MEZZANINE CREDIT AGREEMENT
EXECUTION VERSION
Dated as of April 22, 2021
among
CRESTLINE PACKAGING SOLUTIONS LLC, an Ohio limited liability company, as Borrower,
and
IRONWOOD CAPITAL FINANCE LLC, a Delaware limited liability company, as Lender
________________________________________
$20,000,000 Subordinated Secured Mezzanine Term Loan
________________________________________
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ARTICLE I — DEFINITIONS AND INTERPRETATION
Section 1.01 — Defined Terms
As used in this Agreement, the following terms shall have the meanings set forth below:
"Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" (including the terms "controlling," "controlled by," and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. Without limiting the generality of the foregoing, a Person shall be deemed to control another Person if such first Person owns, directly or indirectly, more than fifty percent (50%) of the voting equity interests of such other Person.
"Agreement" means this Mezzanine Credit Agreement, dated as of April 22, 2021, by and between the Borrower and the Lender, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the terms hereof.
"Applicable Premium" means, with respect to any prepayment of the Loan (whether voluntary or mandatory), a premium calculated as a percentage of the principal amount being prepaid, determined as follows:
(a) if such prepayment occurs during the period from and including the Closing Date to but not including the first anniversary of the Closing Date (Year 1): one hundred three percent (103%) of the principal amount prepaid (i.e., a three percent (3%) premium);
(b) if such prepayment occurs during the period from and including the first anniversary of the Closing Date to but not including the second anniversary of the Closing Date (Year 2): one hundred two percent (102%) of the principal amount prepaid (i.e., a two percent (2%) premium);
(c) if such prepayment occurs during the period from and including the second anniversary of the Closing Date to but not including the third anniversary of the Closing Date (Year 3): one hundred one percent (101%) of the principal amount prepaid (i.e., a one percent (1%) premium); and
(d) if such prepayment occurs during the period from and including the third anniversary of the Closing Date to and including the Maturity Date (Years 4 and 5): par (one hundred percent (100%)) of the principal amount prepaid (i.e., no premium).
"Borrower" means Crestline Packaging Solutions LLC, an Ohio limited liability company, with its principal place of business at 4510 Harshman Road, Dayton, OH 45424; Employer Identification Number: 31-1784562; Ohio Secretary of State Filing No. 4217835.
"Business Day" means any day other than a Saturday, a Sunday, or a day on which banking institutions in New York, New York are authorized or required by law, regulation, or executive order to close.
"Capital Expenditures" means, for any period, the aggregate of all expenditures (whether paid in cash or financed) by the Borrower and its Subsidiaries during such period for the acquisition, construction, improvement, or replacement of fixed or capital assets, including equipment, buildings, real property, leaseholds, and similar items, which are or should be capitalized under GAAP. Capital Expenditures shall be subject to the limitation set forth in Section 7.09.
"Cash Pay Interest" means interest accruing on the outstanding principal balance of the Loan at the Cash Pay Rate, payable in cash quarterly in arrears in accordance with Section 2.03(a).
"Cash Pay Rate" means eight percent (8.00%) per annum (800 basis points).
"Change of Control" means the occurrence of any of the following events: (a) any transaction or series of related transactions (whether by way of merger, consolidation, sale of equity interests, or otherwise) as a result of which Ridgeway Capital Partners Fund III, L.P. and its Affiliates cease to own, directly or indirectly, at least fifty-one percent (51%) of the fully diluted equity interests of the Borrower; (b) any change in the composition of the board of managers (or equivalent governing body) of the Borrower such that a majority of the members thereof are not individuals who are designees of, or who have been approved by, Ridgeway Capital Partners Fund III, L.P. or its Affiliates; or (c) any sale, lease, transfer, or other disposition of all or substantially all of the assets of the Borrower and its Subsidiaries, taken as a whole, to any Person other than Ridgeway Capital Partners Fund III, L.P. or an Affiliate thereof.
"Closing Date" means April 22, 2021.
"Collateral" means all assets of the Grantors that are subject to the security interests granted under the Security Agreement and the Pledge Agreement, as described therein, including, without limitation, all accounts, chattel paper, commercial tort claims, deposit accounts, documents, equipment, fixtures, general intangibles, goods, instruments, intellectual property, inventory, investment property, letter-of-credit rights, and proceeds of the foregoing.
"Compliance Certificate" means a certificate substantially in the form of Exhibit B attached hereto, delivered by the Chief Financial Officer of the Borrower in accordance with Section 6.01(c).
"Default" means any event or condition that, with the giving of notice, the passage of time, or both, would constitute an Event of Default.
"EBITDA" means, for any period, net income of the Borrower and its Subsidiaries on a consolidated basis for such period, determined in accordance with GAAP, plus the following to the extent deducted in calculating net income: (a) interest expense, (b) income tax expense, (c) depreciation expense, and (d) amortization expense; provided that EBITDA shall be subject to the following customary add-backs and exclusions: (i) extraordinary, non-recurring, or unusual losses or charges, (ii) non-cash stock-based compensation expense, (iii) management fees paid to the Equity Sponsor to the extent permitted under Section 7.04, (iv) transaction costs incurred in connection with the transactions contemplated by this Agreement, (v) non-cash purchase accounting adjustments, and (vi) cost savings, operating expense reductions, and synergies projected by the Borrower in good faith to be realized within twelve (12) months following the consummation of the Expansion Project, provided that such add-backs under this clause (vi) shall not exceed twenty percent (20%) of EBITDA before giving effect to such add-backs; minus (A) extraordinary, non-recurring, or unusual gains, (B) non-cash items of income, and (C) any cash payments in respect of items previously added back pursuant to clauses (i) through (vi) above.
"Equity Sponsor" means Ridgeway Capital Partners Fund III, L.P., a Delaware limited partnership (the general partner of which is Ridgeway Capital Management III LLC, a Delaware limited liability company), with its principal office at 200 Park Avenue South, Suite 3100, New York, NY 10003. The Equity Sponsor is a private equity fund with a fund size of $650,000,000 and a 2017 vintage.
