STERLING CONSTRUCTION COMPANY, INC. (NASDAQ:STRL) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01
| Entry into a Definitive Material Agreement |
Loan Agreement
On April 3, 2017, the Company, as borrower, and certain of its
subsidiaries, as guarantors, entered into a Loan and Security
Agreement with Wilmington Trust, National Association, as agent,
and the lenders party thereto (the Loan Agreement),
providing for a term loan of $85,000,000 (the Loan) and
a maturity date of April 4, 2022. The Loan is secured by
substantially all of the assets of the Company and its
subsidiaries.
Interest on the Loan is equal to the one-, two-, three- or
six-month London interbank rate, or LIBOR, plus 8.75% per annum
on the unpaid principal amount of the Loan, subject to adjustment
under certain circumstances. Interest on the Loan is generally
payable monthly. There are no amortized principal payments;
however, the Company is required to prepay the Loan, and in
certain cases pay a prepayment premium thereon, with proceeds
received from the issuances of debt or equity, transfers, events
of loss and extraordinary receipts. The Company is required to
make an offer quarterly to the lenders to prepay the Loan in an
amount equal to 75% of its excess cash flow, plus accrued and
unpaid interest thereon and a prepayment premium.
The Loan Agreement contains various covenants that limit, among
other things, the Companys ability and certain of its
subsidiaries ability to incur certain indebtedness, grant certain
liens, merge or consolidate, sell assets, make certain loans,
enter into acquisitions, incur capital expenditures, make
investments, and pay dividends. In addition, the Company is
required to maintain the following financial covenants:
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a ratio of secured indebtedness to EBITDA of not more than 3.10 to 1.00 beginning with the four consecutive quarters ending June 30, 2017, reducing to 1.80 to 1.00 by the four consecutive quarters ending September 30, 2019; |
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daily cash collateral of not less than $10,000,000 commencing on June 30, 2017, increasing to $15,000,000 on October 1, 2017, and potentially further increasing to $18,000,000 beginning on April 4, 2018; |
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a rolling four quarter gross margin in contract backlog of not less than $60,000,000 commencing June 30, 2017, increasing to $70,000,000 by March 31, 2019; |
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the incurrence of net capital expenditures during each four consecutive fiscal quarters shall not exceed $15,000,000; |
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bonding capacity shall be maintained at all times in an amount not less than $1,000,000,000; and |
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the EBITDA of Tealstone Residential Concrete, Inc. shall not be less than $12,000,000 during each four consecutive fiscal quarters, commencing June 30, 2017. |
The Loan Agreement also includes customary events of default,
including events of default relating to non-payment of principal
or interest, inaccuracy of representations and warranties,
breaches of covenants, cross-defaults, bankruptcy and insolvency
events, certain unsatisfied judgments, loan documents not being
valid, calls under the Companys bonds, failure of specified
individuals to remain employed by the Company, and a change of
control. If an event of default occurs, the lenders will be able
to accelerate the maturity of the Loan Agreement and exercise
other rights and remedies.
The foregoing description of the Loan Agreement does not purport
to be complete and is qualified in its entirety by reference to
such document, which is filed as Exhibit 10.1 hereto and
incorporated herein by reference.
Warrants
On April 3, 2017, the Company issued Warrants (the
Warrants) to the lenders under the Loan Agreement (the
Holders) to which the Holders have the right to
purchase, for a period of five years from the date of issuance,
up to an aggregate of 1,000,000 shares of the Companys common
stock (the Warrant Shares) at an initial exercise price
of $10.25 per share, subject to adjustment for stock splits,
combinations and similar recapitalization events and
weighted-average antidilution upon the issuance by the Company of
shares of common stock or rights, options or convertible
securities exercisable for common stock in the future at a price
below the exercise price of the Warrants.
The foregoing description of the Warrants does not purport to be
complete and is qualified in its entirety by reference to such
document, a form of which will be filed with the Companys
Quarterly Report on Form 10-Q for the fiscal quarter ending March
31, 2017.
Registration Rights Agreement
In connection with the issuance of the Warrants, on April 3,
2017, the Company entered into a Registration Rights Agreement
(the Registration Rights Agreement) with the Holders to
which the Company granted to the Holders certain registration
rights related to the Warrants and the Warrant Shares. Under the
Registration Rights Agreement, the Company agreed to file
registration statements on Form S-3 with respect to the resale of
the Warrants and the Warrant Shares and to register common stock
having a value of not less than $80 million no later than May 31,
2017 and granted to the Holders demand and piggyback registration
rights, including the right to demand underwritten shelf
offerings for resale of the Warrants and Warrant Shares and
receive reimbursement from the Company of registration expenses
specified in the Registration Rights Agreement.
