Charles & Colvard, Ltd. (NASDAQ:CTHR) Files An 8-K Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a RegistrantItem 2.03
On July 13, 2018, Charles & Colvard, Ltd. (the “Company”), and its wholly-owned subsidiary, charlesandcolvard.com, LLC (collectively, the “Borrowers”), obtained a $5,000,000 asset-based revolving credit facility (the “Credit Facility”) from White Oak Commercial Finance, LLC (“WOCF”). The Credit Facility may be used for general corporate and working capital purposes, including permitted acquisitions. The Credit Facility will mature in three years. The Credit Facility is guaranteed by Charles & Colvard Direct, LLC, a wholly-owned subsidiary of the Company (the “Guarantor”), and is secured by a lien on substantially all assets of the Borrowers and the Guarantor.
The Borrowers must maintain at least $500,000 in excess availability at all times. There are no other financial covenants.
The Company has not requested any advances under the Credit Facility and there is currently no outstanding balance. Advances under the Credit Facility are limited to a borrowing base, which is computed by applying specified advance rates to the value of the Borrowers’ eligible accounts receivable and inventory, plus the value of precious metal jewelry components, less reserves. The inclusion of inventory and precious metal jewelry components in the borrowing base is subject to completion of an inventory appraisal. Eligible inventory is further limited to 60% of the net borrowing base, while precious metal jewelry components are limited to $500,000.
Advances may be either revolving or non-revolving. Non-revolving advances are limited to $1,000,000 in aggregate principal amount outstanding and must be repaid on each January 15 (which may be effected by conversion to revolving advances, absent an event of default). There are no other mandatory prepayments or line reductions. The Company may elect to prepay advances in whole or in part at any time without penalty. In addition, the Credit Facility may be terminated by the Company at any time, subject to a $100,000 fee in the first year of the Credit Facility, a $50,000 fee in the second year, and no fee thereafter.
During the first year of the Credit Facility, revolving advances will accrue interest at a rate equal to one-month LIBOR (reset monthly, and subject to a 1.25% floor) plus 3.75%, and non-revolving advances will accrue interest at such LIBOR rate plus 4.75%. Thereafter, the interest margins will reduce upon the Company’s achievement of a specified fixed charge coverage ratio. However, advances are in all cases subject to a minimum interest rate of 5.50%. Interest is calculated on an actual/360 basis and payable monthly in arrears. Principal outstanding during an event of default accrues interest at a rate 2% in excess of the rate otherwise applicable.
The Credit Facility is evidenced by a credit agreement, dated as of July 13, 2018 (the “Credit Agreement”), and customary ancillary documents. The Credit Agreement and ancillary documents contain customary covenants, representations, fees, and cash dominion provisions, including a financial reporting covenant and limitations on dividends, distributions, debt, liens, loans, investments, mergers, acquisitions, divestitures, and affiliate transactions.
Events of default under the Credit Facility include, without limitation, a change in control, an event of default under other indebtedness of the Borrowers or Guarantor in excess of $250,000, a material adverse change in the business of the Borrowers or Guarantor or in their ability to perform their obligations under the Credit Facility, and other circumstances that WOCF believes may impair the prospect of repayment. If an event of default occurs, WOCF is entitled to take enforcement action, including acceleration of amounts due under the Credit Facility and foreclosure upon collateral.
The Credit Agreement contains other customary terms, including indemnity, expense reimbursement, yield protection, and confidentiality provisions. WOCF is permitted to assign the Credit Facility.
The foregoing description of the Credit Facility does not purport to be complete and is qualified in its entirety by reference to the Credit Agreement, a copy of which is filed as Exhibit 10.1 to this Form 8-K and is incorporated herein by reference. A copy of the press release announcing the Credit Facility is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
| Item 9.01 | Financial Statements and Exhibits. |
| Exhibit No. | Description of Document |
| 10.1 | Credit Agreement, dated as of July 13, 2018, by and among Charles & Colvard, Ltd., charlesandcolvard.com, LLC, Charles & Colvard Direct, LLC, and White Oak Commercial Finance, LLC |
| 99.1 | Press Release dated July 17, 2018 |
CHARLES & COLVARD LTD ExhibitEX-10.1 2 tv498642_ex10-1.htm EXHIBIT 10.1 Exhibit 10.1 Execution Version CREDIT AGREEMENT THIS CREDIT AGREEMENT (this "Agreement") is entered into as of July 13,…To view the full exhibit click here
About Charles & Colvard, Ltd. (NASDAQ:CTHR)
Charles & Colvard, Ltd. manufactures and distributes Charles & Colvard Created Moissanite jewels (moissanite) and finished jewelry featuring moissanite. The Company’s segments are Wholesale, Moissanite.com and Charles & Colvard Direct. The Company sells loose moissanite jewels and finished jewelry at wholesale to distributors, manufacturers and retailers, and at retail to end consumers through its operating subsidiaries. The Company manages its business primarily through its three distribution channels that it uses to sell its product lines, loose jewels and finished jewelry, which included Charles and Colvard Direct, LLC. The Company sells loose moissanite jewels and finished jewelry featuring moissanite at wholesale to retailers, television (TV) shopping networks, and designers to be sold to end consumers and directly to consumers through its e-commerce sales channel Moissanite.com. The Company primarily sells moissanite jewels, including Forever Classic and Forever Brilliant.
