021. The Eighth Amendment permits distributions by US Borrower to the Parent to be declared and made only after December 31, 2021 provided certain conditions are satisfied.

The Credit Agreement, as amended, bears interest at the Company’s election of either (i) the greater of the Prime Rate or the Federal Funds Effective Rate (the “Base Rate”) or (ii) the LIBOR rate, plus an applicable margin ranging from 1.75% to 3.25% per annum in the case of the Base Rate and 2.75% to 4.25% per annum in the case of the LIBOR rate, in each case, based on senior leverage ratio thresholds, measured quarterly, as increased by the Waiver and Fourth Amendment to the Amended and Restated Credit Agreement. As stated above, the Seventh Amendment added a 1.0% LIBOR Floor and 2.0% Base Rate Floor.

Paycheck Protection Program Note

On April 24, 2020, the Company entered into a Promissory Note (“PPP Note”) for $6.0 million with Citizens Bank, National Association, (“PPP Lender”) pursuant to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program under Title I of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act passed by Congress and signed into law on March 27, 2020. On June 3, 2020, Congress passed the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”) and on June 5, 2020 it was signed into law. The PPP Flexibility Act modified certain provisions of the CARES Act. The PPP Note is unsecured, bears interest at 1.00% per annum, with principal and interest payments deferred until the earlier of (i) the PPP Lender receiving the forgiveness amount from the SBA or (ii) August 12, 2021. The PPP Note matures on April 24, 2022. The principal is payable in equal monthly installments, with interest, beginning on the first business day after the end of the deferment period. The PPP Note may be forgiven subject to the terms of the Paycheck Protection Program and PPP Flexibility Act.

Additionally, certain acts of the Company, including but not limited to: (i) the failure to pay any taxes when due, (ii) becoming the subject of a proceeding under any bankruptcy or insolvency law, (iii) making an assignment for the benefit of creditors, or (iv) reorganizing, merging, consolidating or otherwise changing ownership or business structure without PPP Lender’s prior written consent, are considered events of default which grant Lender the right to seek immediate payment of all amounts owing under the PPP Note. As of December 31, 2020, none of the circumstances listed above exist at the Company.

Debt Issuance Costs

Debt issuance costs represent legal, consulting, and other financial costs associated with debt financing and are reported netted against the related debt instrument. Amounts paid to or on behalf of lenders are presented as a debt discount and are also shown as a reduction of the associated debt instrument. Debt issuance costs on term debt are amortized using the straight line basis over the term of the related debt (which is immaterially different from the required effective interest method) while those related to revolving debt are amortized using a straight line basis over the term of the related debt.

At December 31, 2020 and December 29, 2019, debt issuance costs were $0.4 million and $0.3 million, respectively, while amounts paid to or on behalf of lenders presented as debt discounts were $0.3 milllion and $0.4 million, respectively. On November 8, 2018, the Company amended its Credit Agreement, to increase the Company's term loan debt. The Company reviewed this amendment for extinguishment accounting and concluded that there were no remaining debt issuance costs not amortized on the revolving debt facility qualified for extinguishment accounting and recognized a loss on extinguishment immediately. The remaining unamortized debt issuance costs not extinguished on the old revolving debt facility and all of the of remaining unamortized debt issuance costs on the term loans did not meet extinguishment accounting and therefore were carried forward to the new revolving debt facility and term loans.

Amortization expense of both debt issuance costs and debt discounts has been recognized as a component of interest expense in the amount $0.2 million of for the twelve months ended December 31, 2020, and $0.2 million for the twelve months ended December 29, 2019.

Covenant Compliance

The Company’s financial results for the six months ended December 31, 2020 have resulted in violations of the following financial covenants: (1) Maximum Total Leverage Ratio; (2) Minimum Debt Service Coverage Ratio; and (3) Minimum Consolidated EBITDA; as defined in the Company’s Amended and Restated Credit Agreement.

