Katy Industries,Inc. (OTCMKTS:KATYQ) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01 Entry into a Material Definitive
Agreement.
The information set forth below in Item 1.03 of this Current
Report on Form8-K (this Form8-K) regarding the DIP Financing
Agreement (as defined below) and the Asset Purchase Agreement (as
defined below) is incorporated herein by reference.
Item 1.03. Bankruptcy or Receivership.
On May14, 2017 (the Petition Date), Katy Industries,Inc. (the
Company) and certain of its wholly-owned direct and indirect
domestic subsidiaries (collectively with the Company, the
Debtors) filed voluntary petitions in the United States
Bankruptcy Court for the District of Delaware (the Bankruptcy
Court) seeking relief under Chapter 11 of Title 11 of the United
States Code (the Bankruptcy Code). These cases (the Chapter 11
Cases) are being jointly administered under the caption In re
Katy Industries,Inc., et al. , Case No.17-11101. The
Debtors continue to operate their businesses as
debtors-in-possession under the jurisdiction of the Bankruptcy
Court and in accordance with the applicable provisions of the
Bankruptcy Code and orders of the Bankruptcy Court.
In connection with the Chapter 11 Cases, the Debtors filed
various first day motions seeking Bankruptcy Court approval,
including, without limitation, approval of debtor-in-possession
financing on the terms set forth in that certain
Debtor-in-Possession Credit and Security Agreement, dated as of
May17, 2017 (the DIP Financing Agreement), by and among the
Company, Continental Commercial Products, LLC, FTW Holdings,Inc.,
Fort Wayne Plastics,Inc., 2155735 Ontario Inc. and CCP Canada
Inc., as borrowers (collectively, the Borrowers), and Jansan
Acquisition, LLC as lender (Lender). The DIP Financing Agreement
provides for a junior secured debtor-in-possession term loan
financing facility (the DIP Financing) in an aggregate amount of
up to $7.5 million. The DIP Financing will become available upon
the satisfaction of customary conditions precedent thereto,
including the entry of an order of the Bankruptcy Court approving
the DIP Financing on an interim basis, which such interim
approval was sought and granted by entry of an interim order
dated as of May16, 2017.
The proceeds of the DIP Financing will be used by the Company for
(i)general working capital and operational expenses;
(ii)administration of the Chapter 11 Cases; and (iii)costs,
expenses, and all other payment amounts contemplated in the DIP
Financing Agreement), in any such case, in accordance with a
13-week cash flow and operating forecast in form and substance
approved by the Lender (subject to any variances permitted by the
DIP Financing Agreement).
The maturity date of the loans made under the DIP Financing is
the earliest to occur of: (i)150 days following the Petition
Date, (ii)the date of the closing of the Asset Sale (as defined
below), (iii)45 days following the Petition Date if final cash
collateral order and the final financing order have not been
entered by the Bankruptcy Court, (iv)the acceleration of any
portion of the loans made under the DIP Financing Agreement and
the termination of the Lenders commitment to make such loans upon
the occurrence of an event of default under the DIP Financing
Agreement and (v)the effective date of any plan of reorganization
that is filed in the Chapter 11 Cases and confirmed to an order
entered by the Bankruptcy Court. The outstanding principal on the
loans under the DIP Financing will bear interest at a rate of 15%
per annum payable monthly in cash in arrears.
to the terms of the DIP Financing Agreement, the subsidiaries of
the Borrowers (the Guarantors, and, together with the Borrowers,
the Credit Parties) other than certain Inactive Subsidiaries (as
defined in the DIP Financing Agreement) will guarantee the
obligations of the Borrowers under the DIP Financing. Subject to
certain exceptions, the DIP Financing will be secured by a second
priority perfected priming security interest in all of the assets
of each Credit Party. The security interests and liens are
subject only to certain carve-outs and certain permitted liens
(including the liens in favor of Encina Business Credit SPV, LLC,
in its capacity as first lien agent (together with its successors
and assigns, the Prepetition First Lien Agent) under that certain
credit and security agreement, dated as of November16, 2016 (as
amended, restated, supplemented or otherwise modified from time
to time, the Prepetition First Lien Credit Agreement), among the
Borrowers, the lenders party to such agreement, and the
Prepetition First Lien Agent), as set forth in the DIP Financing
Agreement.
The DIP Financing is subject to certain customary covenants and
events of default as set forth in the DIP Financing Agreement.
