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Debt and Other Long-term Liabilities | 12 Months Ended
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Dec. 31, 2019
Debt Disclosure [Abstract] |
Debt and Other Long-term Liabilities | 6. Debt and Other Long-term Liabilities Debt The Company’s net carrying amount of debt is comprised of the following:
|  | December 31,
($ in thousands) |  | 2019 |  | 2018
Xcel Term Loan |  | $ | 19,000 |  | $ | 15,500
Unamortized deferred finance costs related to term loan |  |  | (179) |  |  | (200)
IM Seller Note |  |  | — |  |  | 742
Ripka Seller Note |  |  | — |  |  | 583
Contingent obligation – JR Seller |  |  | — |  |  | 100
Contingent obligation – CW Seller |  |  | — |  |  | 2,850
Total |  |  | 18,821 |  |  | 19,575
Current portion of long-term debt (i), (ii) |  |  | 2,250 |  |  | 8,275
Long-term debt |  | $ | 16,571 |  | $ | 11,300
| (i) |  | The current portion of long-term debt presented on the consolidated balance sheet at December 31, 2019 consists of $2.25 million related to the Xcel Term Loan.
| (ii) |  | The current portion of long-term debt presented on the consolidated balance sheet at December 31, 2018 includes (a) $4.0 million related to the Xcel Term Loan, (b) $0.74 million related to the IM Seller Note, (c) $2.95 million related to contingent obligations, and (d) 0.58 million related to the Ripka Seller Note.
Prior Xcel Term Loan On February 26, 2016, the Company and its wholly owned subsidiaries, IM Brands, LLC, JR Licensing, LLC, H Licensing, LLC, C Wonder Licensing, LLC, Xcel Design Group, LLC, IMNY Retail Management, LLC, and IMNY E-Store, USA, LLC (each a “Guarantor” and collectively, the “Guarantors”), as Guarantors, entered into an amended and restated loan and security agreement (the “Loan Agreement”) with Bank Hapoalim B.M. as agent, and the financial institutions party thereto as lenders. The Loan Agreement amended and restated the previous IM Term Loan, JR Term Loan, and H Term Loan. Pursuant to the Loan Agreement, Xcel assumed the obligations of each of IM Brands, LLC, JR Licensing, LLC, and H Licensing, LLC under the respective term loans with BHI in the aggregate principal amount of $27.9 million (the loan under the Loan Agreement is referred to as the “Xcel Term Loan”). The Xcel Term Loan was due to mature on January 1, 2021. Principal on the Xcel Term Loan was payable in quarterly installments on each of January 1, April 1, July 1 and October 1. The Xcel Term Loan was amended in February 2017 and again in June 2017. Under these amendments, principal payments for the year ended December 31, 2017 were increased by a total of $0.8 million, principal payments for the year ended December 31, 2019 were increased by a total of $1.0 million, and principal payments for the year ending December 31, 2021 were decreased by $1.8 million. In addition, the minimum EBITDA (as defined in the Loan Agreement) requirement for the year ended December 31, 2017 was changed from $9.0 million to $7.0 million, and the minimum EBITDA requirements for the years ended December 31, 2018 and 2019 were changed from $9.0 million to $8.0 million, respectively. There were no changes to the total principal balance, interest rate, maturity date, or other terms of the Loan Agreement. Management assessed and determined that these amendments represented debt modifications and, accordingly, no gain or loss was recorded. Second Amended and Restated Xcel Term Loan On February 11, 2019, concurrent with the Closing Date of the acquisition of the Halston Heritage Brands (see Note 3), the Company entered into an amended loan agreement with BHI (the “Second Amended and Restated Loan and Security Agreement”), which amended and restated the Prior Xcel Term Loan. Immediately prior to February 11, 2019, the aggregate principal amount of the Prior Xcel Term loan was $14.5 million. Pursuant to the Loan Agreement, the Lenders have extended to Xcel an additional term loan in the amount of $7.5 million, such that, as of February 11, 2019, the aggregate outstanding balance of all the term loans extended by BHI to Xcel was $22.0 million, which amount has been divided under the Loan Agreement into two term loans: (1) a term loan in the amount of $7.3 million (“Term Loan A”) and (2) a term loan in the amount of $14.7 million (“Term Loan B” and, together with Term Loan A, the “Term Loans”). The proceeds of the additional term loan were used to finance the Halston Heritage Brands acquisition described in Note 3. The terms and conditions of the Second Amended and Restated Xcel Term Loan resulted in significantly different debt service payment requirements, compared