The Credit Agreement, as amended, contains the following financial covenants:

Maximum Total Leverage Ratio

The Total Leverage Ratio, as defined in the Credit Agreement, as amended, may not exceed (i) 3.75 to 1.00, with respect to the fiscal quarter ended as of September 30, 2020; (ii) 3.50 to 1.00, with respect to the fiscal quarter ended December 31, 2020; (iii) 3.25 to 1.00, with respect to the fiscal quarters ended March 31, 2021 and June 30, 2021; and (iv) 3.00 to 1.00, with respect to each fiscal quarter thereafter. For purposes of calculating the Total Leverage Ratio, “Consolidated EBITDA”, as defined, shall be determined (i) with respect to the fiscal quarter ended as of September 30, 2020, for the single fiscal quarter then ended, multiplied by 4,(ii) with respect to the fiscal quarter ended as of December 31, 2020, for the two fiscal quarters then ended, multiplied by 2, (iii) with respect to the fiscal quarter ended as of March 31, 2021, for the three fiscal quarters then ended, multiplied by 4/3, and (iv) with respect to each fiscal quarter thereafter, for the four fiscal quarters then ended. Also, for purposes of calculating the Total Leverage Ratio, the PPP Note is excluded from Total Debt for all periods until a determination of forgiveness is made.

Minimum Debt Service Coverage Ratio

The Debt Service Coverage Ratio may not be less than 1.20 to 1.00, to be measured, as of the end of each fiscal quarter. Notwithstanding anything to the contrary set forth in the definition of "Debt Service Coverage Ratio," such calculation shall be made (i) with respect to the fiscal quarter ended as of September 30 2020, for the single fiscal quarter then ended, (ii) with respect to the fiscal quarter ended as of December 31, 2020, for the two fiscal quarters then ended, (iii) with respect to the fiscal quarter ended as of March 31, 2021, for the three fiscal quarters then ended, and (iv) with respect to the last day of each fiscal quarter thereafter, for the four fiscal quarters then ended.

Minimum Liquidity

The US Borrower's Liquidity, as defined in the Credit Agreement, as amended, may not to be less than 20% of the Borrowing Base, calculated as of the last day of each fiscal month through and including June 30, 2021.

Minimum Consolidated EBITDA

The Consolidated EBITDA, as defined, must not be less than the amounts set forth below, with respect to the measurement period ended as of each date of determination set forth below:

9. Derivative Financial Instruments

Interest Rate Swap

The Company holds derivative financial instruments, in the form of interest rate swaps, as required by its Credit Agreement and Amended and Restated Credit Agreement, for the purpose of hedging certain identifiable transactions in order to mitigate risks

relating to the variability of future earnings and cash flows caused by interest rate fluctuations. The Company has elected not to apply hedge accounting for financial reporting purposes. The interest rate swaps are recognized in the accompanying consolidated balance sheets at their fair value. Monthly settlement payments due on the interest rate swaps and changes in their fair value are recognized currently in net income as interest expense in the consolidated statements of operations.

Effective June 30, 2016, as required under the Credit Agreement entered into during April 2016, the Company entered into a new interest rate swap which requires the Company to pay a fixed rate of 1.055 per annum while receiving a variable rate per annum based on the one month LIBOR for a net monthly settlement based on the notional amount. The notional amount at the effective date was $16.7 million which decreased by $0.3 million each quarter until June 30, 2017, decreased by $0.4 million each quarter until June 29, 2018, when it began decreasing by $0.5 million per quarter until it expired on June 28, 2019.

Effective October 2, 2017, as required under the Second Amendment to the Credit Agreement, the Company entered into another interest rate swap that requires the Company to pay a fixed rate of 1.093 per annum while receiving a variable interest rate per annum based on the one month LIBOR for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $1.9 million which decreases by $0.1 million each quarter until it expires on September 30, 2020.

Effective November 30, 2018, as required under the Amended and Restated Credit Agreement, the Company entered into another interest rate swap the requires the Company to pay a fixed rate of 3.075 percent per annum while receiving a variable interest rate per annum based on the one month LIBOR for a net monthly settlement based on the notional amount in effect. The notional amount at the effective date was $5.0 million which increases by $0.4 million each quarter until June 28, 2019 when the notional amount increases to $17.5 million due to the interest rate swap from 2016 above expiring. The notional amount then decreases each quarter by $0.2 million until September 30, 2020 when the notional amount increases to $17.5 million due to the interest rate swap from 2017 above expiring. The notional amount then decreases each quarter by $0.4 million until December 31, 2021, then decreases each subsequent quarter by $0.6 million until it expires on November 8, 2023.

