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Item 1.01
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Entry into a Material Definitive Agreement.
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As previously
reported by Appliance Recycling Centers of America, Inc. (the “Company”) in its Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 31, 2018, on December 26, 2018, the Company received that certain Amended and
Restated Secured Promissory Note (the “ApplianceSmart Note”) from ApplianceSmart Holdings LLC (“ApplianceSmart
Holdings”), a wholly-owned subsidiary of Live Ventures Incorporated (“Live”). In connection therewith, the Company
entered into certain Security Agreements, each dated December 26, 2018, with each of ApplianceSmart, Inc. (“ApplianceSmart”),
a subsidiary of Live, and ApplianceSmart Contracting Inc. (“ApplianceSmart Contracting”), a subsidiary of ApplianceSmart
Holdings, pursuant to which the Company took a security interest in certain assets of ApplianceSmart and ApplianceSmart Contracting
to secure, among other things, all obligations under the ApplianceSmart Note and each of ApplianceSmart’s and ApplianceSmart
Contracting’s guaranty in favor of the Company of the repayment of ApplianceSmart Holdings’ obligations under the Note.
As of March 18, 2019, there was approximately $3.9 million outstanding on the ApplianceSmart Note.
As reported
by Live in its Current Report on Form 8-K filed with the Securities and Exchange Commission on March 19, 2019, on March 15, 2019,
ApplianceSmart entered into a Loan and Security Agreement (the “Loan Agreement”) with Crossroads Financing, LLC (the
“Lender”). Advances under the Loan Agreement are guaranteed by ApplianceSmart Holdings and ApplianceSmart Contracting.
As a condition to the Lender’s entry into the Loan Agreement and providing the credit facility thereunder, the Lender required
that all obligations of ApplianceSmart, ApplianceSmart Holdings and ApplianceSmart Contracting (collectively, the “ApplianceSmart
Entities”) to the Company and the Company’s security interest in the assets of the ApplianceSmart Entities be subordinated
in favor of the Lender. As reported by Live, the proceeds of the credit facility under the Loan Agreement are intended to, among
other things, be used to repay a portion of the outstanding amount owed to the Company under the ApplianceSmart Note.
On March
15, 2019, the Company entered into a Subordination Agreement with the Lender and, on March 18, 2019, the Company entered into an
Intercreditor and Subordination Agreement with the Lender (collectively, the “Subordination Agreements”). Pursuant
to the Subordination Agreements, the Company agreed to subordinate the payment of indebtedness of the ApplianceSmart Entities to
the Company and the Company’s security interest in the assets of the ApplianceSmart Entities to the payment of any and all
debts, obligations and liabilities of the ApplianceSmart Entities to the Lender and the Lender’s security interest in the
assets of the ApplianceSmart Entities. In exchange for entering into the Subordination Agreements, the parties have agreed that
ApplianceSmart and ApplianceSmart Contracting will pay, or make arrangements to pay, a prepayment of up to approximately $1.2 million
on the outstanding amount of the ApplianceSmart Note within fifteen days of the closing of the Loan Agreement. The Subordination
Agreements were approved by a special committee of the Company’s Board of Directors composed entirely of an independent and
disinterested director.
As previously
disclosed, Jon Isaac, the President and Chief Executive Officer of Live, is the CEO, Manager and sole member of Isaac Capital Group,
LLC, which, as of September 11, 2018, was the beneficial owner 14.8% of the outstanding capital stock of the Company. Jon Isaac
is also the son of Tony Isaac, the Chief Executive Officer of the Company and former Chief Executive Officer of ApplianceSmart.
The foregoing
descriptions of the Subordination Agreements are qualified in their entirety by reference to the Subordination Agreements, copies
of which are filed as Exhibits 10.1 and 10.2 to this Current Report on Form 8-K and are incorporated herein by reference in this
Item 1.01.