"Event of Default" has the meaning assigned to such term in Article VIII.
"Excess Cash Flow" means, for any fiscal year, EBITDA for such fiscal year minus the sum of (a) scheduled principal payments on Indebtedness actually made during such fiscal year, (b) cash interest payments actually made during such fiscal year, (c) cash taxes actually paid during such fiscal year, (d) unfinanced Capital Expenditures actually made during such fiscal year, (e) increases in net working capital during such fiscal year, plus (f) decreases in net working capital during such fiscal year.
"Expansion Project" means the expansion of the Borrower's manufacturing facility located at 4510 Harshman Road, Dayton, OH 45424, including (a) a new 62,000 square foot coating line build-out, with an estimated cost of approximately $12,800,000, (b) packaging automation equipment, with an estimated cost of approximately $5,700,000, and (c) working capital for the ramp-up period, with an estimated cost of approximately $1,500,000, with a total estimated project cost of $28,500,000.
"Fixed Charge Coverage Ratio" means, as of the last day of any fiscal quarter, the ratio of (a) EBITDA for the trailing twelve-month period ending on such date minus unfinanced Capital Expenditures made during such period minus cash taxes paid during such period to (b) the sum of (i) scheduled principal payments on Indebtedness made or required to be made during such period, (ii) cash interest payments made or required to be made during such period (excluding PIK Interest), and (iii) required distributions made during such period.
"Funding Date" means April 23, 2021.
"GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, applied on a consistent basis.
"Grantors" means, collectively, Crestline Packaging Solutions LLC and Crestline Coatings Inc., and each individually a "Grantor."
"Guarantee" means, with respect to any Person, any obligation of such Person, whether direct or indirect, contingent or otherwise, (a) to pay or guarantee the payment of, or to provide funds for or otherwise assure a creditor against loss in respect of, Indebtedness of any other Person, (b) to purchase or pay (or advance or supply funds for the purchase or payment of) Indebtedness of any other Person, or (c) otherwise to assure or hold harmless a creditor of any other Person against loss in respect thereof. The amount of any Guarantee shall be deemed to be equal to the stated or determinable amount of the underlying Indebtedness (or, if less, the maximum amount for which the guaranteeing Person may be liable under the instrument effecting such Guarantee).
"Indebtedness" means, with respect to any Person at any date of determination (without duplication), (a) all obligations for borrowed money, (b) all obligations evidenced by bonds, debentures, notes, or similar instruments, (c) all obligations in respect of letters of credit or bankers' acceptances, (d) all obligations arising from capitalized leases, (e) all obligations secured by a Lien on any asset of such Person (whether or not such Person has assumed or become liable for the payment of such obligation), (f) all obligations of such Person under any Guarantee, and (g) all obligations of such Person in respect of any deferred purchase price of property or services (other than trade payables arising in the ordinary course of business and payable in accordance with customary trade terms).
"Intercreditor Agreement" means that certain Intercreditor Agreement dated as of April 22, 2021, among Pinnacle Commercial Bank, N.A. (as Senior Agent), Ironwood Capital Finance LLC (as Mezzanine Lender), and acknowledged by Crestline Packaging Solutions LLC (as Borrower), as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms.
"Interest Payment Date" means the last Business Day of each March, June, September, and December during the term of this Agreement, commencing on June 30, 2021, and including the Maturity Date.
"Interest Rate" means ten and one-half percent (10.50%) per annum (1,050 basis points), consisting of the Cash Pay Rate of eight percent (8.00%) per annum and the PIK Rate of two and one-half percent (2.50%) per annum.
"Lender" means Ironwood Capital Finance LLC, a Delaware limited liability company, with its principal office at 600 Lexington Avenue, 22nd Floor, New York, NY 10022, and its successors and permitted assigns.
"Lien" means any lien, mortgage, pledge, assignment, security interest, charge, or encumbrance of any kind (including any conditional sale or other title retention agreement, any easement, right of way, or other encumbrance on title to real property, and any lease having substantially the same economic effect as any of the foregoing) and any option, trust, or other preferential arrangement having the practical effect of any of the foregoing.
"Loan" means the $20,000,000 subordinated secured mezzanine term loan made by the Lender to the Borrower pursuant to Section 2.01 of this Agreement.
"Loan Documents" means, collectively, this Agreement, the Note, the Security Agreement, the Pledge Agreement, the Intercreditor Agreement, the Warrant Agreement, and all other documents, instruments, certificates, and agreements executed and delivered by or on behalf of any Loan Party in connection herewith or therewith, in each case as the same may be amended, restated, supplemented, or otherwise modified from time to time.
"Loan Party" means, collectively, the Borrower and each Grantor, and each individually a "Loan Party."
"Material Adverse Effect" means any event, condition, change, development, or occurrence that, individually or in the aggregate, has had or could reasonably be expected to have a material adverse effect on (a) the business, operations, assets, liabilities, condition (financial or otherwise), or prospects of the Borrower and its Subsidiaries taken as a whole, (b) the ability of any Loan Party to perform its obligations under any Loan Document, (c) the legality, validity, binding effect, or enforceability of any Loan Document, or (d) the rights, remedies, or benefits available to the Lender under or in connection with any Loan Document.
"Maturity Date" means May 7, 2026.
"Note" means the Mezzanine Promissory Note dated April 22, 2021, in the original principal amount of $20,000,000, made by the Borrower in favor of the Lender, substantially in the form of Exhibit A attached hereto.
"Obligations" means all principal of and interest on the Loan (including all PIK Interest that has been capitalized and added to the principal balance), all fees, premiums, expenses, indemnities, reimbursement obligations, and all other amounts owing by any Loan Party to the Lender under this Agreement or any other Loan Document, whether now existing or hereafter arising, whether direct or indirect, contingent or absolute, and whether for principal, interest, premiums, fees, costs, expenses, or otherwise.
"Operating Agreement" means the Amended and Restated Operating Agreement of Crestline Packaging Solutions LLC, dated as of September 12, 2019, as in effect on the Closing Date, as the same may be amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms and subject to Section 7.08.