with the Prior Xcel Term Loan, including an increase of $7.5 million in the principal balance, and related changes to the timing and amount of principal payments, as well as changes in the interest rate. Management assessed and determined that this amendment resulted in an extinguishment of debt and recognized a loss of $0.2 million (consisting of unamortized deferred finance costs) during the year ended December 31, 2019. The Second Amended and Restated Loan and Security Agreement also contemplates that BHI, or their affiliates (collectively, the “Lenders”) can provide to Xcel a revolving loan facility and a letter of credit facility, the terms of each of which shall be agreed to by Xcel and the Lenders. Amounts advanced under the revolving loan facility (the “Revolving Loans”) will be used for the purpose of consummating acquisitions by Xcel or its subsidiaries that are or become parties to the Second Amended and Restated Loan and Security Agreement. Xcel will have the right to convert Revolving Loans to incremental term loans (the “Incremental Term Loans”) in minimum amounts of $5.0 million. The Company has not drawn down any funds under either the revolving loan facility or letter of credit facility. The Term Loans mature on December 31, 2023, Incremental Term Loans shall mature on the date set forth in the applicable term note, and Revolving Loans and the letter of credit facility shall mature on such date as agreed upon by Xcel and the Lenders. Any letter of credit issued under Second Amended and Restated Loan and Security Agreement shall terminate no later than one year following the date of issuance thereof. On April 13, 2020, the Company further amended its Second Amended and Restated Loan and Security Agreement with BHI. Under this amendment, the quarterly installment payment due March 31, 2020 was deferred, and the amounts of the quarterly installment payments due throughout the remainder of 2020 were reduced, while the amount of principal to be repaid through variable payments based on excess cash flow was increased. In addition, there were multiple changes and waivers to the various financial covenants. Further, this amendment permits Xcel to incur unsecured debt through the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), and excludes any associated PPP debt and debt service from the covenant calculations. There were no changes to the total principal balance, interest rate, or maturity date. Principal on the Xcel Term Loan, as amended, is payable in fixed installments as follows:
($ in thousands)
Installment Payment Dates |  | Amount
June 30, 2020, September 30, 2020, and December 31, 2020 |  | $ | 750
March 31, 2021, June 30, 2021, September 30, 2021, and December 31, 2021 |  | $ | 1,125
April 30, 2021 |  | $ | 750
March 31, 2022, June 30, 2022, September 30, 2022, and December 31, 2022 |  | $ | 1,125
March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023 |  | $ | 1,250
In addition to the fixed installments outlined above, commencing with the fiscal quarter ended March 31, 2021, the Company is required to repay a portion of the Xcel Term Loan in an amount equal to 50% of the excess cash flow for the fiscal quarter, provided that no early termination fee shall be payable with respect to any such payment. Excess cash flow means, for any period, cash flow from operations (before certain permitted distributions) less (i) capital expenditures not made through the incurrence of indebtedness, (ii) all cash principal paid or payable during such period, and (iii) all dividends declared and paid (or which could have been declared and paid) during such period to equity holders of any credit party treated as a disregarded entity for tax purposes. To the extent that the cumulative amount of such variable repayments made is less than $2.00 million as of March 31, 2022, any such shortfall must be repaid at that date. Thus, the aggregate remaining annual principal payments under the Xcel Term Loan are as follows:
|  | Amount of
($ in thousands) |  | Principal
Year Ending December 31, |  | Payment
2020 |  | $ | 2,250
2021 |  |  | 5,250
2022 |  |  | 6,500
2023 |  |  | 5,000
Total |  | $ | 19,000
