Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
As previously reported, on March 15, 2021, Rocky Brands, Inc. and its material subsidiaries (the “Company”) entered into (i) an ABL Loan and Security Agreement (the “ABL Loan Agreement”) with Bank of America, N.A. as Agent, Sole Lead Arranger and Sole Bookrunner and the other lenders from time to time party thereto, and (ii) a Loan and Security Agreement (the “Term Loan Agreement”) with TCW Asset Management Company LLC (as Agent for certain term loan lenders, “TCW”). The ABL Loan Agreement and the Term Loan Agreement, each as amended, are referred to as the “Financing Agreements.” All capitalized terms not otherwise defined herein are defined in the respective Financing Agreements.
On December 10, 2021, the Company entered into a First Amendment to the ABL Loan Agreement resulting in an increase in the revolving credit facility by $25,000,000 to $175,000,000 for the period from December 10, 2021 to June 10, 2022, which thereafter would have reduced to $165,000,000. On June 8, 2022, the Company entered into a Second Amendment to the ABL Loan Agreement (the “ABL Amendment”), resulting in an increase in the revolving credit facility by $25,000,000 to $200,000,000 for the period beginning on the date of the ABL Amendment through and including December 31, 2022, which thereafter will be reduced to $175,000,000. After the increase and subsequent decrease, the Company’s uncommitted accordion will be in the amount of $25,000,000.
In addition, on December 10, 2021, the Company and TCW entered into a First Amendment to the Term Loan Agreement, among other things, to consent to the increase and decrease in the revolving credit facility as described above, amend reporting requirements, and adjust the performance pricing grid for the period beginning December 10, 2021 through and including June 10, 2022. Similarly, on June 8, 2022, the Company entered in a Second Amendment to the Term Loan Agreement (“Term Loan Amendment”), among other things, to consent to the increase and decrease in the revolving credit facility as described above, and adjust certain pricing and prepayment terms.
The Term Loan Amendment provides that the maximum total leverage ratio will be 4.00:1.00 for the quarter ended June 30, 2022, and both the ABL Amendment and the Term Loan Amendment also provide certain EBITDA adjustments with respect to their applicable financial covenants.
The foregoing descriptions of the ABL Amendment and the Term Loan Amendment do not purport to be complete and are qualified in their entirety by reference to the full text of the ABL Amendment and the Term Loan Amendment, which are filed as Exhibit 10.1 and Exhibit 10.2, respectively, attached hereto.
Item 2.05 Costs Associated with Exit or Disposal Activities
On June 7, 2022, the Company announced the completion of a cost savings review aimed at better positioning the Company for profitable growth. Following the integration of the lifestyle footwear business acquired from Honeywell International Inc. in March 2021, the Company identified a number of operational synergies and cost saving opportunities. As the result of this process, the Company has approved and implemented a plan, effective June 6, 2022, to close its Boston office acquired via the transaction and will reduce non-manufacturing headcount related to the acquired brands by approximately 13% (the “Cost Savings Plan”). As part of the Cost Savings Plan, all other remaining employees at the Boston office will either relocate to the Company’s headquarters in Nelsonville, Ohio or transition to remote work. These actions are expected to result in approximately $3.0 - $4.0 million in annualized savings. The Company expects to record a one-time severance charge of approximately $1.0 million in the second quarter of 2022 associated with the reduction in force. The actual costs associated with the plan and reduction in force may differ from our current expectations and estimates, and such differences may be material.