Attached files
| file | filename |
|---|---|
| 8-K - Yunhong CTI Ltd. | v180853_8k.htm |
Exhibit
10.1
Harris N.A.
111 West Monroe Street
Chicago, IL 60603
April 8,
2010
CTI
Industries Corporation
We look
forward to continuing our discussions with you regarding the
Facilities. In addition, this letter and the attached Summary of
Terms and Conditions do not include all requirements and conditions that we
would have in connection with the outlined Facility. Finally, the
contents of these documents should not be shared with any third party without
Harris’ prior written consent, except for potential equity and subordinated debt
investors, and advisors, management and regulatory bodies on a need-to-know
basis. All persons who are informed of the contents of this letter
and the attached Summary of Terms and Conditions also need to be informed that
such contents are confidential and cannot be disclosed without Harris’ prior
written consent.
We would
like to emphasize that Harris strives to combine product, structuring, and
industry expertise, with superior relationship banking in order to provide our
clients with value-added financing solutions. We recognize the
importance CTI places on reliable partners, and we believe through our
responsive and disciplined approach to evaluating your financing needs, along
with our extensive experience in middle market lending, that we can help ensure
the success of your company. Thank you for considering the financing
structure we have outlined, and we are enthusiastic about continuing discussions
with you regarding this transaction.
|
Very
truly yours,
/s/
David Knapp
Harris
N.A.
By: David
Knapp
Title:
Senior Vice President, Market
Manager
|
|
Agreed
to and accepted by: /s/ Stephen M. Merrick
|
|
|
Printed
Name and Title: Chief Financial Officer
|
|
|
Date: April
12, 2010
|
Summary
of Terms and Conditions
|
SUMMARY
OF COMMITTED TERMS AND CONDITIONS
APRIL
2010
|
|
Borrower:
|
CTI Industries
Corporation (the “Borrower”)
|
|
Lender:
|
Harris
N.A.
|
|
Facilities:
|
The
following senior secured credit facilities (the “Facilities”) will be
available on the terms and conditions set forth herein:
|
|
· $9,000,000 revolving
credit facility (the “Revolver”) [with a
$1,000,000 sublimit for the issuance of standby and commercial letters of
credit].]
|
|
|
· Up to $2,500,000
revolving equipment line of credit (the “Equipment
Line”)
|
|
|
· $2,371,000 [or
outstanding amount of mortgage with Charter One Bank at close] mortgage
(the “Mortgage”)
|
|
|
· $817,000 [or
the amount outstanding at close] term loan (the “Term Loan”)
|
|
|
Purpose:
|
·
Revolver: Refinance
existing indebtedness with Charter One Bank, and finance working capital
and general corporate purposes.
·
Equipment Line: Proceeds
under this facility will be used to finance equipment purchases (to be
based on a 100% advance on invoice amount).
·
Mortgage: Proceeds under
this facility will be used to refinance existing indebtedness with Charter
One Bank.
·
Term Note: Proceeds
under this facility will be used to refinance existing
indebtedness
|
|
Maturity:
|
·
Revolver: Three
years
|
|
·
Equipment Line: One year
draw period, with a three year maturity (from close)
|
|
|
·
Mortgage: Three
years
|
|
|
·
Term Loan: 1/31/11 (to match
existing maturity)
|
|
|
Amortization:
|
·
Equipment Line: Payments
will be interest only through Year 1, at which point all outstanding will
be converted to a term loan with payments based on a 5-year amortization
schedule with the remaining portion due at maturity. Interest
due monthly on Prime borrowings and at the end of each contract for LIBOR
loans, with such payments to occur no less frequently than
quarterly.
·
Mortgage: Principal
payments will be based on a 25 year amortization schedule, with the
remaining portion due at maturity. Interest due monthly on
Prime borrowings and at the end of each contract for LIBOR loans, with
such payments to occur no less frequently than quarterly.