Xcel has the right to prepay the Term Loans, Incremental Term Loans, Revolving Loans, and obligations with respect to letters of credit and accrued and unpaid interest thereon and to terminate the Lenders’ obligations to make Revolving Loans and issue letters of credit, provided that any prepayment of less than all of the outstanding balances of the Term Loans and Incremental Term Loans shall be applied to the remaining amounts due in inverse order of maturity. If any Term Loan or any Incremental Term Loan is prepaid on or prior to the third anniversary of the Closing Date (including as a result of an event of default), Xcel shall pay an early termination fee as follows: an amount equal to the principal amount of the Term Loan or Incremental Term Loan, as applicable, being prepaid, multiplied by: (i) two percent (2.00%) if any of Term Loan B or any Incremental Term Loan is prepaid on or before the second anniversary of the later of the Closing Date or the date such Incremental Term Loan was made, as applicable; (ii) one percent (1.00%) if any of Term Loan A is prepaid on or before the second anniversary of the Closing Date; (iii) one percent (1.00%) if any of Term Loan B or any Incremental Term Loan is prepaid after the second anniversary of the later of the Closing Date or such Incremental Term Loan was made, as applicable, but on or before the third anniversary of such date; (iv) one-half of one percent (0.50%) if any of Term Loan A is prepaid after the second anniversary of the Closing Date, but on or before the third anniversary of such date; or (v) zero percent (0.00%) if any Term Loan or any Incremental Term Loan is prepaid after the third anniversary of the later of the Closing Date or the date such Incremental Term Loan was made, as applicable. Notwithstanding the above, Xcel may make a voluntary prepayment of up to $0.75 million without any early termination fees, after any PPP loan proceeds have been received by the Company. Any such prepayment would be applied against the April 30, 2021 fixed installment payment and would be excluded from the computation of excess cash flows. Xcel’s obligations under the Xcel Term Loan are guaranteed by and secured by all of the assets of Xcel and its wholly owned subsidiaries, as well as any subsidiary formed or acquired that becomes a credit party to the Xcel Term Loan agreement (the “Guarantors”) and, subject to certain limitations contained in Xcel Term Loan, equity interests of the Guarantors. Xcel also granted the Lenders a right of first offer to finance any acquisition for which the consideration will be paid other than by cash of Xcel or by the issuance of equity interest of Xcel. The Amended Loan Agreement contains customary covenants, including reporting requirements, trademark preservation, and the following financial covenants of the Company (on a consolidated basis with the Guarantors under the Second Amended and Restated Loan and Security Agreement):
| · |  | net worth of at least $90.0 million at the end of each fiscal quarter;
| · |  | liquid assets of at least $3.25 million through the earlier of December 31, 2020 or such time as any PPP loan proceeds are received by the Company, at least $4.0 million through December 31, 2020 provided that PPP loan proceeds have been received by the Company, and at least $5.0 million thereafter;
| · |  | EBITDA shall not be less than $6.8 million for the fiscal year ended December 31, 2019, $5.0 million for the twelve fiscal month period ending March 31, 2020, and $4.8 million for the twelve fiscal month period ending June 30, 2020;
| · |  | the fixed charge coverage ratio for the twelve fiscal month period ending at the end of each fiscal quarter shall not be less than the ratio set forth below:
Fiscal Quarter End |  | Fixed Charge Coverage Ratio
September 30, 2020 |  | 1.00 to 1.00
December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021 and thereafter |  | 1.10 to 1.00
| · |  | capital expenditures (excluding any capitalized compensation costs) shall not exceed $1.7 million for the fiscal year ended December 31, 2018; $0.7 million for the fiscal year ended December 31, 2019; $1.6 million for the fiscal year ending December 31, 2020, and $0.7 million for any fiscal year beginning after December 31, 2020; and
| · |  | the leverage ratio for the twelve fiscal month period ending at the end of each fiscal period set forth below shall not exceed the ratio set forth below:
Fiscal Period |  | Maximum Leverage Ratio
December 31, 2018 |  | 2.90 to 1.00
June 30, 2020 |  | 4.25 to 1.00
September 30, 2020 |  | 3.50 to 1.00
December 31, 2020 |  | 2.75 to 1.00
March 31, 2021, June 30, 2021 and September 30, 2021 |  | 1.70 to 1.00
December 31, 2021 and each Fiscal Quarter end thereafter |  | 1.50 to 1.00