"Origination Fee" means $400,000, equal to two percent (2.00%) of the principal amount of the Loan, payable at closing pursuant to Section 2.05.
"Permitted Expansion CapEx" means Capital Expenditures incurred in respect of the Expansion Project in an aggregate amount not to exceed $28,500,000, incurred during the fiscal years ending December 31, 2021 and December 31, 2022.
"Permitted Indebtedness" means (a) Senior Debt under the Senior Credit Agreement in an aggregate principal amount not to exceed the Senior Debt Cap, (b) the Obligations under this Agreement and the other Loan Documents, (c) purchase money Indebtedness in an aggregate principal amount not to exceed $2,000,000 at any time outstanding, incurred solely for the acquisition of equipment or other fixed assets used in the ordinary course of business, (d) intercompany Indebtedness owed by the Borrower to any Subsidiary or by any Subsidiary to the Borrower, provided that such Indebtedness is subordinated to the Obligations on terms reasonably satisfactory to the Lender, (e) Indebtedness consisting of obligations under any Guarantee by the Borrower or any Subsidiary of Indebtedness otherwise permitted hereunder, (f) Indebtedness in respect of workers' compensation claims, unemployment insurance, and other social security legislation, (g) Indebtedness arising from judgments or decrees that do not constitute an Event of Default under Section 8.01(g), and (h) other Indebtedness not exceeding $500,000 in aggregate principal amount at any time outstanding.
"Permitted Investments" means (a) cash and cash equivalents, (b) short-term obligations of the United States government or any agency thereof, (c) certificates of deposit, time deposits, or bankers' acceptances issued by any commercial bank organized under the laws of the United States (or any state thereof) having combined capital, surplus, and undivided profits of not less than $500,000,000, (d) commercial paper of any issuer rated at least A-1 by Standard & Poor's or P-1 by Moody's, (e) investments existing on the Closing Date and described in Schedule 5.08, and (f) intercompany loans permitted under the definition of Permitted Indebtedness.
"Permitted Liens" means (a) first-priority Liens in favor of the Senior Agent under the Senior Credit Agreement, (b) second-priority Liens in favor of the Lender under the Security Agreement and the Pledge Agreement, (c) Liens for taxes, assessments, or governmental charges not yet delinquent or being contested in good faith with adequate reserves established in accordance with GAAP, (d) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen, and other Persons imposed by law and arising in the ordinary course of business for amounts not yet due or being contested in good faith, (e) Liens securing purchase money Indebtedness permitted under clause (c) of the definition of Permitted Indebtedness, provided that such Liens attach only to the assets financed thereby, (f) easements, rights of way, restrictions, and other similar encumbrances on real property that do not materially interfere with the use of such property, and (g) Liens arising by operation of law in favor of any governmental authority in connection with any pending or threatened litigation or regulatory proceeding that does not constitute an Event of Default.
"Person" means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, governmental authority, or other entity.
"PIK Interest" means interest accruing on the outstanding principal balance of the Loan at the PIK Rate, which interest shall be capitalized and added to the outstanding principal balance of the Loan on each Interest Payment Date in accordance with Section 2.03(b).
"PIK Rate" means two and one-half percent (2.50%) per annum (250 basis points).
"Pledge Agreement" means that certain Pledge Agreement dated as of April 22, 2021, by Crestline Packaging Solutions LLC in favor of Ironwood Capital Finance LLC, pursuant to which the Borrower pledges one hundred percent (100%) of the issued and outstanding membership interests in Crestline Coatings Inc. to the Lender as collateral security for the Obligations.
"Pro Forma Basis" means, with respect to any determination of compliance with any financial covenant or financial test, that such determination shall be made giving pro forma effect to any acquisition, disposition, or other specified transaction as if such transaction had occurred on the first day of the applicable measurement period.
"Security Agreement" means that certain Security Agreement (Second Lien) dated as of April 22, 2021, by the Grantors in favor of the Lender, granting to the Lender a second-priority security interest in substantially all of the assets of the Grantors as collateral security for the Obligations.
"Senior Agent" means Pinnacle Commercial Bank, N.A., a national banking association, with offices at 127 Public Square, Suite 4000, Cleveland, OH 44114, in its capacity as administrative agent under the Senior Credit Agreement, and its successors and assigns in such capacity.
"Senior Credit Agreement" means that certain Credit Agreement dated as of September 12, 2019, among Crestline Packaging Solutions LLC (as borrower), Pinnacle Commercial Bank, N.A. (as administrative agent and lender), providing for a $35,000,000 revolving credit facility and a $25,000,000 term loan A, as amended, restated, supplemented, or otherwise modified from time to time in accordance with its terms and subject to Section 7.08 of this Agreement.
"Senior Debt" means all Indebtedness outstanding under the Senior Credit Agreement from time to time. As of February 1, 2021, the Senior Debt consisted of $18,200,000 drawn under the revolving credit facility and $21,875,000 outstanding under the term loan A, for a total of $40,075,000.
"Senior Debt Cap" means an aggregate principal amount of Senior Debt not to exceed $60,000,000 at any time outstanding, or such greater amount as the Lender may consent to in writing from time to time.
"Solvent" means, with respect to any Person on a given date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities (including contingent liabilities) of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person's property would constitute unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations, and other commitments as they mature in the ordinary course of business.
"Subsidiary" means Crestline Coatings Inc., an Ohio corporation, wholly owned by the Borrower, with its registered address at 4510 Harshman Road, Dayton, OH 45424; Employer Identification Number: 31-2093417; Ohio Secretary of State Filing No. 4389201. As used in this Agreement, "Subsidiary" shall also include any other entity that may hereafter become a direct or indirect subsidiary of the Borrower in accordance with the terms of this Agreement.
"Total Funded Debt" means, as of any date of determination, all Indebtedness for borrowed money of the Borrower and its Subsidiaries on a consolidated basis, including, without limitation, the Senior Debt and the Obligations. As of the Closing Date (after giving pro forma effect to the transactions contemplated hereby), the Total Funded Debt is $60,075,000, consisting of $40,075,000 of Senior Debt and $20,000,000 of the Loan.