At December 31, 2020, the fair value of the swap was $1.2 million, which is included in other long-term liabilities in the consolidated balance sheet. The Company paid $0.5 million in the aggregate, in net monthly settlements with respect to the interest rate swap for the twelve months ended December 31, 2020. At December 29, 2019, the fair value of all the swaps was $0.9 million, which was included in other long-term liabilities in the consolidated balance sheet. The Company received $0.03 million, in the aggregate, in net monthly settlements with respect to the interest rate swaps for the twelve months ended December 29, 2019.

10. Restructuring

The Company's restructuring activities are undertaken as necessary to implement management's strategy and improve operating results. The restructuring activities generally relate to realignment of existing manufacturing capacity and closure of facilities and other exit or disposal activities, either in the normal course of business or pursuant to specific restructuring programs.

The table below summarizes the activity in the restructuring liability for the twelve months ended December 31, 2020:

On November 7, 2019, the Company made the decision to close its manufacturing facility in Bryan, Ohio. Approximately 43 positions were eliminated as a result of the closure. The Company’s decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in our other facilities.

The Company moved the Bryan, Ohio production to its existing manufacturing facilities in Querétaro, Mexico and LaFayette, Georgia. The Company provided the affected employees severance pay, health benefits continuation, and job search assistance. The Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company has continuing cash flows from the production being moved to other facilities within the Company.

The Company incurred one-time severance costs as a result of this plant closure of approximately $0.3 million during the fourth quarter of 2019. The amount of other costs incurred associated with this plant closure, which primarily consist of preparing and moving existing production equipment and inventory at Bryan to other facilities and accelerated depreciation of the building right-of-use lease asset, was approximately $0.6 million during the twelve months ended December 31, 2020.

Evansville Restructuring

On July 16, 2019, the Company made the decision to close its manufacturing facility in Evansville, Indiana. The Company ceased operations at the Evansville facility during the fourth quarter of 2019, an approximately 47 positions were eliminated as a result of the closure. The Company's decision resulted from its desire to streamline operations and to utilize some of the available excess capacity in our other facilities.

The Company moved the Evansville production to its existing manufacturing facilities in LaFayette, Georgia, Auburn Hills, Michigan, and Louisville, Kentucky. The Company provided the affected employees severance pay, health benefits continuation, and job search assistance. The Company evaluated whether or not this closing met the criteria for discontinued operations and concluded that the closing did not meet the definition as it did not represent a strategic shift in the Company's operations and the Company has continuing cash flows from the production being moved to other facilities within the Company.

The Company incurred costs of $0.6 million during the twelve months ended December 31, 2020, which consisted primarily of the relocation of equipment, the disposal of equipment and inventory, and the impairment of the ROU asset for the leased warehouse. Also included in this amount is a non-cash loss related to the loss on the sale of the Evansville building. All of these costs were recorded to the restructuring expense line in continuing operations in the Company’s consolidated statements of operations.

The Company had $0.7 million and $1.1 million of remaining lease payments for a warehouse near the Evansville, Indiana facility as of December 31, 2020 and December 29, 2019, respectively. The Company has secured a sublease of roughly 11% of the facility.

11. Stock Incentive Plans

2013 Stock Incentive Plan

The Company’s Board of Directors approved a stock incentive plan (the “Plan”) in 2013. The Plan permits the Company to grant 495,000 non statutory or incentive stock options to the employees, directors and consultants of the Company. 495,000 shares of unissued common stock are reserved for the Plan. The Board of Directors has the authority to determine the participants to whom stock options shall be awarded as well as any restrictions to be placed upon the awards. The exercise price cannot be less than the fair value of the underlying shares at the time the stock options are issued, and the maximum length of an award is ten years.

The fair value of each option award is estimated on the grant date using the Black Scholes option pricing model that uses the weighted average assumptions noted in the following tables. The expected volatility is based on the historical volatility of the stock of comparable companies. The expected term of the awards was estimated based on findings from academic studies investigating the average holding period for options adjusted for the Company’s size and risk factors. The risk free rate for periods within the contractual life of the option is based on the United States Treasury yield curve in effect at time of grant.

On April 6, 2020, the compensation committee of the Board of Directors approved the issuance of 12,500 non statutory stock option awards to the Company’s new Chief Financial Officer (“CFO”) with an exercise price of $2.36 per share. These awards vest 50 percent once the closing price of the Company’s common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company’s common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days.

On February 25, 2020, the compensation committee of the Board of Directors approved the issuance of 7,500 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.32 per share with a weighted average grant date fair value of $1.64 per share. These options vest 40 percent on February 25, 2021 and 20 percent on each of February 25, 2022, 2023, and 2024.

