Item 1.01 Entry into a Material Definitive Agreement.
On June 16, 2014, Giga-tronics Incorporated (the "Company") amended its loan
agreement with Partners For Growth IV, L.P. ("PFG"). Under the terms of the
amendment, PFG made a revolving loan available to Giga-tronics in the amount of
$500,000, the Company drew the entire amount on June 17, 2014. The Company now
has total debt of $1.5 million with PFG. The amended loan agreement also
provides for the Company's ability to request an additional term loan of up to
$500,000 in Fiscal 2015 if the Company meets certain financial goals.
The revolving loan has a three year term, and PFG has the right to convert the
revolving loan into a term loan and require principal payments to be amortized
over the remaining loan term. Interest on the revolving loan is fixed,
calculated on daily basis rate equal to 12.50% per annum. Interest on the
initial loan of $1.0 million remains 9.75% per annum. To stay in compliance with
the loan terms, the Company must meet certain financial covenants associated
with minimum quarterly revenues and monthly minimum shareholders' equity. The
lender can accelerate the maturity of the loan in case of a default. The Company
can prepay the loan before maturity, even if PFG converts it to a term loan.
In connection with the original loan to the Company, PFG became entitled to
warrants to ultimately purchase up to 300,000 shares of common stock in the
future, dependent on the amount borrowed by the Company. With the initial loan
of $1.0 million PFG received warrants for up to 180,000 shares of common stock.
With the amendment of the $500,000 revolving loan PFG is receiving warrants for
up to 80,000 shares of common stock. If PFG makes the additional $500,000 loan
later in Fiscal 2015, PFG's warrants entitle PFG to purchase the remaining
40,000 shares of common stock. The warrants were priced when the original loan
agreement was entered at $1.42 per share. The warrant has a net exercise
feature. Issuance of the warrant is exempt from registration under Section 4(2)
of the Securities Act of 1933.
If the Company meets certain financial goals in Fiscal 2015, the 260,000
warrants associated with the total $1.5 million borrowed is reduced to 222,500
shares of common stock. Should PFG earn the rights to exercise the warrant for
the additional 40,000 shares of common stock, that number will be reduced to
27,500 shares of common stock if the Company meets those financial goals.
In the event of any acquisition or other change in control of the Company,
future public issuance of Company securities, liquidation (or substantially
similar event) of the Company, or expiration of the warrants, PFG will have the
right to exchange the warrant for $250,000 in cash if all loans are made or
$217,000 if only the two loans totaling $1.5 million are made.
2.03 Creation of a Direct Financial Obligation or an Obligation under an
off-balance Sheet Arrangement of a Registrant.
See discussion under Item 1.01 above.
3.02 Unregistered Sale of Equity Securities
See discussion of the issuance of warrants to PFG under item 1.01 above.