"Total Leverage Ratio" means, as of the last day of any fiscal quarter, the ratio of (a) Total Funded Debt as of such date to (b) EBITDA for the trailing twelve-month period ending on such date. As of the Closing Date, the Total Leverage Ratio on a pro forma basis is approximately 4.26x ($60,075,000 divided by $14,100,000).
"Warrant Agreement" means that certain Warrant Agreement dated as of April 22, 2021, between the Borrower and the Lender, pursuant to which the Lender receives detachable warrants to purchase 2.5% of the fully diluted equity of the Borrower at an exercise price of $1.00 per unit, on the terms and conditions set forth therein.
Section 1.02 — Rules of Interpretation
For purposes of this Agreement, the following rules of interpretation shall apply:
(a) Accounting terms not specifically defined herein shall have the meanings assigned to them under GAAP, as in effect from time to time, applied on a basis consistent with the preparation of the financial statements referred to in Section 5.05.
(b) References to "Sections," "Articles," "Exhibits," and "Schedules" are to Sections, Articles, Exhibits, and Schedules of this Agreement unless otherwise indicated. References to any Section, Article, Exhibit, or Schedule include all subsections, sub-articles, or sub-paragraphs therein.
(c) The word "including" (and with correlative meaning, "include" and "includes") means "including without limitation."
(d) The words "herein," "hereof," "hereunder," and words of similar import refer to this Agreement as a whole and not to any particular Section, Article, or other subdivision.
(e) Headings and captions used in this Agreement are for convenience of reference only and shall not affect the construction or interpretation of any provision hereof.
(f) References to any Person include the successors and permitted assigns of such Person.
(g) References to any agreement, instrument, or document include all amendments, restatements, supplements, and other modifications thereto to the extent permitted under this Agreement.
(h) References to "fiscal year" mean the fiscal year of the Borrower ending on December 31 of each calendar year, and references to "fiscal quarter" mean each three-month fiscal quarter of the Borrower ending on March 31, June 30, September 30, and December 31.
(i) Where any financial covenant or financial test is required to be calculated or determined on a "trailing twelve-month" or "TTM" basis, such calculation shall be made for the twelve consecutive calendar months ending on the applicable date of determination.
(j) Pro forma calculations shall be made in a manner consistent with the definition of "Pro Forma Basis."
(k) References to "dollars" or "$" mean lawful money of the United States of America.
Section 1.03 — UCC Terms
Terms used but not defined herein that are defined in the Uniform Commercial Code as in effect from time to time in the State of New York (the "UCC") shall have the respective meanings assigned to them therein. To the extent that the definition of any term used herein is inconsistent with the definition of such term in the UCC, the definition set forth in this Agreement shall control.
ARTICLE II — THE LOAN
Section 2.01 — Commitment; Loan
Subject to the terms and conditions set forth herein and in reliance upon the representations and warranties of the Borrower contained herein, the Lender agrees to make a single term loan (the "Loan") to the Borrower on the Funding Date in the aggregate principal amount of Twenty Million Dollars ($20,000,000). The Loan is a subordinated secured mezzanine term loan. Once repaid in whole or in part, no portion of the Loan may be re-borrowed. The Loan is not a revolving credit facility, and the Lender shall have no obligation to make any additional advances or loans to the Borrower under this Agreement after the Funding Date. The Loan shall be evidenced by the Note, which shall be executed and delivered by the Borrower to the Lender on the Closing Date. The obligation of the Borrower to repay the Loan, together with all accrued and unpaid interest (including all capitalized PIK Interest), fees, premiums, and other Obligations, shall be absolute and unconditional, irrespective of any defense or counterclaim that the Borrower may have or assert.
Section 2.02 — Funding
(a) Funding Date. The Lender shall fund the Loan on the Funding Date, which shall be April 23, 2021, or such later date as the Lender may agree in writing; provided that all conditions precedent to funding set forth in Article IV shall have been satisfied or waived by the Lender on or prior to the Funding Date.
(b) Method of Funding. On the Funding Date, the Lender shall disburse the net proceeds of the Loan by wire transfer of immediately available funds to the Borrower's operating account maintained at Pinnacle Commercial Bank, N.A. The gross amount of the Loan shall be $20,000,000, and the Origination Fee of $400,000 shall be netted from the loan proceeds at the time of funding, such that the net wire transfer amount shall be $19,600,000. The Borrower hereby authorizes the Lender to deduct the Origination Fee from the loan proceeds and acknowledges that the entire $20,000,000 principal amount of the Loan shall be outstanding and bear interest from and after the Funding Date notwithstanding the netting of the Origination Fee.
(c) Wire Instructions. Wire instructions for the Borrower's operating account shall be provided to the Lender not later than two (2) Business Days prior to the Funding Date.
Section 2.03 — Interest
(a) Cash Pay Interest. The outstanding principal balance of the Loan (including all capitalized PIK Interest theretofore added to the principal balance) shall bear interest at the Cash Pay Rate of eight percent (8.00%) per annum. Cash Pay Interest shall accrue from the Funding Date and shall be payable in cash quarterly in arrears on each Interest Payment Date, commencing on June 30, 2021. For illustration, the initial quarterly Cash Pay Interest payment, assuming a principal balance of $20,000,000, shall be approximately $400,000 ($20,000,000 multiplied by 8.00% divided by four).
(b) PIK Interest. The outstanding principal balance of the Loan (including all capitalized PIK Interest theretofore added to the principal balance) shall additionally bear interest at the PIK Rate of two and one-half percent (2.50%) per annum. PIK Interest shall accrue from the Funding Date and shall be capitalized and added to the outstanding principal balance of the Loan on each Interest Payment Date. PIK Interest shall not be payable in cash on any Interest Payment Date (except on the Maturity Date or upon any prepayment) but shall instead compound quarterly by being added to the principal balance of the Loan, and thereafter all references to the "outstanding principal balance" or "principal" of the Loan shall include all PIK Interest so capitalized. For illustration, the initial quarterly PIK Interest amount, assuming a principal balance of $20,000,000, shall be approximately $125,000 ($20,000,000 multiplied by 2.50% divided by four). PIK Interest compounds on a quarterly basis, such that PIK Interest accruing in any quarter shall accrue on the principal balance as increased by all prior PIK Interest capitalizations.