The Company was in compliance with all applicable covenants under the Amended and Restated Loan and Security Agreement as of and for the fiscal year ended December 31, 2019. In connection with the February 11, 2019 refinancing transaction, the Company incurred fees to or on behalf of BHI of approximately $0.3 million during the year ended December 31, 2019. These fees have been deferred on the consolidated balance sheets as a reduction to the carrying value of the Xcel Term Loan, and are being amortized to interest expense over the term of the Term Loan using the effective interest method. The current effective interest rate on the Second Amended and Restated Loan and Security Agreement is equal to approximately 6.65%. Interest on Term Loan A accrues at a fixed rate of 5.1% per annum and is payable on each day on which the scheduled principal payments on Term Loans are required to be made. Interest on Term Loan B accrues at a fixed rate of 6.25% per annum and is payable on each day on which the scheduled principal payments on Term Loans are required to be made. Interest on the Revolving Loans will accrue at either the Base Rate or LIBOR, as elected by Xcel, plus a margin to be agreed to by Xcel and the Lenders and will be payable on the first day of each month. Base Rate is defined in the Xcel Term Loan agreement as the greater of (a) BHI’s stated prime rate or (b) 2.00% per annum plus the overnight federal funds rate published by the Federal Reserve Bank of New York. Interest on the Incremental Term Loans will accrue at rates to be agreed to by Xcel and the Lenders and will be payable on each day on which the scheduled principal payments under the applicable note are required to be made. For the Current Year and Prior Year, the Company incurred interest expense of approximately $1.2 million and $0.9 million, respectively, related to term loan debt. IM Seller Note On September 29, 2011, as part of the consideration for the purchase of the Isaac Mizrahi Business, the Company issued to IM Ready-Made, LLC a promissory note in the principal amount of $7.4 million (as amended, the “IM Seller Note”). The stated interest rate of the IM Seller Note was 0.25% per annum. Management determined that this rate was below the Company’s expected borrowing rate, which was then estimated at 9.25% per annum. Therefore, the Company discounted the IM Seller Note by $1.7 million using a 9.0% imputed annual interest rate, resulting in an initial value of $5.6 million. In addition, on September 29, 2011, the Company prepaid $0.1 million of interest on the IM Seller Note. The imputed interest amount was amortized over the term of the IM Seller Note and recorded as other interest and finance expense on the Company’s consolidated statements of operations. On December 24, 2013, the IM Seller Note was amended to (1) revise the maturity date to September 30, 2016, (2) revise the date to which the maturity date may be extended to September 30, 2018, (3) provide the Company with a prepayment right with its common stock, subject to remitting in cash certain required cash payments and a minimum common stock price of $4.50 per share, and (4) require interim scheduled payments. The amendment included a partial repayment of $1.5 million of principal. On September 19, 2016, the IM Seller Note was further amended and restated to (1) revise the maturity date to March 31, 2019, (2) require six semi-annual principal and interest installment payments of $0.8 million, commencing on September 30, 2016 and ending on March 31, 2019, (3) revise the stated interest rate to 2.236% per annum, (4) allow for optional prepayments at any time at the Company’s discretion without premium or penalty, and (5) require that all payments of principal and interest be made in cash. Management assessed and determined that this amendment represented a debt modification and, accordingly, no gain or loss was recorded. On March 31, 2019, the Company paid the final installment of $750,000 under the IM Seller Note, and no amounts remain outstanding under the IM Seller Note as of December 31, 2019. For the years ended December 31, 2019 and 2018, the Company incurred interest expense of approximately $4,000 and $33,000, respectively under the IM Seller Note, which consisted solely of amortization of the discount on the IM Seller Note. Ripka Seller Notes As of December 31, 2018, the Company had a note payable of approximately $0.58 million relating to the acquisition of the Judith Ripka assets (the "Ripka Seller Note"). Separately, the Company held a promissory note receivable due from the sellers of the Judith Ripka assets (the "Ripka Sellers") with a maturity date of March 31, 2019. On March 31, 2019, the Company agreed to net its note receivable due from the Ripka Sellers of approximately $0.9 million against the Ripka Seller Note of $0.6 million and the remaining Ripka Earn-Out of $0.1 million (see below). As of December 31, 2019, there were no amounts remaining outstanding under the Ripka Seller Note. For the