The foregoing description of the DIP Financing Agreement does not
purport to be complete and is qualified in its entirety by
reference to the DIP Financing Agreement filed hereto as
Exhibit10.1.
On the Petition Date, the Company and certain of its subsidiaries
(together, the Sellers) entered into a stalking horse Asset
Purchase Agreement (the Asset Purchase Agreement) with Jansan
Acquisition, LLC (in such capacity, the Purchaser) to which the
Purchaser agreed to purchase substantially all of the assets of
the Company (such assets, the Assets, and such transaction, the
Asset Sale). The Sellers have sought the Bankruptcy Courts
approval of the Purchaser as the stalking horse bidder in an
auction of the Assets under Section363 of the Bankruptcy Code. If
approved by the Bankruptcy Court as the
stalking horse bidder, the Purchasers offer to purchase the
Assets, as set forth in the Asset Purchase Agreement, would be
the standard by which any other bids to purchase the Assets
would be evaluated.
to the terms of the Asset Purchase Agreement, the Lender
agreed, subject to the terms and conditions of the Asset
Purchase Agreement, to acquire the Assets from the Sellers in
exchange for (i)the assumption of the Encina Obligations (as
defined in the Asset Purchase Agreement); (ii)a credit bid of
the amount outstanding under the proposed $7.5 million DIP
Financing Agreement; (iii)a credit bid of all outstanding
amounts due and owing under the second lien credit agreement;
and (iv)the assumption of certain additional liabilities. The
consummation of the Asset Sale is subject to certain customary
conditions precedent as specified in the Asset Purchase
Agreement. The Asset Purchase Agreement also provides for a
break-up fee and expense reimbursement payable to the Purchaser
upon the occurrence of certain events.
The foregoing description of the Asset Purchase Agreement does
not purport to be complete and is qualified in its entirety by
reference to the DIP Financing Agreement filed hereto as
Exhibit2.1.
Item 2.04. Triggering Events That Accelerate or
Increase a Direct Financial Obligation or an Obligation under
an Off-Balance Sheet Arrangement.
The commencement of the Chapter 11 Cases described in Item 1.03
of this Current Report on Form8-K constituted an event of
default under the Prepetition First Lien Credit Agreement and
that certain second lien credit and security agreement, dated
as of April7, 2015 (as amended, restated, supplemented or
otherwise modified from time to time, the Prepetition Second
Lien Credit Agreement), by and among the Borrowers, as
borrowers or guarantors, and Victory Park Management, LLC, in
its capacity as second lien agent (in such capacity, together
with its successors and assigns, the Prepetition Second Lien
Agent; the Prepetition First Lien Credit Agreement and the
Prepetition Second Lien Credit Agreement are collectively
referred to as, the Prepetition Debt Documents). Each of the
Prepetition Debt Documents provides that as a result of the
commencement of the Chapter 11 Cases, the principal and
interest due thereunder shall be immediately due and payable.
The Company believes that any efforts to enforce such payment
obligations under the Prepetition Debt Documents are stayed as
a result of the Chapter 11 Cases, and the creditors rights of
enforcement in respect of the Prepetition Debt Documents are
subject to the applicable provisions of the Bankruptcy Code.
The information set forth or incorporated in Item 1.03 is also
incorporated by reference in this Item 2.04.
Item 5.02. Departure of Directors or
Principal Officers; Election of Directors; Appointment of
Officers; Compensatory Arrangements of Certain
Officers.
Effective May13, 2017, Mr.Robert W. Zimmer was appointed Chief
Financial Officer by the Special Committee of the Company
through the Action by Unanimous Written Consent of the Members
of the Special Committee of the Board of Directors of Katy
Industries,Inc.
Item 7.01. Regulation FD Disclosure.
Additional information on the Chapter 11 Cases, including
access to documents filed with the Bankruptcy Court and other
general information about the Chapter 11 Cases, is available at
http://www.jndla.com/cases/katyindustries.
The information in Item 7.01 of this Form8-K is being furnished
and shall not be deemed filed for purposes of Section18 of the
Securities Exchange Act of 1934, as amended (the Exchange Act),
or otherwise subject to the liabilities of such section. The
information in Item 7.01 of this Form8-K shall not be
incorporated by reference into any filing under the Securities
Act of 1933, as amended, or the Exchange Act, regardless of any
incorporation by reference language in any such filing.
Item 8.01. Other Events.
On May14, 2017, the Company issued a press release announcing
the filing of the Chapter 11 Cases. A copy of the press release
is attached hereto asExhibit99.1 and is incorporated herein by
reference.