(c) Total Interest Rate. The aggregate interest rate on the Loan is ten and one-half percent (10.50%) per annum (1,050 basis points), consisting of the Cash Pay Rate of eight percent (8.00%) per annum and the PIK Rate of two and one-half percent (2.50%) per annum. For illustration, the annualized total interest cost in Year 1, assuming a principal balance of $20,000,000, is approximately $2,100,000 ($20,000,000 multiplied by 10.50%).
(d) Default Interest. Upon the occurrence and during the continuance of any Event of Default, the interest rate on the outstanding principal balance of the Loan shall increase by an additional two percent (2.00%) per annum above the rate otherwise applicable (the "Default Rate"). Default interest shall accrue from the date of the occurrence of such Event of Default until such Event of Default has been cured or waived. Default interest shall be payable on demand and, to the extent not paid in cash, shall be capitalized and added to the outstanding principal balance of the Loan as if it were PIK Interest.
(e) Computation. All interest hereunder shall be computed on the basis of a year of three hundred sixty (360) days and the actual number of days elapsed (including the first day but excluding the last day). Interest shall accrue on the Loan from and including the Funding Date to but excluding the date on which the Loan is repaid in full.
Section 2.04 — Repayment of Principal
The entire outstanding principal balance of the Loan, together with all accrued and unpaid interest thereon (including, without limitation, all capitalized PIK Interest), all premiums, fees, costs, expenses, and all other Obligations, shall be due and payable in full on the Maturity Date, May 7, 2026. There shall be no scheduled amortization of the principal of the Loan prior to the Maturity Date, and the Loan shall be a "bullet" maturity loan. The foregoing shall not limit the Borrower's obligation to make mandatory prepayments of the Loan in accordance with Section 2.07 or the Borrower's right to make voluntary prepayments in accordance with Section 2.06.
Section 2.05 — Origination Fee
The Borrower shall pay to the Lender an origination fee equal to $400,000 (representing two percent (2.00%) of the original principal amount of the Loan) on the Closing Date. The Origination Fee shall be fully earned upon execution of this Agreement and shall be non-refundable when paid, regardless of any subsequent prepayment, acceleration, or termination of the Loan or this Agreement. As provided in Section 2.02(b), the Origination Fee may be, and on the Funding Date shall be, netted from the loan proceeds disbursed to the Borrower.
Section 2.06 — Voluntary Prepayment
(a) Right to Prepay. The Borrower may prepay the Loan in whole or in part at any time, subject to the terms and conditions of this Section 2.06 and the Intercreditor Agreement.
(b) Notice. Any voluntary prepayment shall be made upon not less than thirty (30) days' prior written notice to the Lender (which notice shall be irrevocable once given), substantially in the form of Exhibit C attached hereto, specifying the date of prepayment, the principal amount to be prepaid, and a calculation of the Applicable Premium payable in connection therewith.
(c) Applicable Premium. Any voluntary prepayment shall be accompanied by payment of the Applicable Premium applicable to the principal amount being prepaid, as determined in accordance with the definition of "Applicable Premium" set forth in Section 1.01:
(i) Year 1 (from and including the Closing Date to but not including the first anniversary thereof): one hundred three percent (103%) of the principal amount prepaid (i.e., a three percent (3%) premium);
(ii) Year 2 (from and including the first anniversary of the Closing Date to but not including the second anniversary thereof): one hundred two percent (102%) of the principal amount prepaid (i.e., a two percent (2%) premium);
(iii) Year 3 (from and including the second anniversary of the Closing Date to but not including the third anniversary thereof): one hundred one percent (101%) of the principal amount prepaid (i.e., a one percent (1%) premium); and
(iv) Years 4 and 5 (from and including the third anniversary of the Closing Date to and including the Maturity Date): par (one hundred percent (100%)) of the principal amount prepaid (i.e., no premium).
(d) Accrued Interest. All accrued and unpaid interest (both Cash Pay Interest and PIK Interest) on the principal amount being prepaid shall be paid on the date of prepayment.
(e) Minimum Amount. Partial prepayments shall be in a minimum principal amount of $1,000,000 and in integral multiples of $500,000 in excess thereof.
(f) Intercreditor Agreement. All voluntary prepayments are subject to the provisions of the Intercreditor Agreement regarding payments to the Lender, including any payment blockage provisions contained therein.
Section 2.07 — Mandatory Prepayment
(a) Change of Control. Upon the occurrence of a Change of Control, the Borrower shall prepay the Loan in full at a price equal to one hundred three percent (103%) of the outstanding principal balance of the Loan (including all capitalized PIK Interest) as of the date of such prepayment, plus all accrued and unpaid Cash Pay Interest and PIK Interest to the date of such prepayment, plus all other Obligations then outstanding. Such mandatory prepayment shall be made on or prior to the date of consummation of the Change of Control transaction. The Borrower shall provide the Lender with written notice of any anticipated Change of Control not less than thirty (30) days prior to the anticipated date of consummation thereof.
(b) Asset Dispositions. If the Borrower or any Subsidiary consummates any sale, lease, transfer, or other disposition of any asset (other than (i) sales of inventory in the ordinary course of business and (ii) dispositions of obsolete or worn-out equipment) that yields net cash proceeds exceeding $500,000 individually or $1,500,000 in the aggregate in any fiscal year, then one hundred percent (100%) of such net cash proceeds (to the extent such proceeds are not reinvested in productive assets used in the business of the Borrower and its Subsidiaries within three hundred sixty-five (365) days following the receipt thereof) shall be applied to prepay the Loan. Any such mandatory prepayment shall be subject to the provisions of the Intercreditor Agreement and shall be accompanied by payment of the Applicable Premium if occurring during Years 1 through 3.
