DEBT AND CREDIT FACILITIES

3 Months Ended

Mar. 31, 2024

Debt And Credit Facilities

DEBT AND CREDIT FACILITIES

NOTE 7 – DEBT AND CREDIT FACILITIES

Cadence Term Loan

In connection with the entry into the Applied Purchase Agreement, on August 1, 2023, SMAT, as borrower, and the Company, as guarantor, entered into a loan agreement (the “Cadence Loan Agreement”) with Cadence Bank (the “Bank”) providing for, among other things, an advancing term loan in the aggregate principal amount of $12.0 million (the “Cadence Term Loan”), which was evidenced by an advancing promissory note. Pursuant to the Cadence Loan Agreement, the Bank agreed to make, at any time and from time to time prior to February 1, 2024, one or more advances to SMAT.

The proceeds of the advances under the Cadence Loan Agreement were used for working capital and for purposes of financing up to one hundred percent (100%) of the Cash Closing Consideration and Installment Payments for the Applied Asset Purchase and related fees and expenses, including any subsequent payments that were due to the Sellers after the Closing. On August 1, 2023, the Bank, at the request of SMAT, made an advance for $9.75 million. The proceeds from the advance were used to fund the Cash Closing Consideration for the Applied Asset Purchase.

Advances under the Cadence Term Loan were scheduled to begin amortizing in monthly installments commencing on August 5, 2024. All remaining unpaid balances under the Cadence Term Loan were due and payable in full on August 1, 2028 (the “Cadence Loan Maturity Date”). SMAT was permitted to prepay amounts due under the Cadence Term Loan. All accrued but unpaid interest on the unpaid principal balance of outstanding advances was due and payable monthly, beginning on September 5, 2023 and continuing monthly on the fifth day of each month thereafter until the Cadence Loan Maturity Date. The unpaid principal balance of outstanding advances bore interest, subject to certain conditions, at the lesser of the Maximum Rate (as defined in the Cadence Loan Agreement) or the Base Rate, which was for any day, a rate per annum equal to the term secured overnight financing rate (Term SOFR) (as administered by the Federal Reserve Bank of New York) for a one-month tenor in effect on such day plus three percent (3.0%).

The obligations of SMAT under the Cadence Loan Agreement and the other loan documents delivered in connection therewith were guaranteed by the Company and were secured by a first priority security interest in substantially all of the existing and future assets of SMAT.

The Cadence Loan Agreement contained customary representations and warranties and certain covenants that limit (subject to certain exceptions) the ability of SMAT and the Company to, among other things, (i) create, assume or guarantee certain liabilities, (ii) create, assume or suffer liens securing indebtedness, (iii) make or permit loans and advances, (iv) acquire any assets outside the ordinary course of business, (v) consolidate, merge or sell all or a material part of its assets, (vi) pay dividends or other distributions on, or redeem or repurchase, interest in an obligor, including the Company, as guarantor (vii) cease, suspend or materially curtail business operations or (viii) engage in certain affiliate transactions. In addition, the Cadence Loan Agreement contained financial covenants that required SMAT to maintain (i) a minimum Debt Services Coverage Ratio of 1.2 to 1.0 as of the last day of each applicable fiscal quarter and (ii) a maximum Cash Flow Leverage Ratio of not more than (a) 4.5 to 1.0 as of the last day of the fiscal quarter ending on September 30, 2023, (b) 4.0 to 1.0 as of the last day of each fiscal quarter ending on December 31, 2023 and March 31, 2024, (c) 3.5 to 1.0 as of the last day of each fiscal quarter ending June 30, 2024 and September 30, 2024 and (d) 3.0 to 1.0 as of the last day of each fiscal quarter thereafter. Pursuant to the Cadence Loan Agreement, in the event that SMAT failed to comply with the financial covenants described above, the Company was required to contribute cash to SMAT in an amount equal to the amount required to satisfy the financial covenants.

The Cadence Loan Agreement contained customary events of default. If such an event of default occurs, the Bank was entitled to take various actions, including the acceleration of amounts due under the Cadence Loan Agreement and actions permitted to be taken by a secured creditor.

The table below presents the components of outstanding debt for the periods presented:

As of March 31, 2024 and December 31, 2023, the interest rate on the advance under the Cadence Term Loan was 8.3%.

	March 31, 2024			December 31, 2023
Cadence Term Loan	$	9,750,000		$	9,750,000
Total debt		9,750,000			9,750,000
Less: debt issuance costs, net of accumulated amortization of $8,221 and $5,138		(53,438	)		(56,520	)
		9,696,562			9,693,480
Less: Current portion of long-term debt		928,571			580,357
Long-term debt	$	8,767,991		$	9,113,123

The table below presents the aggregate maturities of the Company’s outstanding debt as of March 31, 2024:

Year	Total
Remainder of 2024	$	580,357
2025		1,625,000
2026		1,950,000
2027		1,950,000
2028		3,644,643
Thereafter		-
Total debt	$	9,750,000

In connection with the Cadence Term Loan, the Company incurred $61,658 in debt issuance costs during the year ended December 31, 2023. Debt issuance costs are amortized to “Interest expense and other” on the Consolidated Statement of Operations over the life of the debt to which they pertain. The total unamortized debt issuance costs were $53,438 and $56,520 as of March 31, 2024 and December 31, 2023, respectively. Debt issuance costs are included in “Long-term debt, net of current portion” on the Consolidated Balance Sheets. Amortization expense related to debt issuance costs was $3,083 and zero for the three months ended March 31, 2024 and 2023, respectively.

CRG Term Loan

On April 17, 2024, the Company entered into a Term Loan Agreement (the “CRG Loan Agreement”) by and among the Company, as borrower, the subsidiary guarantors party thereto from time to time (collectively, the “Guarantors”), CRG Servicing LLC as administrative agent and collateral agent (the “Agent”), and the lenders party thereto from time to time, providing for a senior secured term loan of up to $55.0 million (the “CRG Term Loan”). On the closing date of the CRG Term Loan, the Cadence Loan Agreement was terminated and all outstanding amounts under the Cadence Term Loan were repaid in full and all security interest and other liens granted to or held by the Bank were terminated and released. For more information regarding the CRG Term Loan, see Note 11.