The Company does not expect to be able to distribute any
proceeds from the Asset Sale to equity holders. The Companys
stockholders are cautioned that trading in shares of the
Companys common stock during the pendency of the Chapter 11
Cases is highly speculative and poses substantial risks.
Trading prices for shares of the Companys common stock may bear
little or no relationship to the actual recovery, if any, by
holders in the reorganization. Accordingly, the Company urges
extreme caution with respect to existing and future investments
in its common stock.
Item9.01. Financial Statements and Exhibits.
(d)Exhibits.
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Exhibit No. |
|
DescriptionofExhibit |
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2.1 |
Asset Purchase Agreement dated May14, 2017 by and among |
|
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10.1 |
Debtor-In-Possession Credit and Security Agreement dated |
|
|
99.1 |
Press Release dated May14, 2017 |
Forward-Looking Statements
This Current Report on Form8-K contains forward-looking
statements within the meaning of Section27A of the Securities
Act of 1933, as amended, and Section21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements by
their nature address matters that are, to different degrees,
uncertain. Forward-looking statements involve a number of
assumptions, risks and uncertainties that could cause actual
results to differ materially. Any forward-looking statements
herein are made as of the date of this filing, and the Company
undertakes no duty to update or revise any such statements
except as required by the federal securities laws.
Forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties.
Important factors that could cause actual results, developments
and business decisions to differ materially from
forward-looking statements are described in the Companys
filings with the U.S. Securities and Exchange Commission (SEC)
from time to time and which are accessible on the SECs website
at www.sec.gov, including in the section entitled Risk Factors
in the Companys Form10-K for the fiscal year ended December31,
2015 and its Form10-Q for the quarterly period ended July1,
2016. Among the factors that could cause future results to
differ materially from those provided in this Current Report on
Form8-K are: (i)the Companys ability to obtain Bankruptcy Court
approval with respect to motions in the Chapter 11 Cases,
(ii)the ability of the Company and its subsidiaries to
consummate the transactions contemplated by the Asset Purchase
Agreement, (iii)the effects of the Companys bankruptcy filing
on the Company and on the interests of various constituents,
(iv)Bankruptcy Court rulings in the Chapter 11 Cases and the
outcome of the cases in general, (v)the length of time the
Company will operate under the Chapter 11 Cases, (vi)risks
associated with third party motions in the Chapter 11 Cases,
which may interfere with the Companys ability to consummate the
transactions contemplated by the Asset Purchase Agreement,
(vii)the potential adverse effects of the Chapter 11 Cases on
the Companys liquidity or results of operations, (viii)the
ability to operate the Companys business and consummate the
transactions contemplated by the Plan, (ix)the transactions
contemplated by the DIP Credit Agreement and the Plan being
subject to closing conditions, which conditions may not be
satisfied for various reasons, including for reasons outside of
the Companys control; (x)increased legal costs to execute the
Companys reorganization, and other risks and uncertainties,
(xi)the Companys ability to maintain contracts, trade credit
and other customer, joint venture partner and/or vendor
relationships that are essential to the Companys operations,
and (xii)the Companys ability to retain key executives and
employees, and (xiii)the factors discussed in the section
entitled Risk Factors in the Companys Form10-K for the fiscal
year ended December31, 2015 and its Form10-Q for the quarterly
period ended July1, 2016.
About Katy Industries, Inc. (OTCMKTS:KATYQ)
Katy Industries, Inc. is a manufacturer, importer and distributor of commercial cleaning and consumer storage products, as well as a contract manufacturer of structural foam products. The Company’s subsidiary is Continental Commercial Products, LLC, which includes four business units: Continental, Wilen, Contico and Fort Wayne Plastics. The Continental business unit is a plastics manufacturer and an importer and distributor of products for the commercial janitorial/sanitary maintenance, industrial and foodservice markets. The Wilen business unit is a manufacturer, importer and distributor of cleaning products that include mops, brooms and sweeps, poles and handles, microfiber, brushes and plastic cleaning accessories. The Contico business unit is a plastics manufacturer and distributor of garage, shelving, tool and other home storage products. The Fort Wayne Plastics business unit is a contract manufacturer for various original equipment manufacturers. Katy Industries, Inc. (OTCMKTS:KATYQ) Recent Trading Information
Katy Industries, Inc. (OTCMKTS:KATYQ) closed its last trading session down -0.0300 at 0.0200 with 54,500 shares trading hands.