(c) Excess Cash Flow Sweep. Commencing with the fiscal year ending December 31, 2022, and for each fiscal year thereafter during the term of this Agreement, fifty percent (50%) of Excess Cash Flow for such fiscal year in excess of $2,000,000 shall be applied to prepay the Loan. Any such mandatory prepayment shall be made no later than ten (10) Business Days following the delivery of the audited financial statements for such fiscal year pursuant to Section 6.01(a). Any such mandatory prepayment shall be subject to the provisions of the Intercreditor Agreement and shall be accompanied by payment of the Applicable Premium if occurring during Years 1 through 3.
(d) Insurance and Condemnation Proceeds. If the Borrower or any Subsidiary receives net proceeds from any casualty event or condemnation in excess of $500,000 in the aggregate during any fiscal year, one hundred percent (100%) of such net proceeds (to the extent not applied to the restoration or replacement of the affected property within one hundred eighty (180) days following receipt thereof) shall be applied to prepay the Loan. Any such mandatory prepayment shall be subject to the provisions of the Intercreditor Agreement and shall be accompanied by payment of the Applicable Premium if occurring during Years 1 through 3.
(e) Applicable Premium. All mandatory prepayments required under this Section 2.07 that occur during Years 1 through 3 (as determined in accordance with the definition of "Applicable Premium") shall be accompanied by payment of the Applicable Premium applicable thereto. Mandatory prepayments occurring during Years 4 and 5 shall be at par.
Section 2.08 — Application of Payments
All payments received by the Lender (whether voluntary, mandatory, or upon acceleration) shall be applied in the following order of priority:
(a) first, to the payment of all fees, costs, expenses, and indemnification obligations then due and payable under this Agreement and the other Loan Documents;
(b) second, to the payment of all accrued and unpaid Cash Pay Interest;
(c) third, to the payment of all accrued and unpaid PIK Interest (to the extent not theretofore capitalized and added to the principal balance);
(d) fourth, to the repayment of outstanding principal of the Loan (including all previously capitalized PIK Interest); and
(e) fifth, to any remaining Obligations.
The foregoing application of payments shall be subject in all respects to the terms and provisions of the Intercreditor Agreement.
Section 2.09 — Subordination
(a) Subordination of Obligations. The Obligations are subordinated in right of payment and lien priority to the Senior Debt, in each case pursuant to, and as more fully set forth in, the Intercreditor Agreement. The Lender hereby acknowledges and agrees that, as between the Lender and the Senior Agent, the terms and conditions of the Intercreditor Agreement shall govern the relative rights of the Lender and the Senior Agent with respect to the Collateral, the application of payments, and the exercise of remedies.
(b) Second-Priority Liens. The Lender acknowledges that its security interests in the Collateral, as granted under the Security Agreement and the Pledge Agreement, are second-priority Liens, junior and subordinate in all respects to the first-priority Liens of the Senior Agent under the Senior Credit Agreement and the related security documents. The Lender shall not contest or challenge the validity, perfection, priority, or enforceability of the Senior Agent's Liens on the Collateral.
(c) Standstill. The rights of the Lender to exercise remedies with respect to the Collateral upon the occurrence of an Event of Default are subject to the standstill provisions set forth in the Intercreditor Agreement, including a one hundred eighty (180) day standstill period during which the Lender may not exercise remedies against the Collateral, as more fully described in Section 8.02.
ARTICLE III — USE OF PROCEEDS
Section 3.01 — Use of Proceeds
(a) The Borrower shall use one hundred percent (100%) of the proceeds of the Loan solely to fund Capital Expenditures related to the Expansion Project at the Borrower's manufacturing facility located at 4510 Harshman Road, Dayton, OH 45424, consisting of:
(i) the construction and build-out of a new approximately 62,000 square foot coating line, with an estimated cost of approximately $12,800,000;
(ii) the acquisition and installation of packaging automation equipment, with an estimated cost of approximately $5,700,000; and
(iii) working capital requirements associated with the ramp-up of the Expansion Project, with an estimated cost of approximately $1,500,000.
(b) The total estimated cost of the Expansion Project is $28,500,000, which shall be funded from the following sources: (i) $20,000,000 from the proceeds of the Loan and (ii) $8,500,000 from an equity co-investment to be made by Ridgeway Capital Partners Fund III, L.P. contemporaneously with the making of the Loan.
(c) The Borrower shall not use any proceeds of the Loan for the payment of dividends, distributions, management fees, or other restricted payments, or for the financing of acquisitions, or for any purpose other than the Expansion Project, without the prior written consent of the Lender. The Borrower shall maintain records demonstrating the application of loan proceeds to the Expansion Project and shall provide such records to the Lender upon request.
ARTICLE IV — CONDITIONS PRECEDENT TO FUNDING
Section 4.01 — Conditions Precedent
The obligation of the Lender to fund the Loan on the Funding Date is subject to the satisfaction (or written waiver by the Lender) of each of the following conditions precedent on or prior to the Funding Date:
(a) Execution and Delivery of Loan Documents. The Borrower and each other Loan Party shall have executed and delivered to the Lender each of the following Loan Documents, in form and substance satisfactory to the Lender: (i) this Agreement, (ii) the Note, (iii) the Security Agreement, (iv) the Pledge Agreement, (v) the Intercreditor Agreement, and (vi) the Warrant Agreement.
(b) Officer's Certificate. The Lender shall have received an Officer's Certificate dated April 22, 2021, executed by Patricia Gallagher, Chief Financial Officer, and Raymond Cho, General Counsel, of the Borrower, in form and substance satisfactory to the Lender, (i) certifying the names, titles, and true signatures of the officers authorized to execute the Loan Documents on behalf of the Borrower, (ii) attaching certified copies of resolutions of the board of managers (or equivalent governing body) of the Borrower authorizing the mezzanine financing and the execution, delivery, and performance of the Loan Documents, (iii) attaching certified copies of the organizational documents of the Borrower (including the Certificate of Formation and the Operating Agreement), and (iv) confirming that no Default or Event of Default exists and that no Material Adverse Effect has occurred since December 31, 2020.