UNIQUE FABRICATING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On September 30, 2019 the compensation committee of the Board of Directors approved the issuance of 72,500 non-statutory stock option awards, to the new CEO of the Company with an exercise price of $2.89 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days.

						September 30, 2019						February 25, 2020						April 6, 2020
Expected volatility						40.00		%				52.00		%				76.00		%
Dividend yield						—		%				—		%				—		%
Expected term (in years)						6						6						6
Risk-free rate						1.63		%				1.21		%				0.51		%

2014 Omnibus Performance Award Plan

In 2014 the Board of Directors and stockholders adopted the Unique Fabricating, Inc. 2014 Omnibus Performance Award Plan, or the 2014 Plan. The 2014 Plan provides for the grant of cash awards, stock options, stock appreciation rights, or SARs, shares of restricted stock and restricted stock units, or RSUs, performance shares and performance units. The 2014 Plan originally authorized the grant of awards relating to 250,000 shares of our common stock. In the event of any transaction that causes a change in capitalization, the Compensation Committee, such other committee administering the 2014 Plan or the Board of Directors will make such adjustments to the number of shares of common stock delivered, and the number and/or price of shares of common stock subject to outstanding awards granted under the 2014 Plan, as it deems appropriate and equitable to prevent dilution or enlargement of participants’ rights. An amendment approved in March of 2016 by our Board of Directors which was approved by our stockholders at our annual meeting of stockholders in June 2016, increased the number of shares authorized for grant of awards under the 2014 plan to a total of 450,000 shares of our common stock. In July 2020, an additional amendment was approved at our annual meeting of stockholders, which increased the number of shares authorized for grant of awards under the 2014 Plan to a total of 700,000 shares of our common stock.

On December 7, 2020, the compensation committee of the board of directors approved the issuance of 7,500 incentive stock option awards to an employee of the Company with an exercise price of $4.72 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. Also on December 7, 2020, the compensation committee of the board of directors approved the issuance of 7,500 non statutory stock option awards to an employee of the Company. All of the awards have an exercise price of $4.72 per share. These options vest 40 percent on December 7, 2021 and 20 percent on each of December 7, 2022, 2023, and 2024.

On November 4, 2020, the compensation committee of the board of directors approved the issuance of 18,750 incentive stock option awards to employees of the Company with an exercise price of $3.40 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. Also on November 4, 2020, the compensation committee of the board of directors approved the issuance of 18,750 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.40 per share. These options vest 40 percent on November 4, 2021 and 20 percent on each of November 4, 2022, 2023, and 2024.

On September 4, 2020, the compensation committee of the board of directors approved the issuance of 7,500 incentive stock option awards to employees of the Company with an exercise price of $3.13 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. Also on September 4, 2020, the compensation committee of the board of directors approved the issuance of 7,500 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.13 per share. These options vest 40 percent on September 4, 2021 and 20 percent on each of September 4, 2022, 2023, and 2024.

On August 12, 2020, the compensation committee of the board of directors approved the issuance of 11,250 incentive stock option awards to employees of the Company with an exercise price of $3.05 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. Also on August 12, 2020, the compensation committee of the board of directors approved the issuance of 11,250 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.05 per share. These options vest 40 percent on August 12, 2021 and 20 percent on each of August 12, 2022, 2023, and 2024.

On April 6, 2020, the compensation committee of the board of directors approved the issuance of 25,000 non statutory stock option awards to the Company’s new CFO with an exercise price of $2.36 per share. These awards vest 40 percent on April 6, 2021 and an additional 20 percent on each of April 6, 2022, 2023, and 2024. Also on April 6, 2020, the compensation committee of the board of directors approved the issuance of 12,500 incentive stock option awards to the Company’s new CFO with an exercise price of $2.36 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days.

On February 25, 2020, the compensation committee of the board of directors approved the issuance of 15,000 incentive stock option awards to employees of the Company with an exercise price of $3.32 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. The Company estimated the grant-date fair value of the awards subject to these market conditions using a Monte Carlo simulation model, using the following assumptions: risk free interest rate of 1.21% and annualized volatility of 52.0%. Also on February 25, 2020, the compensation committee of the board of directors approved the issuance of 7,500 non statutory stock option awards to employees of the Company. All of the awards have an exercise price of $3.32 per share with a weighted average grant date fair value of $1.64 per share. These options vest 40% on February 25, 2021 and 20% on each of February 25, 2022, 2023, and 2024.