years ended December 31, 2019 and 2018, the Company incurred interest expense of approximately $16,000 and $41,000, respectively, which consisted solely of amortization of the discount on the Ripka Seller Notes. Contingent Obligation – JR Seller (Ripka Earn-Out) In connection with the asset purchase of the Ripka Brand in 2014, the Company agreed to pay the sellers of the Ripka brand additional consideration of up to $5.0 million in aggregate (the “Ripka Earn-Out”), payable in cash or shares of the Company’s common stock based on the fair value of the Company’s common stock at the time of payment, and with a floor of $7.00 per share, based on the Ripka Brand achieving in excess of $1.0 million of net royalty income (excluding revenues generated by interactive television sales) during each of the 12‑month periods ending on October 1, 2016, 2017 and 2018, less the sum of all earn-out payments for any prior earn-out period. The Ripka Earn-Out was recorded at a value of $3.8 million based on the difference between the fair value of the acquired assets of the Ripka Brand at the acquisition date and the total consideration paid. In accordance with ASC Topic 480, the Ripka Earn-Out obligation was classified as a liability in the accompanying consolidated balance sheets because of the variable number of shares payable under the agreement. On December 21, 2016, the Company entered into an agreement with the sellers of the Ripka Brand which amended the terms of the Ripka Earn-Out, such that the maximum amount of earn-out consideration was reduced to $0.4 million, of which $0.2 million was payable in cash upon execution of the amendment, and $0.1 million was payable in cash on each of May 15, 2018 and 2019. The payment of the remaining future payments of $0.2 million under the Ripka Earn-Out was contingent upon the Ripka Brand achieving at least $6.0 million of net royalty income from QVC during each of the 12‑month periods ending on March 31, 2018 and 2019. On May 15, 2018 the Company settled the $0.1 million earn-out due by reducing the principal amount owed by Judith Ripka to the Company under a promissory note receivable. As of December 31, 2018, the remaining balance of the Ripka Earn-Out was $0.1 million. On March 31, 2019, the Company satisfied the remaining Ripka Earn-Out balance of $0.1 million by off-setting the amount against the aforementioned promissory note receivable. As of December 31, 2019, there were no amounts remaining outstanding under the Ripka Earn-Out. Contingent Obligation – CW Seller (C Wonder Earn-Out) In connection with the asset purchase of the C Wonder Brand, the Company agreed to pay the seller additional consideration, which would be payable, if at all, in cash or shares of common stock of the Company, at the Company’s sole discretion, after June 30, 2019, with a value based on the royalties related directly to the assets the Company acquired pursuant to the purchase agreement. The value of the earn-out was to be calculated as the positive amount, if any, of (i) two times (A) the maximum net royalties as calculated for any single twelve month period commencing on July 1 and ending on June 30 between the closing date and June 30, 2019 (each, a “Royalty Target Year”) less (B) $4.0 million, plus (ii) two times the maximum royalty determined based on a percentage of retail and wholesale sales of C Wonder branded products by the Company as calculated for any single Royalty Target Year. The C Wonder Earn-Out of $2.85 million, which was calculated at the asset acquisition date, was recorded in the current portion of long-term debt in the accompanying consolidated balance sheet as of December 31, 2018. Under the applicable accounting guidance, the Company was required to carry such contingent liability balance on its consolidated balance sheet until the measurement period of the earn-out expired and all related contingencies had been resolved. The final Royalty Target Year ended on June 30, 2019, and the seller ultimately did not earn any additional consideration based on the formula set forth above. As such, during the year ended December 31, 2019, the Company recorded a $2.85 million gain on the reduction of contingent obligations in the accompanying consolidated statements of operations. As of December 31, 2019, there were no amounts remaining under the C Wonder Earn-Out. Other Long-Term Liabilities Other long-term liabilities consist of the Company’s obligations to subtenants for security deposits under sublease arrangements, which were $0.2 million and $0.4 million as of December 31, 2019 and 2018, respectively.

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