Note 4. INDEBTEDNESS | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Text Block] | Note 4. INDEBTEDNESS
Long-term debt
consists of the following (amounts in thousands):
On
May 26, 2010, Continental Commercial Products, LLC
(“CCP”) and Glit/Gemtex, Ltd. (collectively with
CCP, the “Borrowers”), wholly owned subsidiaries
of the Company, and the Company, as guarantor, entered into a
Revolving Credit, Term Loan and Security Agreement (the
“PNC Credit Agreement”) with PNC Bank, National
Association (“PNC Bank”). During the
six months ended July 1, 2011, the PNC Credit Agreement was
amended four times to reduce the minimum level of required
availability (as discussed below) and waive certain financial
and capital event covenants. The PNC Credit
Agreement was amended a fifth time on August 15, 2011 to
waive certain financial and capital event covenants, reduce
the maximum amount of the revolving credit facility upon the
occurrence of a capital event, amend certain financial
covenants for the remaining term of the agreement, and change
the termination date of the PNC Credit Agreement from May 26,
2013 to February 28, 2012. Due to the change of
the termination date of the PNC Credit Agreement, all
outstanding obligations as of September 30, 2011 have been
classified as a current liability.
The
PNC Credit Agreement is a $33.2 million credit facility with
an $8.2 million term loan (the “Term Loan”) and a
$25.0 million revolving loan (the “Revolving Credit
Facility”), including a $3.5 million sub-limit for
letters of credit. The proceeds of the Term Loan and
Revolving Credit Facility were used to repay the Second
Amended and Restated Credit Agreement with Bank of America
(“Bank of America Credit Agreement”) and pay fees
and expenses associated with the negotiation and consummation
of the PNC Credit Agreement. All extensions of
credit under the PNC Credit Agreement are collateralized by a
first priority security interest in and lien upon
substantially all present and future assets and properties of
the Company. The Company guarantees the
obligations of the Borrowers under the PNC Credit
Agreement. Upon the occurrence of the Sale Event,
as defined in the Fifth Amendment and Waiver to Revolving
Credit, Term Loan and Security Agreement (“Fifth
Amendment”), which occurred on October 4, 2011, the
Revolving Credit Facility was reduced to $8.5 million.
Under
the terms of the PNC Credit Agreement, as amended, the
principal balance of the Term Loan is payable in monthly
installments followed by a final installment on February 28,
2012 equal to the then outstanding and unpaid principal
balance of the Term Loan. Mandatory prepayments of
the Term Loan will be required upon the occurrence of certain
events, including sales of certain assets, and the Company
must make annual prepayments of the Term Loan in an amount
equal to 50% of excess cash flow (as defined in the PNC
Credit Agreement). Upon the occurrence of the Sale
Event, as defined in the Fifth Amendment, which occurred on
October 4, 2011, all remaining obligations under the Term
Loan were repaid by the Company.
The
Revolving Credit Facility, as amended, has an expiration date
of February 28, 2012 and its borrowing base is determined by
eligible inventory and accounts receivable, amounting to
$23.9 million at September 30, 2011. The
Company’s borrowing base under the PNC Credit Agreement
is reduced by the outstanding amount of standby and
commercial letters of credit. Currently, the
Company’s largest letters of credit relate to its
casualty insurance programs. At September 30,
2011, total outstanding letters of credit were $2.4
million. The PNC Credit Agreement requires the
Company to have a minimum level of availability such that its
eligible collateral must exceed the sum of its outstanding
borrowings and letters of credit by a certain
amount. The Company amended the PNC Credit
Agreement three times during the first quarter of 2011 to
reduce the minimum level of required
availability. The first and second amendments to
the PNC Credit Agreement reduced the minimum level of
required availability from $1.5 million to $1.1 million
through February 4 and February 11, 2011,
respectively. The third amendment to the PNC
Credit Agreement (“Third Amendment”) reduced the
minimum level of required availability dollar for dollar by
the aggregate amount of cash infusions into the Company (and
further distributed to the Borrowers) by members of
management of the Company and/or such other persons who are
reasonably acceptable to PNC Bank, on the date when
made. The minimum level of availability remained
at the reduced amount through and including May 1, 2011, and
was reinstated to $1.5 million on May 2, 2011. As
a result of $0.2 million received on February 12, 2011, the
minimum level of required availability was reduced from $1.5
million to $1.3 million on February 12, 2011. An
additional $0.8 million was received on February 15, 2011,
further reducing the minimum level of required availability
to $0.5 million on February 15, 2011.
