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Bank Loan Agreements
 12 Months Ended
Jun. 30, 2022
Debt Disclosure [Abstract]  
Bank Loan Agreements

 

5.Bank Loan Agreements

  

In connection with the Transaction on the Closing Date (refer to Note 3), we entered into (i) a Third Amended and Restated Loan and Security Agreement with Silicon Valley Bank (“SVB”), pursuant to which SVB made a term loan of $17,500,000 on the Closing Date and made available a revolving credit facility of up to $2,500,000 (the term loan facility and the revolving credit facility, the “Senior Credit Facilities”) and (ii) Mezzanine Loan and Security Agreement with SVB Innovation Credit Fund VIII, L.P. (“Lender”), pursuant to which Lender funded on the Closing Date a $12,000,000 term loan facility (the “Mezzanine Credit Facility”). As part of the Mezzanine Credit Facility, we issued the Lender two warrants, each to purchase approximately 64,000 shares of our common stock at a price per share of $4.695. The estimated fair value of the warrants was recorded to stockholders’ equity with the offset recorded as a discount against the Mezzanine Credit Facility debt balance. Substantially all of our tangible and intangible assets are pledged as collateral against these credit facilities.

 

The proceeds of the Senior Credit Facilities were used to refinance our outstanding obligations owing to SVB under our prior Second Amended and Restated Loan and Security Agreement with SVB, and the remaining proceeds of the Senior Credit Facilities and the proceeds from the Mezzanine Credit Facility were used to fund the purchase price of the TN Companies, to pay related fees and expenses, and also separately for working capital and general corporate purposes.

  

The Senior Credit Facilities mature on August 2, 2025 and the Mezzanine Credit Facility matures on February 2, 2026. Advances under the Senior Credit Facilities bore interest at the London interbank offered rate (“LIBOR”) or the Prime Rate, at the option of Lantronix, plus a margin that ranged from 3.00% to 4.00% in the case of LIBOR and 1.50% to 2.50% in the case of the Prime Rate, depending on our total leverage with a LIBOR floor of 0.50% and a Prime Rate floor of 3.25%. Advances under the Mezzanine Credit Facility bore interest at LIBOR or the Prime Rate, at the option of Lantronix, plus a margin of 9.00% with a floor of 1.00% in the case of LIBOR and a margin of 7.50% with a floor of 3.50% in the case of the Prime Rate. We are also obligated to pay other customary facility fees for credit facilities of similar size and type.

 

In January 2022, we terminated the Mezzanine Credit Facility with the Lender, for which we repaid a total of $12,152,500 to pay off the Mezzanine Credit Facility in full. There was no requirement to pay a termination fee. Pursuant to the applicable accounting guidance, we recognized a non-cash loss on the extinguishment of this debt of $764,000, representing the write-off of unamortized deferred financing costs. This was recorded in Loss on extinguishment of debt in the accompanying consolidated statements of operations for the fiscal year ended June 30, 2022.

 

In February 2022, we entered into an amendment to our Senior Credit Facilities which (i) increased the amount available under the revolving credit facility from $2,500,000 to $7,500,000, (ii) removed and replaced LIBOR benchmark provisions with Term Secured Overnight Financing Rate (“SOFR”) benchmark provisions and (iii) provided that advances under the Senior Credit Facilities bear interest at Term SOFR or the Prime Rate, at the option of Lantronix, plus a margin that ranges from 3.10% to 4.10% in the case of Term SOFR and 1.50% to 2.50% in the case of the Prime Rate, depending on our total leverage with a Term SOFR floor of 0.00% and a Prime Rate floor of 3.25%. We paid a nonrefundable fee of $25,000 in connection with this amendment to our Senior Credit Facilities.

 

The following table summarizes our outstanding debt:  

          
   June 30, 
   2022   2021 
   (In thousands) 
Outstanding borrowings on Term Loan Facility  $16,188   $3,750 
Less: Unamortized debt issuance costs   (243)   (68)
Net Carrying amount of debt   15,945    3,682 
Less: Current portion   (1,671)   (1,472)
Non-current portion  $14,274   $2,210 

 

During the year ended June 30, 2022, we recognized $1,493,000 of interest expense in the accompanying consolidated statement of operations related to interest and amortization of debt issuance associated with the borrowings under the Senior Credit Facilities and Mezzanine Credit Facility.

 

Financial Covenants

 

The Senior Credit Facilities require Lantronix to comply with a minimum liquidity test, a maximum leverage ratio and a minimum fixed charge coverage ratio. We were in compliance with all financial covenants as of June 30, 2022.

 

Liquidity

 

The Senior Credit Facilities require that we maintain a minimum liquidity of $5,000,000 and $3,000,000, respectively, at SVB, as measured at the end of each month.

 

Maximum leverage ratio

 

The Senior Credit Facilities require that we maintain a maximum leverage ratio, calculated as the ratio of funded debt to the consolidated trailing 12 month earnings before interest, taxes, depreciation and amortization, and certain other allowable exclusions of (i) 2.50 to 1.00 for each calendar quarter ending June 30, 2021 through and including September 30, 2022, (ii) 2.25 to 1.00 for each calendar quarter ending December 31, 2022 through and including September 30, 2023, and (iii) 2.00 to 1.00 for the calendar quarter December 31, 2023 and each calendar quarter thereafter.

  

Minimum fixed charge coverage ratio

 

The Senior Credit Facilities require that we maintain a minimum fixed charge coverage ratio, calculated as the ratio of consolidated trailing 12 month earnings before interest, taxes, depreciation and amortization, and certain other allowable exclusions, less capital expenditures and taxes paid, to the trailing twelve month principal and interest payments on all funded debt of 1.25 to 1.00 as measured at the end of each calendar quarter.

 

In addition, the Senior Credit Facilities contain customary representations and warranties, affirmative and negative covenants, including covenants that limit or restrict Lantronix and its subsidiaries’ ability to incur liens, incur indebtedness, dispose of assets, make investments, make certain restricted payments, merge or consolidate and enter into certain speculative hedging arrangements. The Senior Credit Facilities include a number of events of default, including, among other things, non-payment defaults, covenant defaults, cross-defaults to other materials indebtedness, bankruptcy and insolvency defaults and material judgment defaults. If any event of default occurs (subject, in certain instances, to specified grace periods), the principal, premium, if any, interest and any other monetary obligations on all the then outstanding amounts under the Senior Credit Facilities may become due and payable immediately.