SMTC CORPORATION (NASDAQ:SMTX) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01

Third Amendment to Amended and Restated Revolving Credit and Security Agreement

On September 27, 2019, SMTC Corporation, a Delaware company (the “Company”), entered into that certain Amendment No. 3 to the Amended and Restated Revolving Credit and Security Agreement (“PNC Amendment”), by and among the Company, SMTC Manufacturing Corporation of California, a California corporation (“SMTC California”), SMTC Mex Holdings, Inc., a Delaware corporation (“SMTC Mex”), HTM Holdings, Inc. a Delaware corporation (“HTM”), MC Test Service, Inc., a Florida corporation (“MC Test”), MC Assembly International LLC, a Delaware limited liability company (“MC Assembly International”), MC Assembly LLC, a Delaware limited liability company (“MC Assembly” and together with the Company, SMTC California, SMTC Mex, HTM, MC Test, and MC Assembly International, and each other person joined thereto as a borrower from time to time, the “Borrowers”), the financial institutions party to that certain Amended and Restated Revolving Credit and Security Agreement, dated as of November 8, 2018 (as disclosed on the Company’s Current Report on Form 8-K filed on November 9, 2018), as amended on March 29, 2019 (as disclosed on the Company’s Current Report on Form 8-K filed on April 4, 2019), as amended on August 8, 2019 (as disclosed on the Company’s Current Report on Form 8-K filed on August 12, 2019) (such agreement, the “PNC Agreement” and, such lenders thereto, the “PNC Lenders”), and PNC Bank, National Association (“PNC”), as agent for the PNC Lenders (in such capacity, the “Agent”), which governs the credit facilities among the Borrowers, the PNC Lenders and PNC (the “PNC Facilities”).

The PNC Amendment, among other things, amends the (i) definition of “Consolidated EBITDA” by permitting an addback for restructuring and transition costs and charges incurred on or before December 31, 2020 in connection with the Company’s previously announced closure of business operations in Dongguan, China, subject to certain exceptions, not to exceed (a) with respect to cash restructuring costs, $2,300,000, (b) with respect to write-offs of accounts receivable, $1,623,000, and (c) with respect to write-offs of Inventory (as defined in the PNC Agreement), $1,607,000, (ii) definition of “Permitted Intercompany Investments” by permitting certain investments by a Domestic Loan Party (as defined in the PNC Agreement) to or in SMTC Electronics Dongguan Company Limited, a limited liability company organized under the laws of China, solely to facilitate the closure of business operations in Dongguan, China, so long as, among other things, (a) such Investments (as defined in the PNC Agreement) are made prior to March 31, 2020, (b) the aggregate amount of all such Investments does not exceed $2,300,000 during the term of the PNC Agreement, (c) the Borrowers have Liquidity (as defined in the PNC Agreement) of not less than (1) at any time on or before December 31, 2019, $5,000,000, and (2) at any time after December 31, 2019, and on or before March 31, 2020, $7,500,000, in each case, after giving effect to such Investment, and (d) such Investments do not result in a breach of the negative covenant regarding excess cash, and (iii) negative covenant regarding excess cash to prohibit the maintenance of cash and Cash Equivalents (as defined in the PNC Agreement) in the accounts of all Foreign Loan Parties (as defined in the PNC Agreement) and Foreign Subsidiaries (as defined in the PNC Agreement), with respect to Foreign Loan Parties and Foreign Subsidiaries organized outside of Mexico, in excess of (a) $1,500,000 at any time outstanding, on or before March 31, 2020, and (b) $1,000,000 at any time outstanding, after March 31, 2020. In connection with the PNC Amendment, the Company paid the Agent an amendment fee of $32,500.

The foregoing description of the PNC Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the PNC Amendment, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.

Fourth Amendment to Financing Agreement

On September 27, 2019, the Company entered into that certain Amendment No. 4. to the Financing Agreement (the “TCW Amendment”), by and among the Company, each person that is a borrower under that certain Financing Agreement, dated as of November 8, 2018 (as disclosed on the Company’s Current Report on Form 8-K filed on November 9, 2018), as amended on March 29, 2019 (as disclosed on the Company’s Current Report on Form 8-K filed on April 4, 2019), as amended on July 3, 2019 (as disclosed on the Company’s Current Report on Form 8-K filed on July 5, 2019), as amended on August 8, 2019 (as disclosed on the Company’s Current Report on Form 8-K filed on August 12, 2019) (as amended to date, the “Financing Agreement”), each other loan party that is a party to the Financing Agreement, each financial institution that is a party to the Financing Agreement (collectively, the “TCW Lenders”), TCW Asset Management Company LLC, as administrative agent for the TCW Lenders (in such capacity, the “Administrative Agent”), and TCW Asset Management Company LLC, as collateral agent for the TCW Lenders.

The TCW Amendment, among other things, amends the (i) definition of “Consolidated EBITDA” by permitting an addback for restructuring and transition costs and charges incurred on or before December 31, 2020 in connection with the closure of business operations in Dongguan, China, subject to certain exceptions, not to exceed (a) with respect to cash restructuring costs, $2,300,000, (b) with respect to write-offs of accounts receivable, $1,623,000, and (c) with respect to write-offs of Inventory (as defined in the Financing Agreement), $1,607,000, (ii) definition of “Permitted Intercompany Investments” by permitting certain investments by a Domestic Loan Party (as defined in the Financing Agreement) to or in SMTC Electronics Dongguan Company Limited, a limited liability company organized under the laws of China, solely to facilitate the closure of business operations in Dongguan, China, so long as, among other things, (a) such Investments (as defined in the Financing Agreement) are made prior to March 31, 2020, (b) the aggregate amount of all such Investments does not exceed $2,300,000 during the term of the Financing Agreement, (c) the Borrowers have Liquidity (as defined in the Financing Agreement) of not less than (1) at any time on or before December 31, 2019, $5,000,000, and (2) at any time after December 31, 2019, and on or before March 31, 2020, $7,500,000, in each case, after giving effect to such Investment, and (d) such Investments do not result in a breach of the negative covenant regarding excess cash, and (iii) negative covenant regarding excess cash to prohibit the maintenance of cash and Cash Equivalents (as defined in the Financing Agreement) in the accounts of all Foreign Loan Parties (as defined in the Financing Agreement) and Foreign Subsidiaries (as defined in the Financing Agreement), with respect to Foreign Loan Parties and Foreign Subsidiaries organized outside of Mexico, in excess of (a) $1,500,000 at any time outstanding, on or before March 31, 2020, and (b) $1,000,000 at any time outstanding, after March 31, 2020. In connection with the TCW Amendment, the Company paid the Administrative Agent an amendment fee of $100,000.

The foregoing description of the TCW Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the TCW Amendment, which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein by reference.

The disclosure provided under Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03 as if fully set forth herein.

(d)       Exhibits