Item 1.01. Entry into a Material Definitive Agreement
On May 21, 2020 (the “Closing
Date”), ENGlobal
Corporation, a Nevada corporation (the “Company”),
ENGlobal U.S., Inc., a Texas corporation
(“ENGlobal
US”), ENGlobal
Government Services, Inc., a Texas corporation
(“ENGlobal
Government” and, together
with the Company and ENGlobal US, the “Borrowers”),
entered into a Loan and Security Agreement (the
“Loan
Agreement”) with Pacific
Western Bank dba Pacific Western Business Finance, a California
state-chartered bank (the “Lender”),
pursuant to which the Lender agreed to extend credit to the
Borrowers in the form of revolving loans (each a
“Loan”
and collectively, the “Loans”)
in the aggregate amount of up to $6.0 million (the
“Maximum
Credit Limit”).
Set forth below are certain of the material terms of the Loan
Agreement:
Credit Limit: Lender
will not be obligated to make any Loan if doing so would, after
giving effect thereto, cause the outstanding amount of all
indebtedness under the Loan Agreement to exceed the credit
limit. The credit limit is an amount equal to the lesser
of (a) the Maximum Credit Limit and (b) the sum of (i) 85% of the
Borrowers’ Eligible Accounts (as defined in the Loan
Agreement), plus (ii) the lesser of (A) 75% of the
Borrowers’ Eligible Unbilled Accounts (as defined in the Loan
Agreement), or (B) $3,000,000 plus (iii) the lesser of
(A) 20% of Borrowers’ Eligible Fixed Price Accounts, or
(B) $250,000.
Interest: Any Loans
will bear interest at a rate per annum equal to the Prime rate
(defined as the rate announced as the “prime rate” or
“bank prime rate” in the Western Edition of the Wall
Street Journal) plus 2.0%; provided that interest will not be less
than $7,500 per month.
Collateral: Lender receives a
first priority lien on all assets of the Borrowers, including:
accounts receivable, inventory, equipment, deposit accounts,
general intangibles and investment property.
Maturity: The maturity date is May 20, 2023 and shall
be automatically extended for additional periods of one-year each,
if written notice of termination is not given by one party to the
other at least thirty days prior to the maturity date.
Loan Fee: The Borrowers will pay to Lender a loan fee of
1.00% of the Maximum Credit Limit at the time of funding and
annually thereafter on the anniversary date of the initial
funding.
Termination Fee: In the event the Borrowers terminate the
Loan Agreement prior to the maturity date, the Borrowers will pay
to Lender a termination fee of (i) 2.00% of the Maximum Credit
Limit, if the termination occurs on or prior to the first
anniversary of the Closing Date, (ii) 1.00% of the Maximum Credit
Limit, if the termination occurs after the first anniversary of the
Closing Date and on or prior to the second anniversary of the
Closing Date and (iii) 0.05% of the Maximum Credit Limit, if the
termination occurs after the second anniversary of the Closing
Date.
Covenants: The Loan Agreement requires the Borrowers to
comply with certain customary affirmative covenants, and negative
covenants that, among other things, restrict, subject to certain
exceptions, the ability of the Borrowers to engage in mergers,
acquisitions or other transactions outside of the ordinary course
of business, make loans or investments, incur indebtedness, pay
dividends or repurchase stock, or engage in affiliate transactions.
The Loan Agreement does not require the Borrowers to comply with
any financial covenants.
The
foregoing description of the Loan Agreement is included to provide
you with information regarding its terms. It does not purport to be
a complete description and is qualified in its entirety by
reference to the full text of the Loan Agreement, which is filed as
Exhibit 10.1 hereto and is incorporated herein by
reference.
