| Item 1.01. | Entry into a Material Definitive Agreement. |
On February 7, 2023 (the “Closing Date”), Potbelly Corporation (the “Company”) entered into a credit and guaranty agreement (the “Credit Agreement”) with Sagard Holdings Manager LP as administrative agent (the “Administrative Agent”), the other loan parties party thereto and the lenders party thereto from time to time. The Credit Agreement provides for a term loan facility with an aggregate commitment of $25,000,000 (the “Term Loan”). Concurrent with the entry into the Credit Agreement, the Company repaid in full and terminated the obligations and commitments under Potbelly Sandwich Works, LLC’s existing senior secured credit facility (the “Former Credit Facility”). The remaining proceeds from the Term Loan will be used to pay related transaction fees and expenses, and for general corporate purposes.
The Credit Agreement is scheduled to mature on February 7, 2028.
Loans under the Credit Agreement will initially bear interest, at the Company’s option, at either at the term SOFR plus 9.25% per annum or base rate plus 8.25% per annum.
The Company may prepay the Term Loan in agreed-upon minimum principal amounts, and (a) if the prepayment occurs on or prior to the one (1) year anniversary of the Closing Date, subject to a prepayment fee equal to a customary make-whole amount plus 3.00% of the outstanding principal balance of the Term Loan being prepaid, (b) if the prepayment occurs after such one (1) year anniversary and prior to the two (2) year anniversary of the Closing Date, subject to a prepayment fee equal to 3.00% of the outstanding principal balance of the Term Loan being prepaid, (c) if the prepayment occurs after such second anniversary of the Closing Date and prior to the three (3) year anniversary of the Closing Date subject to a prepayment fee equal to 1.00% of the outstanding principal balance of the Term Loan being prepaid and (d) thereafter, with no additional prepayment fee (but subject, in each case, to customary term SOFR breakage costs, if applicable).
Subject to certain customary exceptions, obligations under the Credit Agreement are guaranteed by the Company and all of the Company’s current and future wholly owned material domestic subsidiaries and are secured by a first-priority security interest in substantially all of the assets of the Company and its subsidiary guarantors.
The Credit Agreement contains customary representations and affirmative and negative covenants. Among other things, these covenants restrict the Company’s and certain of its subsidiaries’ ability to incur indebtedness and liens, make certain investments, make certain restricted payments (including payment of dividends and repurchases of stock), make certain dispositions and acquisitions, make material changes in corporate structure or materially alter the nature of its business, engage in mergers, consolidations and certain other fundamental changes, engage in certain transactions with affiliates, enter into certain types of restricted agreements, amend the terms of certain incurred indebtedness, change its fiscal year, make certain changes to its organizational documents and accounting policies, enter into sale and leaseback transactions and maintain certain deposit accounts. The Company is also subject to certain requirements under a customary passivity covenant. In addition, the Credit Agreement requires that the Company and its wholly-owned subsidiaries maintain certain maximum total net leverage ratios as set forth in the Credit Agreement, an average liquidity amount that shall not be less than $10,000,000, maximum capital expenditures per year as set forth in the Credit Agreement and a minimum fixed charge coverage ratio as set forth in the Credit Agreement. The Credit Agreement, subject to certain conditions, allows for the Company to incur commitments with respect to a revolving credit facility in an initial aggregate principal amount of up to $5,000,000.
The Credit Agreement also contains customary events of default. If an event of default occurs, the Administrative Agent and lenders are entitled to take various actions, including the acceleration of amounts due under the Credit Agreement, termination of commitments thereunder and all other actions permitted to be taken by a secured creditor.
A copy of the Credit Agreement is filed as Exhibit 10.1 to this report and is incorporated herein by reference. The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Credit Agreement.
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