·
Term Loan: Shall
continue to amortize as currently structured at Charter One Bank, with
$700M annually, and maturity will remain at
1/31/2011.
|
1 of
7
Summary
of Terms and Conditions
|
Guarantors:
|
Joint
and several limited guarantees for both John Schwan and Steve Merrick of
$1,750,000 each, at close. Step downs will occur upon receipt
of annual covenant compliance certificates AND so long as either Senior
debt leverage is 0.25x below the required covenant level or an updated
real estate appraisal is obtained and results materially
diminish our reliance on the guarantees:
·
After
year 1, the personal guarantees will reduce down to $1,500,000
each;
·
After
year 2, the personal guarantees will reduce down to $1,000,000
each;
All
existing and future subsidiaries of the
Borrower (where applicable)
|
|||
|
Security:
|
The
Revolver and Equipment Line will be secured by a first-priority perfected
security interest in substantially all of the tangible and intangible
assets of the Borrower and the Guarantors, whether now owned or hereafter
acquired. The Mortgage Loan would be secured by a mortgage on the building
and real property located in Barrington, IL. The Equipment Term
Loan would be secured by machinery and equipment (based on appraisal as of
12/05). A 65% pledge of the Flexo stock will be
required. All facilities will be cross-collateralized and
cross-defaulted.
|
|||
|
Availability:
|
Outstanding
under the Revolver, [including any letters of credit], shall not exceed a
borrowing base equal to the sum of up to 85% of eligible receivables and
up to 60% of eligible raw material and finished goods
inventory. Total availability under the borrowing base relating
to inventory will be capped at $5MM.
|
|||
|
Interest
Margins:
|
The
applicable Base Rate and LIBOR Margins shall be the percentage per annum
set forth in the Summary Pricing Matrix below for the appropriate
Level. The Level shall be determined quarterly by the reported
Senior Leverage Ratio. Pricing will be held at Level II until
receipt of the [Date TBD] compliance certificate. Margins on all loans and
fees may be increased by 2% per annum during the existence of an event of
default if so required by the Lender. See Exhibit A for
Interest Rate options and fees.
|
|||
|
Summary
Pricing Matrix
|
||||
|
Level I
|
Level II
|
Level
III
|
||
|
Senior
Leverage Ratio
|
>
3.25
|
<
3.25 but > 2.25
|
< 2.25
|
|
|
Base
Rate Margin
|
1.25%
|
0.75%
|
0.50%
|
|
|
LIBOR
Margin
|
3.75%
|
3.25%
|
3.00%
|
|
|
Facility/Unused
Fee
|
0.50%
|
0.25%
|
0.25%
|
|
|
Prepayments:
|
Loans
bearing interest based on the Base Rate may be prepaid at any time without
penalty with same-day written notice. Loans bearing interest
based on LIBOR may be repaid upon three business days’ written notice,
subject to payment of usual and customary breakage costs for payments made
prior to the last day of an interest
period.
|
|||
2 of
7
Summary
of Terms and Conditions
|
Mandatory
Prepayments:
|
1.
[70%] of the net proceeds of any sales or issuances of equity or debt
securities by the Borrower or any Guarantor (with exceptions to be
determined). The net proceeds would first be applied against the Equipment
Line of Credit, with any remaining monies applied equally, as a percentage
of debt, against all remaining outstanding obligations.
2.
[100%] of the net proceeds of (i) any sale or disposition of any
assets (other than sales of inventory in the ordinary course of business)
above a basket amount to be determined, and (ii) insurance and
condemnation proceeds not otherwise reinvested.
3. Any
amount outstanding under the Revolver (including letters of credit and
swing line loans, if applicable) in excess of the borrowing base must be
immediately prepaid.
|
|
Representations
& Warranties:
|
Usual
and customary representations and warranties for facilities of this type,
including but not limited to organization and qualification, subsidiaries,
authorization and validity of loan documents, use of proceeds and margin
stock, financial reports, no material adverse change, full disclosure,
intellectual property, governmental authority and licensing, title to
properties and assets, no material litigation, payment of taxes,
governmental approvals, transactions with affiliates, Investment Company
Act, ERISA, compliance with laws (including environmental), no violation
of agreements, solvency, no broker’s fees, and absence of default or event
of default.
|
|
Initial Conditions
Precedent:
|
Usual
and customary conditions precedent to the initial extensions of credit for
facilities of this type, including but not limited
to:
|
| (i) |
Agreement
to subordinate current affiliated debt from Flexo to Harris
Bank.