(c) Legal Opinion. The Lender shall have received a legal opinion dated April 22, 2021, addressed to Ironwood Capital Finance LLC, from Calderwood & Harkness LLP (Philip Hartmann), counsel to the Borrower, in form and substance reasonably satisfactory to the Lender and its counsel, covering, among other matters, (i) the due organization and valid existence of the Borrower and its Subsidiary, (ii) the authorization, execution, and delivery of the Loan Documents, (iii) the enforceability of the Loan Documents against the Borrower and its Subsidiary, (iv) the absence of conflicts with organizational documents, applicable law, and material agreements, and (v) the creation and perfection of the security interests granted to the Lender under the Security Agreement and the Pledge Agreement.
(d) Intercreditor Agreement. The Lender shall have received a fully executed counterpart of the Intercreditor Agreement, executed by Pinnacle Commercial Bank, N.A. (as Senior Agent), Ironwood Capital Finance LLC (as Mezzanine Lender), and acknowledged by Crestline Packaging Solutions LLC (as Borrower), in the form agreed as of April 12, 2021.
(e) Senior Lender Consent. The Lender shall have received a copy of the consent letter from Pinnacle Commercial Bank, N.A. (Todd Brennan, relationship manager), dated March 15, 2021, consenting to the mezzanine financing contemplated by this Agreement and to the creation and grant of the second-priority Liens in favor of the Lender on the Collateral, in form and substance satisfactory to the Lender.
(f) UCC Filings. The Lender shall have received evidence that UCC-1 financing statements have been filed (or that arrangements for the filing thereof within ten (10) Business Days following the Closing Date have been made) with the Ohio Secretary of State, naming the Grantors as debtors and the Lender as secured party, in form sufficient to perfect the Lender's second-priority security interests in the Collateral.
(g) Insurance. The Lender shall have received certificates of insurance or other evidence reasonably satisfactory to the Lender demonstrating that the Borrower and its Subsidiary maintain insurance coverage in accordance with the requirements of this Agreement, with endorsements naming Ironwood Capital Finance LLC as an additional insured and loss payee on all applicable policies.
(h) Good Standing Certificates. The Lender shall have received certified copies of certificates of good standing (or equivalent certificates) for Crestline Packaging Solutions LLC and Crestline Coatings Inc. issued by the Ohio Secretary of State, dated not more than thirty (30) days prior to the Closing Date.
(i) Origination Fee. The Borrower shall have paid (or authorized the netting from loan proceeds of) the Origination Fee of $400,000.
(j) Lender's Counsel Fees and Expenses. The Borrower shall have paid all fees and expenses of the Lender's counsel, Whitfield & Rao LLP (lead partner Naveen Rao; senior associate Juliana Cortez), incurred in connection with the negotiation, documentation, and closing of the transactions contemplated by this Agreement and the other Loan Documents.
(k) Financial Statements. The Lender shall have received the audited financial statements of the Borrower and its Subsidiary for the fiscal year ended December 31, 2020, prepared by Braddock & Associates CPAs (engagement partner Kenneth Braddock), audited in accordance with generally accepted auditing standards, reflecting revenue of $87,300,000 and EBITDA of $14,100,000, in form and substance satisfactory to the Lender.
(l) No Material Adverse Effect. No Material Adverse Effect shall have occurred since December 31, 2020.
(m) No Default. No Default or Event of Default shall exist or would result from the making of the Loan or the application of the proceeds thereof.
(n) Representations and Warranties. All representations and warranties of the Borrower and each other Loan Party set forth in Article V and in each other Loan Document shall be true and correct in all material respects (or, in the case of representations and warranties qualified by materiality or Material Adverse Effect, in all respects) on and as of the Funding Date, with the same force and effect as if made on and as of the Funding Date (except to the extent that any such representation or warranty expressly relates to an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date).
(o) Equity Co-Investment. The Lender shall have received evidence satisfactory to the Lender that the equity co-investment of $8,500,000 by Ridgeway Capital Partners Fund III, L.P. in the Borrower has been funded or will contemporaneously be funded on the Funding Date.
ARTICLE V — REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Lender as of the Closing Date and as of the Funding Date as follows:
Section 5.01 — Organization and Good Standing
(a) The Borrower is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Ohio, Ohio Secretary of State Filing No. 4217835. The Borrower has all requisite limited liability company power and authority to own, lease, and operate its properties and to carry on its business as presently conducted.
(b) Crestline Coatings Inc. is a corporation duly organized, validly existing, and in good standing under the laws of the State of Ohio, Ohio Secretary of State Filing No. 4389201. Crestline Coatings Inc. has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as presently conducted.
(c) Each of the Borrower and its Subsidiary is duly qualified and authorized to do business as a foreign entity and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing, or operation of its properties requires such qualification, except where the failure to be so qualified or in good standing could not reasonably be expected to have a Material Adverse Effect.
Section 5.02 — Authorization; Enforceability
(a) The execution, delivery, and performance by the Borrower of this Agreement and each other Loan Document to which it is a party have been duly authorized by all necessary limited liability company action on the part of the Borrower, including approval by the board of managers (or equivalent governing body) of the Borrower. The execution, delivery, and performance by Crestline Coatings Inc. of each Loan Document to which it is a party have been duly authorized by all necessary corporate action on the part of Crestline Coatings Inc.
(b) This Agreement and each other Loan Document to which the Borrower or its Subsidiary is a party constitutes the legal, valid, and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and other similar laws affecting creditors' rights generally and subject to general principles of equity (whether considered in a proceeding in equity or at law).
Section 5.03 — No Conflicts
The execution, delivery, and performance by the Borrower and its Subsidiary of the Loan Documents to which each is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not (a) violate or conflict with the Operating Agreement, the Certificate of Formation, the articles of incorporation or bylaws of Crestline Coatings Inc., or any other organizational document of the Borrower or its Subsidiary, (b) violate or conflict with any applicable law, rule, regulation, order, judgment, writ, injunction, or decree of any governmental authority, (c) result in a breach of, constitute a default under, or give rise to any right of termination, cancellation, or acceleration under any material contract, agreement, lease, or instrument to which the Borrower or its Subsidiary is a party or by which any of their properties or assets are bound, including the Senior Credit Agreement (the consent of Pinnacle Commercial Bank, N.A. having been obtained as described in Section 4.01(e)), or (d) result in the creation or imposition of any Lien upon any asset of the Borrower or its Subsidiary, other than Permitted Liens.
