Item 2.04. |
Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement. |
As previously disclosed, on August
13, 2021 (“Closing Date”), the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”)
with Western Alliance Bank, pursuant to which, Western Alliance Bank agreed to provide the Company with a term loan facility in the maximum
principal amount of $5,000,000, including (i) a $3,500,000 term loan advanced on the Closing Date and (ii) a $1,500,000 term loan available
upon the Company’s request, subject to certain conditions for the 18-month period following the Closing Date. Amounts outstanding
under the Loan and Security Agreement bear interest at a per annum rate equal to the prime rate plus 0.75%. In addition, the Company is
also required to pay customary fees and expenses.
The
Loan and Security Agreement requires payments of interest only through February 2023. Beginning on March 10, 2023, the Company is required
to make monthly payments of principal and interest, based on a 30-month amortization schedule. All amounts outstanding under the Loan
and Security Agreement will become due and payable on August 10, 2025. The obligations under the Loan and Security Agreement are secured
by substantially all of the assets of the Company except for the Company’s intellectual property.
The
Loan and Security Agreement includes financial covenants, including the requirements that the Company achieve certain EBDA levels and
maintain a certain Adjusted Quick Ratio. The Loan and Security Agreement also includes customary negative covenants, subject to exceptions,
which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, and dispositions of assets, as well
as customary representations and warranties, affirmative covenants, and events of default, including cross defaults and a change of control
default.
On
April 25, 2022, the Company became aware that an event of default by the Company had occurred by reason of the
Company’s violation of the financial covenant requiring the Company’s trailing three-month EBDA (losses), tested on the last
day of each quarter, to not negatively deviate more than $500,000 from the projected EBDA for the three months ended March 31, 2022 (the
“Event of Default”), as set forth in the Company’s board of directors approved annual operating budget delivered to
Western Alliance Bank pursuant to the Loan and Security Agreement.
As a result of the Event of Default,
Western Alliance Bank had the right to accelerate the outstanding balance of the loans under the Loan and Security Agreement, which as
of April 25, 2022, was $3,506,197.85, including all accrued and unpaid interest and any other amounts owed to Western Alliance Bank including,
without limitation, fees, expenses and penalties, and may increase the applicable interest rate under the Loan and Security Agreement
by 5.00% from and after the occurrence and during the continuance of the Event of Default.
The
Company has not received from Western Alliance Bank a notice of default or a notice of notice of repayment with respect to the outstanding
balance of the loan. On April 29, 2022, the Company and Western Alliance Bank entered into
the Waiver, pursuant to which, Western Alliance Bank agreed to waive
the Event of Default and the Company agreed to release Western Alliance Bank from all claims from the beginning of the time through and
including the date of the Waiver, whether they relate to the Loan and Security Agreement, the covenants or any other claims that the Company
ever had or currently has against Western Alliance Bank.
The
foregoing description of the Waiver is qualified in its entirety by reference to the full text of the Waiver, which is attached as Exhibit
10.1 to this Current Report on Form 8-K.