|
|
| (ii) | All legal, tax, and regulatory matters relating to the Facilities and any transactions financed with the proceeds thereof shall be satisfactory to the Lender. | |
| (iii) | The negotiation of credit and security documents satisfactory to the Lender. Receipt of other customary closing documentation, including the legal opinion of counsel to the Borrower and Guarantors, acceptable to the Lender. | |
| (iv) | Perfection of liens on collateral. | |
| (v) | Repayment and cancellation of existing credit facilities. | |
| (vi) | Satisfaction with title and other matters relating to owned real estate, including receipt of title insurance, FIRREA-compliant real estate appraisals, real estate surveys, flood determinations, and [environmental studies including Phase I assessments. | |
| (vii) | No material adverse change in the business, condition (financial or otherwise), operations, performance, properties, or prospects of the Borrower any of its subsidiaries or any Guarantor or the Target or any of its subsidiaries from that reflected in the 12/31/09 financial statements already received by the Lender. | |
| (viii) | The Borrower shall, during the term of the Facilities, maintain all operating accounts at Harris or its affiliates. | |
| (ix) | All payment, covenant, default, subordination, and other material terms and conditions of any subordinated debt and all material terms of any preferred equity shall be acceptable to the Lender. | |
| (x) | Receipt of evidence satisfactory to the Harris that the Borrower’s EBITDA for the most recently-ended twelve months (“LTM”) is at least $[4.0MM] prior to closing and indebtedness outstanding at the closing of the Facilities after giving effect to the initial loans thereunder. |
3 of
7
Summary
of Terms and Conditions
|
Ongoing
Conditions Precedent:
|
No
Lender shall be required to make any extension of credit under the
Facilities (including the initial extensions of credit)
unless:
·
No
default or event of default shall exist before or after giving effect to
such extension of credit.
· All
representations and warranties shall be true and correct.
|
|||||||
|
Financial
Covenants:
|
Financial
covenants may include Minimum Tangible Net Worth, Maximum Senior Leverage
Ratio, Minimum Fixed Charge Coverage
|
|||||||
|
· Minimum Tangible Net
Worth at all times of $[To be benchmarked at close] plus (if
positive) 50% of net income for each calendar year. Tangible
Net Worth is defined as net worth less any goodwill and other intangibles
plus subordinated debt.
|
||||||||
|
·
Maximum Senior
Leverage Ratio, defined as the ratio of Senior Funded Debt (which
is defined as all indebtedness for borrowed money and guaranties of the
same and including letters of credit at the full stated amount thereof,
excluding indebtedness subordinated to the Facilities on terms acceptable
to the Lender) as of the end of the most recent fiscal quarter, to EBITDA
for the most recently-ended four fiscal quarters (TTM), of 3.50x at
closing (test dates: 3/31/10, 6/30/10, 9/30/10, 12/31/10), with step downs
to 3.25x at 3/31/11, with additional step down to 3.00x at 9/30/11 and
final step down to 2.75x for 3/31/12 and remain
thereafter.
|
||||||||
|
· Minimum Fixed Charge
Coverage Ratio, defined as the ratio of EBITDA less unfinanced
capital expenditures, and declared dividends for the most recently-ended
four fiscal quarters, to the sum of total debt principal and cash interest
payments and cash taxes during the most recently-ended four fiscal
quarters of 1.10x.
|
||||||||
|
EBITDA
is defined as the sum of net income, taxes, interest expense, depreciation
and amortization and adjustments including certain add backs [TBD]. Final
financial covenant definitions subject to the agreement of the Borrower
and the Lender.
|
||||||||
|
Other
Covenants:
|
Usual
and customary covenants for facilities of this type including but not
limited to:
|
|||||||
|
· Usual
and customary affirmative and operational covenants including without
limitation maintenance of business and properties, payment of taxes,
insurance, inspection, formation and maintenance of subsidiaries, ERISA,
compliance with laws, transactions with affiliates, no changes in fiscal
year, no changes in nature of business, use of proceeds, and absence of
contractual restrictions.
|
||||||||
4 of
7
Summary
of Terms and Conditions
|
·
CTI
will be allowed to make principal payments on subordinated debt as
follows: Maximum semi-annual sub-debt principal reduction of 33% of excess
cash flow (defined as excess cash flow after fixed charges to be defined
in the loan documents, including declared dividends) will be allowed, and
capped at $300,000 annually.
· Usual
and customary restrictive covenants, including without limitation those
regarding indebtedness (including capital leases) and guaranties; liens;
operating leases; investments and acquisitions; loans and advances;
mergers and consolidations; sales of assets; and dividends, stock
repurchases and other restricted payments.
|
||||||||
|
Reporting
Requirements:
|
· Annual
audited consolidated financial statements for the Borrower within 90 days
of fiscal year end.
|
|||||||
|
· Monthly
company-prepared consolidated and consolidating financial statements for
the Borrower within 30 days of month end.
|
||||||||
|
· Quarterly
covenant compliance certificates signed by the Borrower’s chief financial
officer within 45 days of quarter end.
|
||||||||
|
· A
copy of the Borrower’s operating budget for the following fiscal year no
later than 30 days after the end of each fiscal year.
|
||||||||
|
·
Monthly
borrowing base certificates signed by the Borrower’s chief financial
officer within 15 days of month end.