Section 5.04 — Governmental Approvals
No consent, approval, authorization, order, registration, filing, or qualification of or with any governmental authority is required for the execution, delivery, or performance of this Agreement or any other Loan Document by the Borrower or its Subsidiary, or for the consummation of the transactions contemplated hereby or thereby, except for (a) filings of UCC-1 financing statements with the Ohio Secretary of State and (b) the recording of the second-lien mortgage on the Dayton facility with the Montgomery County, Ohio Recorder's Office, all of which filings and recordings have been or will be made in accordance with the post-closing obligations set forth in Section 6.11.
Section 5.05 — Financial Statements
(a) The Borrower has delivered to the Lender the audited consolidated financial statements of the Borrower and its Subsidiary for the fiscal year ended December 31, 2020, consisting of a consolidated balance sheet, consolidated statements of income, consolidated statements of members' equity, and consolidated statements of cash flows, in each case together with the notes thereto and the report of Braddock & Associates CPAs, independent certified public accountants (engagement partner Kenneth Braddock), thereon. Such financial statements have been prepared in accordance with GAAP, applied on a consistent basis, and present fairly, in all material respects, the consolidated financial condition, results of operations, changes in equity, and cash flows of the Borrower and its Subsidiary as of and for the periods indicated therein.
(b) For the fiscal year ended December 31, 2020, the Borrower and its Subsidiary generated revenue of $87,300,000 and EBITDA of $14,100,000.
(c) Since December 31, 2020, there has been no Material Adverse Effect, and no event or condition has occurred that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.
Section 5.06 — No Default
No Default or Event of Default exists under this Agreement or any other Loan Document, and no Default or Event of Default will result from the making of the Loan or the application of the proceeds thereof. No default or event of default exists under the Senior Credit Agreement or any other material agreement to which the Borrower or its Subsidiary is a party.
Section 5.07 — Litigation
There is no pending or, to the knowledge of the Borrower, threatened action, suit, investigation, arbitration, or proceeding (including any environmental, regulatory, or employment-related proceeding) before or by any court, governmental authority, arbitrator, or other tribunal against or affecting the Borrower or its Subsidiary that (a) involves any of the transactions contemplated by the Loan Documents or (b) individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. There are no outstanding judgments, orders, injunctions, decrees, or stipulations against the Borrower or its Subsidiary that could reasonably be expected to have a Material Adverse Effect.
Section 5.08 — Ownership and Subsidiaries
(a) As of the Closing Date, seventy-eight percent (78%) of the membership interests of the Borrower are owned, directly or indirectly, by Ridgeway Capital Partners Fund III, L.P. The remaining twenty-two percent (22%) of the membership interests are held by members of management and the founders of the Borrower. The ownership structure is described in further detail in Schedule 5.08.
(b) Crestline Coatings Inc. is a wholly owned subsidiary of the Borrower, and the Borrower owns one hundred percent (100%) of the issued and outstanding shares of capital stock (or equivalent equity interests) of Crestline Coatings Inc.
(c) The Borrower has no Subsidiaries other than Crestline Coatings Inc. Neither the Borrower nor its Subsidiary holds any equity interest in any other Person other than as described in Schedule 5.08.
Section 5.09 — Liens; Collateral
(a) The Collateral is free and clear of all Liens other than Permitted Liens. The Borrower has good and marketable title to all of the Collateral, free and clear of any Lien, claim, or encumbrance, except for Permitted Liens.
(b) Upon the filing of UCC-1 financing statements with the Ohio Secretary of State and the recording of the second-lien mortgage with the Montgomery County, Ohio Recorder's Office, the security interests and Liens granted to the Lender under the Security Agreement and the Pledge Agreement shall constitute valid, enforceable, and perfected second-priority Liens on the Collateral, subject only to the first-priority Liens of the Senior Agent under the Senior Credit Agreement and the related security documents.
Section 5.10 — Intellectual Property
The Borrower and its Subsidiary own or have valid licenses to use all intellectual property (including trademarks, service marks, trade names, copyrights, patents, and trade secrets) that is material to the conduct of their business as presently conducted, including, without limitation, trademarks and trade secrets related to proprietary coating formulations. No claim has been asserted or, to the knowledge of the Borrower, is threatened by any Person challenging or questioning the use, validity, or enforceability of any such intellectual property, except for any such claims that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. A list of material intellectual property is set forth on Schedule 5.10.
Section 5.11 — Environmental Matters
(a) The Borrower and its Subsidiary are in compliance with all Environmental Laws (as defined by applicable federal, state, and local statutes, regulations, and ordinances relating to the protection of the environment, human health, and safety) in all material respects.
(b) There are no pending or, to the knowledge of the Borrower, threatened claims, actions, investigations, or proceedings under any Environmental Law against the Borrower or its Subsidiary, and neither the Borrower nor its Subsidiary has received any written notice of any such claim, action, investigation, or proceeding.
(c) No condition exists at any property owned, operated, or leased by the Borrower or its Subsidiary (including the Dayton facility) that could reasonably be expected to give rise to any material liability under any Environmental Law or that could reasonably be expected to have a Material Adverse Effect.
Section 5.12 — Tax Matters
(a) The Borrower and its Subsidiary have filed (or caused to be filed) all material federal, state, and local tax returns required to be filed by them and have paid (or caused to be paid) all material taxes shown thereon to be due and payable, except where such taxes are being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP.
(b) The Employer Identification Number of the Borrower is 31-1784562. The Employer Identification Number of Crestline Coatings Inc. is 31-2093417.
(c) There are no material tax liens on any assets of the Borrower or its Subsidiary, other than Liens for taxes not yet due and payable.