| ITEM 2.04 |
Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement. |
On March 2, 2023, SigmaTron International, Inc. (NASDAQ: SGMA), an electronic manufacturing services company (the “Company”) received an Event of Default and Reservation of Rights from (i) J.P. Morgan Chase Bank, N.A. (“JP Morgan Notice”) dated March 2, 2023 with respect to that certain Amended and Restated Credit Agreement dated as of July 18, 2022, (as amended, amended and restated, modified or supplemented from time to time, the “Agreement”) by and among the Company, the other Loan Party thereto, and JPMorgan Chase Bank, N.A., as Lender (“Lender”), and (ii) TCW Asset Management Company, as Administrative Agent (“TCW Notice”) dated March 2, 2023 with respect to that certain Credit Agreement date of July 18, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement” and together with the Agreement the “Credit Agreements”), by and among the Company, WAGZ, Inc., a Delaware corporation (“WAGZ”), the financial institutions party thereto from time to time (“Lenders”), and TCW Asset Management Company (in its individual capacity, “TCW”), as Administrative Agent for all Lenders (in such capacity, “Agent”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Agreement and Credit Agreement, as applicable.
The JP Morgan Notice indicated that the Lender was informed of the occurrence of Events of Defaults under the Agreement as a result of the Company’s failure to maintain a Fixed Charge Coverage Ratio for the twelve month period ending January 31, 2023 less than 1.10:1.0 as required under Section 6.12(a) of the Agreement, and that an Event of Default has occurred and is continuing under Section 7(d) of the Agreement (the “Covenant Defaults”).
The TCW Notice indicated that Agent and Lenders were informed of the occurrence of Events of Defaults and the continuation thereof under the Credit Agreement under (i) clause (d) of Article VII of the Credit Agreement as a result of the Company permitting the Total Debt to EBITDA Ratio for the twelve month period ending on January 31, 2023 to be greater than 5.00:1.00 in violation of Section 6.12(b) of the Credit Agreement and (ii) clause (g)(ii) of Article VII of the Credit Agreement as a result of the occurrence of an “Event of Default” (or equivalent term) under the ABL Credit Agreement or any other ABL Credit Document (collectively, the “Existing Defaults” and together with the Covenant Defaults, the “Defaults”).
Each of the JP Morgan Notice and the TCW Notice (collectively, the “Notices”) indicated that the Lender, Lenders and Agent, respectfully (collectively, the “Lender Parties”) are in the process of evaluating the Defaults and reserve all of the rights and remedies available under the Credit Agreements and any other Loan Documents with respect thereto.
Receipt of the Notices by the Company has not resulted in an increase or acceleration of the Company’s obligations under each of the Credit Agreements. As of the date of this Current Report on Form 8-K, the Lender Parties have not exercised their respective rights or remedies under the Credit Agreements.
The Company is currently negotiating a forbearance agreement with each of the Lender Parties to address the Defaults. Such negotiations may result in increases in interest rates and other concessions with regard to the terms of the forbearance agreements.