· Field
audits to be conducted annually at the Borrower’s expense during the
term of the Facilities.
|
||||||||
|
·
Other
information and reports as may be reasonably requested by any
Lender. All reports and financial statements will be in form
and scope reasonably acceptable to the Lender, including
comparison to budget and prior comparable period.
|
||||||||
|
·
Notice
of any change of control, material adverse change, default or event of
default, or material adverse litigation or governmental
proceeding.
|
||||||||
|
|
||||||||
|
Events
of Default:
|
Usual
and customary for facilities of this type, including but not limited to
failure to pay any interest, principal, fees or other amounts when due,
default under any covenant or agreement in any loan document, any loan
document is repudiated or is no longer in force and effect, inaccurate or
false representations or warranties, cross default with other debt
agreements, insolvency, bankruptcy, ERISA, change of control and
unsatisfied judgments.
|
|||||||
|
Yield
Protection:
|
Customary
provisions protecting the Lender in the event of prepayment or failure to
borrow (funding indemnity), unavailability of funding, capital adequacy
requirements, and increased costs due to changes in law or
regulation. Payments to be made free and clear of taxes
(subject to customary limitations and
exceptions).
|
|||||||
5 of
7
Summary
of Terms and Conditions
|
Expenses:
|
The
Borrower shall pay all reasonable costs and expenses of the
Lender associated with the preparation, due diligence (including third
party expenses), administration and syndication of the Facilities and loan
documentation, including without limitation the legal fees
of the Lender’s counsel, regardless of whether the Facilities
close. Costs and expenses of the Lender, including without
limitation their legal fees, in connection with any default or event of
default or the enforcement of the loan documents to be reimbursed by the
Borrower.
|
|
|
Commitment
Expiration:
|
No
later than 5/31/10
|
|
|
Indemnification:
|
The
Lender will be indemnified against all losses, liabilities, claims,
damages and expenses relating to or arising out of the loan documents, the
transactions contemplated hereby or the Borrower’s use of loan proceeds,
including without limitation environmental problems, such indemnity to
include without limitation reasonable attorneys’ fees and settlement
costs.
|
|
|
Governing
Law:
|
State
of Illinois.
|
|
|
April
2010
|
|
The
information provided in this term sheet is for the confidential use of the
Borrower and may not, without the prior written consent of the Lender, be
disclosed to any other party other than the Borrower’s employees,
attorneys and financial advisors (but not commercial lenders) with a need
to know the same.
Finally,
the Borrower will not attempt to obtain any other sort of debt financing
(whether or not intended to replace the Facilities) at the same time as
the Lender is working on closing the
Facilities.
|
6 of
7
|
Confidential
|
Summary
of Terms and Conditions
|
|
Exhibit
A: Interest Rate Options and Fees
|
|
|
Interest
Rates:
|
At
the Borrower’s option, each loan under the Facilities will bear interest
at the following rates:
|
|
Lender’s
Base Rate plus applicable Base Rate Margin set forth in the Summary
Pricing Matrix. Base Rate shall be, for any day, the greatest of (i)
Lender’s prime commercial rate as in effect on such day, (ii) the sum of
the Fed Funds rate for such day plus 1/2 of 1%, and (iii) the LIBOR
Quoted Rate for such day plus 1.00% calculated on an actual
day/[365/366-day basis] and payable [monthly/quarterly] in
arrears. LIBOR Quoted Rate shall be, for any day, Reserve
adjusted LIBOR based upon LIBOR for an interest period of one month as
reported on the LIBOR01 Page as of 11:00 a.m. (London, England time)
on such day.
|
|
|
Reserve
adjusted LIBOR plus the applicable LIBOR Margin set forth in the Summary
Pricing Matrix, fixed for interest periods of one, two, three or six
months, calculated on an actual day/360-day basis and payable on the last
day of the applicable interest period, but in any case, at least
quarterly. LIBOR is defined, with respect to the interest
period requested, as the rate per annum for deposits in U.S. Dollars as
reported on the LIBOR 01 Page as of 11:00 a.m. (London, England time)
2 business days prior to the first day of the interest
period.
|
|
|
Commitment
Fee:
|
The
Borrower shall pay to the Lender for the ratable benefit of
the Lender a commitment fee payable quarterly in arrears on the
average daily unused amount of the Revolver. Commitment fee
rates are set forth in the Summary Pricing Matrix.
|
|
Upfront
Fees:
|
None
|