The
Term Loan bears interest at the Company’s option at
either (i) the Eurodollar Rate (as defined in the PNC Credit
Agreement), plus 6.25% or (ii) the Base Rate (as defined in
the PNC Credit Agreement), plus 5.25%. Borrowings
under the Revolving Credit Facility bear interest at the
Company’s option at either (x) the Eurodollar Rate plus
3.25% or (y) the Base Rate plus 2.25%. For U.S.
dollar borrowings, the Base Rate is the highest of (i) the
Federal Funds Open Rate (as defined in the PNC Credit
Agreement) plus one half of 1.0%, (ii) the interest rate
announced by PNC Bank as its base commercial lending rate and
(iii) the sum of the Daily LIBOR Rate (as defined in the PNC
Credit Agreement) plus 1.0%. For Canadian dollar
borrowings, the Base Rate is the higher of (x) the interest
rate announced by the PNC Bank Canada Branch as its reference
rate of interest for loans in Canadian dollars to Canadian
borrowers and (y) the sum of the one month CDOR Rate (as
defined in the PNC Credit Agreement) plus
1.75%. An unused commitment fee of 50 basis points
per annum will be payable quarterly on the average unused
amount of the Revolving Credit Facility.
The
PNC Credit Agreement includes financial covenants regarding
minimum earnings before interest, taxes, depreciation and
amortization (“EBITDA,” as defined in the PNC
Credit Agreement) and fixed charge coverage
ratio. The third, fourth and fifth amendments to
the PNC Credit Agreement amended these
covenants. The Company was not in compliance with
these financial covenants at July 1, 2011; however, the
violation of these financial covenants was waived by the
Fifth Amendment. Additionally, the first amendment
to the PNC Credit Agreement added a covenant requiring the
Company to consummate a capital event no later than May 1,
2011, defined as either a capital infusion, in the form of
either equity or debt or pursuant to a sale or other
disposition of assets. As the Company did not
consummate a capital event by May 1, 2011, which constituted
an Event of Default, as defined in the PNC Credit Agreement,
the Company entered into a fourth amendment to the PNC Credit
Agreement (“Fourth Amendment”) on May 16,
2011. The Fourth Amendment waived the default,
provided the Company consummated a Sale Event, as defined in
the first amendment to the PNC Credit Agreement, no later
than July 6, 2011. As the Company did not
consummate a Sale Event by July 6, 2011, which constituted an
Event of Default, as defined in the PNC Credit Agreement, the
Company entered into the Fifth Amendment on August 15,
2011. The Fifth Amendment waived the default,
provided the Company consummated a Sale Event, as defined in
the Fifth Amendment, no later than September 15,
2011. The Fifth Amendment also further amended the
EBITDA covenant and will provide the Borrowers with
additional flexibility under this covenant. The
Sale Event, as described in Note 11, was consummated on
October 4, 2011.
All
of the debt under the PNC Credit Agreement is re-priced to
current rates at frequent intervals. Therefore,
its fair value approximates its carrying value at September
30, 2011. For the three and nine months ended
September 30, 2011, the Company had amortization of debt
issuance costs, included within interest expense, of $0.1
million and $0.4 million, respectively. For the
three and nine months ended October 1, 2010, the Company had
amortization of debt issuance costs, included within interest
expense, of $48,000 and $0.4 million,
respectively. Included in amortization of debt
issuance costs for the nine months ended October 1, 2010 was
approximately $0.2 million of debt issuance costs written off
due to the extinguishment of the Bank of America Credit
Agreement. The Company incurred $0.3 million of
debt issuance costs during the nine months ended September
30, 2011, associated with amending the PNC Credit
Agreement.
In
addition, CCP and the Company entered into an Export-Import
Revolving Credit and Security Agreement (“Ex-Im
Agreement”) with PNC Bank, which provides for up to a
$1.5 million revolving advance amount on certain foreign
accounts receivable as part of the Revolving Credit
Facility. Concurrent with the Third Amendment,
Fourth Amendment and Fifth Amendment, the Company entered
into corresponding amendments to the Ex-Im Agreement to amend
the financial covenants contained in the Ex-Im Agreement to
be consistent with the related PNC Credit Agreement
amendments.
On
October 4, 2011, the Company terminated the PNC Credit
Agreement and related Ex-Im Agreement and paid in full all
amounts outstanding under those agreements, as further
discussed in Note 11.
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