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Item 1.01.
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Entry into a Material Definitive Agreement
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On March 29, 2016, USA Technologies, Inc. (the “Company”) entered into a Loan and Security Agreement and other ancillary documents (the “Loan Documents”) with Heritage Bank of Commerce (“Heritage Bank”), providing for a secured asset-based revolving line of credit in an amount of up to $12.0 million (the “Line of Credit”).
The Company utilized approximately $7.0 million under the Line of Credit to satisfy the existing line of credit and related term loan from Avidbank Corporate Finance, a division of Avidbank, and approximately $100,000 under the Line of Credit to pay closing fees of Heritage Bank. The amount of advances remaining available to the Company under the Line of Credit as of March 29, 2016 was approximately $4.8 million.
The Loan Documents provide that the aggregate amount of advances under the Line of Credit shall not exceed the lesser of (i) $12.0 million, or (ii) eighty-five percent (85%) of license and transaction fee revenue (as is reflected as such in the Company’s consolidated statement of operations) for the preceding three (3) calendar months.
The outstanding daily balance of the amounts advanced under the Line of Credit will bear interest at 2.25% above the prime rate as published from time to time in
The Wall Street Journal
. Interest is payable by the Company to Heritage Bank on a monthly basis.
The Line of Credit and the Company’s obligations under the Loan Documents are secured by substantially all of the Company’s assets, including its intellectual property.
The maturity date of the Line of Credit is March 29, 2017. At the time of maturity, all outstanding advances under the Line of Credit as well as any unpaid interest are due and payable. Prior to maturity of the Line of Credit, the Company may prepay amounts due under the Line of Credit without penalty, and subject to the terms of the Loan Documents, may re-borrow any such amounts.
The Loan Documents contain customary representations and warranties and affirmative and negative covenants applicable to the Company. The Loan Documents also require the Company to achieve a minimum Adjusted EBITDA, as defined in the Loan Documents, measured on a quarterly basis. The Loan Documents also require that the number of the Company’s connections as of the end of each fiscal quarter shall not decrease by more than five percent as compared to the number of the Company’s connections as of the end of the immediately prior fiscal quarter.
The Loan Documents also contain customary events of default, including, among other things, payment defaults, breaches of covenants, and bankruptcy and insolvency events, subject to grace periods in certain instances. Upon an event of default, Heritage Bank may declare all of the outstanding obligations of the Company under the Line of Credit and Loan Documents to be immediately due and payable, and exercise any other rights provided for under the Loan Documents, including foreclosing on the collateral securing the Loan Documents.
In connection with the Loan Documents, the Company issued to Heritage Bank warrants to purchase up to 23,978 shares of common stock of the Company at an exercise price of $5.00 per share. The warrants are exercisable at any time through March 29, 2021 subject to earlier termination in the event of a business combination (as defined in the Loan Documents).