On September 30, 2019, the compensation committee of the board of directors approved the issuance of 72,500 incentive stock option awards to the new CEO of the Company with an exercise price of $2.89 per share. These awards vest 50 percent once the closing price of the Company's common stock is in excess of $7.50 per share for 10 out of 20 consecutive trading days and an additional 50 percent once the closing price of the Company's common stock is in excess of $12.50 per share for 10 out of 20 consecutive trading days. The Company estimated the grant-date fair value of the awards subject to these market conditions

using a Monte Carlo simulation model, using the following assumptions: risk free interest rate of 1.63% and an annualized volatility of 40%.

On September 30, 2019, the compensation committee of the board of directors approved the issuance of 140,000 non statutory stock option awards to the new CEO of the Company with an exercise price of $2.89 per share. These awards vest 40 percent on September 30, 2020 and an additional 20 percent on each of September 30, 2021, 2022, and 2023 thereafter. The fair value of each option award is estimated on the grant date using a Black Scholes option pricing model that uses the weighted average assumptions noted in the following table. The expected volatility is based on the historical volatility of the stock of comparable companies. The expected term of the awards was estimated based on findings from academic studies investigating the average holding period for options adjusted for the Company’s size and risk factors. The risk-free rate for periods within the contractual life of the option is based on the United States Treasury yield curve in effect at the time of grant.

On June 11, 2019, the compensation committee of the Board of Directors approved the issuance of stock option awards for 30,000 shares to one member of the Board of Directors. The award had an exercise price of $2.93 per share with a weighted average grant date fair value of $1.10 per share. These options vested immediately on the date of grant as the service conditions required for this award had already been met on the day of the award.

A summary of option activity under both plans is presented below:

(1)The aggregate intrinsic value above is obtained by subtracting the weighted average exercise price from the estimated fair value of the underlying shares as of December 31, 2020 and multiplying this result by the related number of options outstanding and exercisable at December 31, 2020. The estimated fair value of the shares is based on the closing stock price of $5.50 as of December 31, 2020.

The Company recorded gross compensation expense of approximately $0.1 million for the twelve months ended December 31, 2020 and $0.1 million for the twelve months ended December 29, 2019, in its consolidated statements of operations, as a component of sales, general and administrative expenses. The income tax benefit related to share based compensation expense was immaterial for the twelve months ended December 31, 2020 and December 29, 2019.

As of December 31, 2020, there was approximately $0.3 million of total unrecognized compensation cost related to non-vested stock option awards under the plans. That cost is expected to be recognized over a weighted average period of 6.6 years.

UNIQUE FABRICATING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Income Taxes

Income before income taxes for U.S. and Non-U.S. operations are as follows:

			Twelve Months Ended December 31, 2020						Twelve Months Ended December 29, 2019
			(In thousands)
U.S. (loss) income			$	(11,274)					$	(11,154)
Non-U.S. income			1,780						2,123
(Loss) income before income taxes			$	(9,494)					$	(9,031)

The components of the income tax provision included in the consolidated statements of operations are all attributable to continuing operations and are detailed as follows:

UNIQUE FABRICATING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income tax assets and liabilities at December 31, 2020 and December 29, 2019 reflect the effect of temporary differences between amounts of assets, liabilities and equity for financial reporting purposes and the bases of such assets, liabilities and equity as measured based on tax laws, as well as tax loss and tax credit carryforwards. The following table summarizes the components of temporary differences and carryforwards that give rise to deferred tax assets and liabilities:

			December 31, 2020						December 29, 2019
			(In thousands)
Deferred tax assets (liabilities):
Allowance for doubtful accounts			$	345					$	227
Inventories			99						313
Accrued payroll and benefits			513						78
Goodwill and intangible assets			951						504
Excess interest expense			447						605
Tax credits			1,427						797
Lease Liabilities			2,604						—
Other			339						405
Deferred tax asset before valuation allowance			6,725						2,929
Valuation allowance			(684)						(621)
Deferred tax asset			6,041						2,308
Property, plant, and equipment			(2,544)						(2,945)
Lease Assets			(2,495)						—
Other			(109)						(8)
Deferred tax liability			(5,148)						(2,953)
Total deferred tax asset (liability)			$	893					$	(645)

Management evaluates all positive and negative evidence and uses judgment regarding past and future events, including operating results, to help determine when it is more likely than not that all or some portion of the deferred tax assets may not be realized. When appropriate, a valuation allowance is recorded against deferred tax assets to reserve for future tax benefits that may not be realized. As of the year ended December 31, 2020, the Company has recorded a valuation allowance on the net U.S. federal and state deferred tax assets as the Company has concluded that it is not more than likely than not that these deferred tax assets will be realized.

