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EX-10.1 - ZANETT INC | v209778_ex10-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of report (Date of earliest event
reported)
|
January 27,
2011
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Zanett, Inc.
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(Exact
name of registrant as specified in its
charter)
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Delaware
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001-32589
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56-4389547
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(State
or other jurisdiction
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(Commission
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(IRS
Employer
|
||
of
incorporation)
|
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File
Number)
|
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Identification
No.)
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635
Madison Avenue, 15th
Floor, New York, NY
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10022
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
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(212)
583-0300
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(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General
Instruction A.2. below):
¨ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨ Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17
CFR
240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
Item
1.01. Entry into a Material Definitive
Agreement.
On
January 27, 2011, Zanett, Inc. (the “Company”), together with its wholly-owned
subsidiary, Zanett Commercial Solutions, Inc. (“ZCS” and together with the
Company, the “Borrowers”), entered into a new Revolving Credit and Security
Agreement (the “Credit Agreement”) with PNC Bank, National Association, in its
capacity as a lender and agent (the “Agent”) and the lenders party
thereto. The Credit Agreement allows for revolving credit borrowings
in a principal amount of up to $10.0 million (the “Loan”). The Agent
acts as lender and letter of credit issuer under the Credit
Agreement. In general, borrowings under the Credit Agreement bear
interest at either (a) LIBOR plus the applicable margin, or (b) the Base Rate
(as defined in the Credit Agreement) plus the applicable margin.
The Loan will be used to provide for
the Borrowers’ business purposes, including without limitation, to provide for
the Borrowers’ future working capital requirements. The Company and
ZCS are jointly and severally liable for all of the obligations of each other
under the Credit Agreement. The Loan is secured by substantially all
of the assets of the Borrowers. Subject
to the Agent’s right to accelerate the Loan upon the occurrence of an event of
default (subject to applicable cure periods), the Borrowers must repay the Loan
on January 27, 2014. Events of default under the Credit Agreement
include, but are not limited to, the following: (a)cross default in respect of
certain significant contracts of the Borrowers or any of the Borrowers’ existing
indebtedness that has been subordinated to the Loan; (b) the insolvency of any
of the Borrowers or the appointment of a receiver or trustee for any of the
Borrowers; (c) unsatisfied judgments in excess of certain threshold amounts; (d)
a change of control of the Borrowers in certain circumstances; and (e) default
under any of the Borrowers’ covenants under the Credit
Agreement. Some of the more important business and financial
covenants are discussed below.
The Credit Agreement restricts the
Borrowers from, among other things, (a) guaranteeing any other person’s
obligations; (b) incurring additional indebtedness, subject to certain
exceptions including the Borrowers’ present indebtedness and indebtedness that
is unsecured and subordinated to the Loans; (c) granting any other liens on the
assets of the Borrowers; (d) entering into any transactions outside the ordinary
course of business (including merges and acquisitions); (e) entering into
transaction with affiliates, except on arms-length terms; and (f) making any
principal payments on subordinated debt unless the Borrowers satisfy certain
conditions.
The Credit Agreement also contains
restrictions on making investments in any other entity and amendments to the
organizational documents of the Borrowers. In addition, the Borrowers
may not declare or pay any dividend or other distribution in cash or property
(except for dividends or other distributions made by ZCS to the Company), make
any cash return of capital to stockholders, make any cash liquidation preference
payment or cash distribution with respect to its capital stock, or make any
payments in cash or property in respect of any stock option, stock bonus, or
similar plans.
Notwithstanding the foregoing, the
Company may pay cash dividends after complying with certain conditions precedent
set forth in the Credit Agreement, including without limitation, (a) delivery of
audited financial statements that evidence compliance with the conditions
precedent set forth in the Credit Agreement; (b) that the dividend not exceed
the net profit for the relevant fiscal year end; (c) that the average Undrawn
Availability (as defined in the Credit Agreement) for the relevant period be at
least $1.5 million; (d) that no event of default under the Credit Agreement
shall have occurred and be continuing on the date of the payment of the
dividend; and (e) that the Borrowers be in compliance with the financial
covenants set forth in the Credit Agreement. There is also a
restriction on capital expenditures limiting the aggregate amount the Borrowers
may spend to $350,000 in each calendar year. Any unused excess under
this capital expenditures cap may not be carried over into future calendar
years.
In addition to the business covenants,
there are financial covenants in the Credit Agreement including a fixed charge
coverage ratio covenant under which the Borrowers are required to maintain a
fixed charge coverage ratio of not less than 1.10 to 1.0 as of the end of each
relevant period.
The foregoing description of the Credit
Agreement is qualified in its entirety by reference to the full text of the
Credit Agreement, which is attached hereto as Exhibit 10.01 and incorporated
herein by reference.
Item
2.03.
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Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a Registrant.
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The information reported under Item
1.01 is incorporated herein by reference.
On January 21, 2011, the Company’s
Chief Executive Officer, Claudio Guazzoni, advanced the Company $100,000 to
provide interim working capital for the Company. The Company repaid
Mr. Guazzoni in full, without interest, on January 25, 2011.
Item 9.01
Financial Statements and Exhibits
(d)
Exhibits.
Exhibit No.
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Description
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10.1
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Revolving
Credit and Security Agreement, dated January 27, 2011, by and among
Zanett, Inc., Zanett Commercial Solutions, Inc., the lenders party
thereto, and PNC Bank, National Association.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
ZANETT,
INC.
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||
Date: February
2, 2011
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By:
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/s/ Dennis Harkins
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Dennis
Harkins
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Chief
Financial
Officer
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EXHIBIT
INDEX
Exhibit No.
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Description
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10.1
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Revolving
Credit and Security Agreement, dated January 27, 2011, by and among
Zanett, Inc., Zanett Commercial Solutions, Inc., the lenders party
thereto, and PNC Bank, National
Association.
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