The Company also agreed, among other things, to indemnify and
hold harmless the Holders and their officers, directors,
employees, agents and representatives, and each person who
controls the Holders, from and against all losses incident to the
Companys obligations under the Registration Rights Agreement,
including certain liabilities under the Securities Act of 1933,
as amended (the Securities Act). The Holders agreed to
indemnify and hold harmless the Company and its officers,
directors, employees, agents and representatives, and each person
who controls the Company, from and against all losses that may be
based upon written information furnished by the Holders to the
Company for inclusion in a registration statement to the
Registration Rights Agreement.
The foregoing description of the Registration Rights Agreement
does not purport to be complete and is qualified in its entirety
by reference to such document, which is filed as Exhibit4.1
hereto and incorporated herein by reference.
| Item 2.01 |
Completion of Acquisition or Disposition of Assets |
On April 3, 2017, the Company consummated the acquisition of 100%
of the outstanding stock of Tealstone Residential Concrete, Inc.
and Tealstone Commercial, Inc. (collectively, Tealstone)
from the stockholders thereof (the Sellers) for
consideration consisting of $55,000,000 in cash (less debt
outstanding on the closing date and costs incurred by the Sellers
and Tealstone in connection with the transaction), 1,882,058
shares of the Companys common stock (the Placement
Shares), and $5,000,000 of promissory notes issued to the
Sellers. In addition, the Company will make $2,500,000 and
$7,500,000 of deferred cash payments on the second and third
anniversaries of the closing date, respectively, and up to an
aggregate of $15,000,000 in earn-out payments may be made on the
first, second, third and fourth anniversaries of the closing date
to continuing Tealstone management or their affiliates if
specified financial performance levels are achieved. Tealstone
focuses on concrete construction of residential foundations,
parking garages, paving, elevated slabs and other concrete work
for leading homebuilders, multi-family developers and general
contractors in both retail and commercial markets.
| Item 2.03 |
Creation of Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant |
The information set forth under Item 1.01 regarding the Loan
Agreement is incorporated herein by reference.
| Item 3.02 | Unregistered Sales of Equity Securities |
The information set forth under Item 1.01 regarding the Warrants
and under Item 2.01 regarding the Placement Shares are
incorporated herein by reference. The offer and sale of the
Warrants and the Placement Shares constituted a private placement
under Section 4(a)(2) of the Securities Act in accordance with
Regulation D promulgated thereunder.
| Item 8.01 | Other Events |
On April 3, 2017, the Company issued a press release relating to
the Loan Agreement and the closing of the Tealstone acquisition.
A copy of the press release is attached as Exhibit 99.1 hereto
and incorporated herein by reference.
| Item 9.01 | Financial Statements and Exhibits |
| (a) |
Financial Statements. The historical financial statements required by Item 9.01(a) of Form 8-K will be filed by an amendment to this report no later than 71 calendar days from the date that this report is required to be filed. |
| (b) |
Pro Forma Financial Information. The pro forma financial information required by Item 9.01(b) of Form 8-K will be filed by an amendment to this report no later than 71 calendar days from the date that this report is required to be filed. |
| (d) | Exhibits |
| Exhibit | Description |
| 4.1 |
Registration Rights Agreement, dated as of April 3, 2017, between Sterling Construction Company, Inc. and the holders party thereto. |
| 10.1 |
Loan and Security Agreement, dated as of April 3, 2017, by and between Sterling Construction Company, Inc., the guarantors party thereto, Wilmington Trust, National Association, as agent, and the lenders party thereto. |
| 99.1 | Press release, dated April 3, 2017. |
About STERLING CONSTRUCTION COMPANY, INC. (NASDAQ:STRL)
Sterling Construction Company, Inc. is a heavy civil construction company engaged in the building and reconstruction of transportation and water infrastructure projects in Texas, Utah, Nevada, Arizona, California, Hawaii and other states. The Company’s transportation infrastructure projects include highways, roads, bridges, airfields, ports and light rail. Its water infrastructure projects include water, wastewater and storm drainage systems. The Company operates through heavy civil construction segment. The Company provides its services by using traditional general contracting arrangements, such as lump sum contracts and cost-plus contracts. The Company serves various markets in the United States, including Texas, Utah, Nevada, Arizona, California and Hawaii. The Company’s customers include departments of transportation in various states (DOTs), regional transit authorities, airport authorities, port authorities, water authorities and railroads. STERLING CONSTRUCTION COMPANY, INC. (NASDAQ:STRL) Recent Trading Information
STERLING CONSTRUCTION COMPANY, INC. (NASDAQ:STRL) closed its last trading session 00.00 at 8.88 with 102,166 shares trading hands.