As of December 31, 2020, we have tax credit carryforwards of $1.4 million, which expire in years 2028 through 2040.

The transition tax provision of the 2017 tax reform act eliminated the basis difference that existed previously for purposes of ASC Topic 740. However, there are limited other taxes that could continue to apply such as foreign withholding and certain state taxes. U.S. income taxes have not been recognized for such taxes as the Company continues to remain indefinitely reinvested with respect to its foreign earnings. It is not practicable to estimate the amount of income taxes that may be payable on such undistributed foreign earnings.

A reconciliation of taxes on income from continuing operations based on the statutory federal income tax rate to the provision for income taxes is as follows:

UNIQUE FABRICATING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Twelve Months Ended December 31, 2020						Twelve Months Ended December 29, 2019
			(In thousands)
Income tax expense (benefit) at US Statutory Tax Rate			$	(1,994)					$	(1,897)
State income tax (benefit) expense, net of federal benefit			(31)						(28)
Foreign tax rate differential			155						174
U.S. Tax on non-U.S. income			(561)						241
Goodwill impairment			—						1,208
Research and Development credits			(269)						(225)
NOL carryback			(1,037)						0
Valuation allowance			63						—
Other			(110)						564
Total provision for income taxes			$	(3,784)					$	37

The Treasury Department issued final regulations in July 2020 that provide for a high-tax exception to the Global Intangible Low-Taxed Income (“GILTI”) tax that were retroactive to tax years beginning after December 31, 2017. As a result, the Company recognized a $0.6 million tax benefit in 2020 for the reduction of GILTI tax expense.

The Company recognizes the benefit of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement with the relevant tax authority. The Company assesses all tax positions for which the statute of limitations remains open. The Company had no unrecognized tax benefits as of December 31, 2020 and December 29, 2019. The Company recognizes any penalties and interest when necessary as income tax expense. There were no penalties or interest recorded during the twelve months ended December 31, 2020 or December 29, 2019.

The Company files income tax returns in the United States, Mexico, and Canada as well as in various state and local jurisdictions. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years before 2017 in the United States, before 2015 in Mexico, and before 2016 in Canada.

13. Leases

On January 1, 2020, the Company adopted the accounting guidance under ASC 842 “Leases”, as issued by the FASB under ASU 2016-02, by applying the modified retrospective method without restatement of comparative periods’ financial information. More information regarding the Company’s accounting policies can be found in Note 3, New Accounting Pronouncements.

The Company leases certain industrial spaces, land, and equipment. Some leases include one or more options to renew, with renewal terms that can extend the lease term from generally one to 5 years. The exercise of lease renewal options is at the Company’s sole discretion, and are included in the lease term only to the extent such renewal options are reasonably certain of being exercised at lease commencement. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. As of December 31, 2020, leases that the Company has signed but have not yet commenced are immaterial.

UNIQUE FABRICATING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leased assets and liabilities included within the consolidated balance sheets consist of the following:

			Classification						December 31, 2020
			(In thousands)
Right-of-Use-Assets
Operating			Operating Leases						$	10,415
Liabilities
Current
Operating			Other accrued liabilities						$	2,309
Non-current
Operating			Other long term liabilities						8,911
Total lease liabilities									$	11,220

Maturity of the Company’s lease liabilities as of December 31, 2020 is as follows:

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate base on the information available at the commencement date in determining the present value of lease payments. Remaining lease term and discount rates are as follows:

						December 31, 2020
Weighted average remaining lease term (years)						7
Weighted average discount rate						6.39		%

Lease costs included in the consolidated statements of cash flows are as follows:

						Twelve Months Ended December 31, 2020
						(In thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases						$	3,335

14. Retirement Plans

The Company maintains a defined contribution plan covering certain full-time salaried employees. Employees can make elective contributions to the plan. The Company contributes 100 percent of an employee’s contribution up to the first 3 percent of each employee’s total compensation and 50 percent for the next 2 percent of each employee’s total compensation. In addition, the Company, at the discretion of the board of directors, may make additional contributions to the plan on behalf of the plan participants. The Company contributed $0.4 million for the twelve months ended December 31, 2020 and $0.2 million for the twelve months ended December 29, 2019.

