19. SUBSEQUENT EVENT
On August 3, 2015, Appvion completed the sale of the assets primarily used in the development, manufacture and sale of microencapsulation materials by the Encapsys segment of the Company (the “Encapsys Business”) to Rise Acquisition LLC (“Rise”), a Delaware limited liability company and an affiliate of Sherman Capital Holdings LLC, a Delaware limited lia bility company, for an aggregate purchase price of $208 million in cash, subject to working capital adjustments, and the assumption of certain liabilities (the “Sale”). Expenses of the Sale are approximately $8 million. Of the $200 million of net proceeds, $165 million was used immediately to repay a portion of long-term debt. Remaining proceeds of $35 million are held as restricted cash and will be used within one year of this transaction for the specific purpose of capital investment, including potential acquisitions, and/or further debt reduction. The estimated carrying value of the net assets sold is $11.9 million.
In connection with the Sale, Appvion and Rise entered into certain other agreements, including a Supply Agreement, by which Rise will supply Appvion with all of its microencapsulation product requirements for a ten-year term subject to renewal, and a Transition Services Agreement, by which Appvion will provide certain transition services to Rise for up to three years. Additionally, Appvion and Rise entered into a lease agreement, by which Appvion will lease a portion of its facilities in Appleton, Wisconsin to Rise for a three-year term, as well as a Patent License Agreement with respect to certain shared patents related to the Encapsys Business and Appvion’s retained paper businesses.
In addition, on August 3, 2015, Appvion, Paperweight and Jefferies Finance LLC, as administrative agent, and certain lenders entered into a Third Amendment (the “Third Amendment”) to the Credit Agreement (the “Credit Agreement”) dated June 28, 2013. The Third Amendment became effective simultaneously with the closing of the Sale. Upon its effectiveness, the Third Amendment, among other things, (i) permitted the Company to consummate the Sale of the Encapsys Business and provided for the corresponding release of liens on the Encapsys Business, (ii) required that $165 million of the net proceeds be applied to prepay the revolving credit loans and the term loans under the Credit Agreement and provided that the remainder of the proceeds be reinvested or otherwise applied to further prepay indebtedness in accordance with the Credit Agreement, (iii) provided for a permanent reduction of the revolving credit facility commitments from $100,000,000 to $75,000,000, (iv) required the payment of a consent fee equal to 0.175% of the aggregate principal amount of loans and commitments held by each consenting lender, (v) added a pricing grid providing that at any time after the fiscal year ended 2015 (x) if the reported consolidated first lien leverage ratio is greater than 3.00 to 1.00, the applicable margin on Eurodollar loans would increase from 4.5% per annum to 5.0% per annum and the applicable margin on base rate loans would increase from 3.5% per annum to 4.0% per annum and (y) if the reported consolidated first lien leverage ratio is less than or equal to 3.00 to 1.00, the applicable margin on Eurodollar loans would decrease back to 4.5% per annum and the applicable margin on base rate loans would decrease back to 3.5% per annum and (vi) further conformed certain terms and covenants under the Credit Agreement to account for the Sale of the Encapsys Business and the transactions contemplated.
The Third Amendment also removed the maximum consolidated leverage covenant and added (i) a maximum consolidated first lien leverage covenant that requires maintenance of a consolidated first lien leverage ratio, initially, of not more than 3.50 to 1.00, and on and after the third fiscal quarter of 2016, of not more than 3.25 to 1.00 and on and after the third fiscal quarter of 2017, of not more than 3.00 to 1.00 and (ii) a minimum consolidated fixed charge coverage covenant that requires maintenance of a consolidated fixed charge coverage ratio, initially, of not less than 0.95 to 1.00 and on and after the first fiscal quarter of 2016, of not less than 1.00 to 1.00.
Lastly, effective August 3, 2015, the Company entered into an Amended and Restated Employee Stock Ownership Trust Agreement (“Trust Agreement”) with Argent Trust Company, in its capacity as trustee (the “ESOP Trustee”) of the Appvion, Inc. Employee Stock Ownership Trust (the “ESOP”). The Trust Agreement amendments are primarily to define the ESOP Trustee as the named fiduciary under the Trust, as well as provide the ESOP Trustee with full discretionary authority, unless expressly excepted and directed by the Company’s ESOP Administrative Committee.
The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.
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