15. Related Party Transactions

Effective March 18, 2013, the Company is under a management agreement with a firm related to several stockholders. The agreement initially provided for annual management fees of $0.3 million and additional fees for assistance provided with acquisitions. Effective upon completion of the Company's initial public offering, the agreement was amended to reduce the annual management fee by an amount equal to the amount, if any, of annual cash retainers and equity awards received as compensation for service on the board of directors by any person who is a related person of Taglich Private Equity, LLC or Taglich Brothers, Inc. The Company incurred management fees of $0.2 million for the twelve months ended December 31, 2020 and $0.2 million for the twelve months ended December 29, 2019. The Company allocates these fees to the services provided based on their relative fair values. The fees paid were all allocated to and expensed as transaction costs. The management agreement had an initial term of five years, expiring on March 18, 2018, and renews automatically each year for additional one-year terms. The agreement also will terminate on the date that the Taglich Founding Investors or Taglich Equity Investors, each as defined, no longer collectively own 50% of the equity securities owned by either of them on March 18, 2018.

In 2019, the Company entered into a services agreement with 6th Avenue Group, which is a company owned by a Board member of the Company. The services performed have been related to assisting long term strategic planning for the Company as well as aiding the Company with CEO transition services. As previously mentioned, the Company's CEO resigned on May 6, 2019. The Company incurred fees to the 6th Avenue Group of $0.2 million, for the twelve months ended December 29, 2019. The services provided by 6th Avenue Group terminated in 2019. This Board member, as discussed in Note 9, was also awarded stock options for 30,000 shares for her services on June 11, 2019.

16. Fair Value Measurements

Financial instruments consist of cash equivalents, accounts receivable, accounts payable and debt. The carrying amount of all significant financial instruments approximates fair value due to either the short maturity or the existence of variable interest rates that approximate prevailing market rates.

Accounting standards require certain other items be reported at fair value in the financial statements and provides a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the valuation techniques and inputs used to measure fair value.

Fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company can access.

Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. Level 2 inputs may include quoted prices for similar items in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related item. Level 3 fair value measurements are based primarily on management’s own estimates using inputs such as pricing models, discounted cash flow methodologies or similar techniques considering the characteristics of the item.

In instances whereby inputs used to measure fair value fall into different levels of the fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of specific inputs to these fair value measurements requires judgment and considers factors specific to each item.

The Company measures its interest rate swap at fair value on a recurring basis based primarily on Level 2 inputs using an income model based on disparity between variance and fixed interest rates, the scheduled balance of principal outstanding, yield curves and other information readily available in the market.

17. Contingencies

The Company is engaged from time to time in legal matters and proceedings arising out of its normal course of business. The Company establishes a liability related to its legal proceedings and claims when it has determined that it is probable that the Company has incurred a liability and the related amount can be reasonably estimated. If the Company determines that an obligation is reasonably possible, the Company will, if material, disclose the nature of the loss contingency and the estimated range of possible loss, or include a statement that no estimate of loss can be made. While uncertainties are inherent in the

outcome of such matters, the Company believes that there are no pending proceedings in which the Company is currently involved that will have a material effect on its financial position, results of operations or cash flow.

18. Earnings Per Share

Basic earnings per share is computed by dividing the net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is computed giving effect to all potentially weighted average dilutive shares including stock options and warrants. The dilutive effect of outstanding awards, if any, is reflected in diluted earnings per share by application of the treasury stock method.

The following table sets forth the reconciliation of the numerator and denominator of basic and diluted loss per share:

The effect of certain common stock equivalents were excluded from the computation of weighted average diluted shares outstanding for the twelve months ended December 31, 2020 and twelve months ended December 29, 2019, as inclusion would have resulted in anti-dilution. A summary of these anti-dilutive common stock equivalents is provided in the table below:

(1)Includes warrants to purchase 141,000 shares of common stock issued to the underwriters of the Company’s IPO in July 2015 with an exercise price of $11.88 per share of common stock which expired on July 7, 2020.