Business Context and Reporting Period
This Form 8-K was filed by Landec Corporation on May 23, 2012, reporting on behalf of its wholly-owned subsidiary, Lifecore Biomedical, Inc., and its subsidiary Lifecore Biomedical LLC. The filing details the entry into material financing agreements with BMO Harris Bank N.A. and its affiliates.
Key Financial Metrics and Obligations
- Revolving Credit Facility: $8.0 million asset-based working capital line (1-year term) at LIBOR + 1.85%.
- Term Loan: $12.0 million (4-year maturity) at LIBOR + 2.0%.
- Letter of Credit: $3,543,151 irrevocable letter of credit issued by Bank of Montreal.
- Collateral: Obligations are secured by liens on all property of the Company.
- Financial Covenants:
- Minimum fixed charge coverage ratio: 1.10 to 1.00.
- Minimum quick ratio: 1.25 to 1.00.
- Minimum tangible net worth: $29,000,000 (measured as of May 28, 2013, and annually thereafter).
Material Changes and Use of Proceeds
The new Term Loan was utilized to repay the Company's former credit facility with Wells Fargo Bank, National Association. The new Letter of Credit replaces a previous facility provided by Wells Fargo to support the City of Chaska, Minnesota Variable Rate Demand Purchase Revenue Bonds (Series 2004). The filing does not provide specific revenue, profit, or cash flow figures for the period.
Management Commentary, Risks, and Covenants
The agreements include customary restrictive covenants limiting the Company's ability to incur additional indebtedness, grant liens, make loans or investments, pay dividends, repurchase stock, sell assets, engage in mergers, or enter into sale and leaseback transactions. Events of default include payment failures, covenant breaches, bankruptcy, and material judgments. Upon an event of default, BMO Harris may accelerate obligations and terminate commitments.
Investor Verification Checklist
- Verify the Company's current compliance with the 1.10 fixed charge coverage and 1.25 quick ratio covenants.
- Confirm the status of the $29 million tangible net worth requirement as of the next fiscal year-end.
- Review the full text of Exhibits 10.1 and 10.2 for specific definitions of "eligible accounts receivable" and "eligible inventory" affecting the $8 million revolving line availability.
- Assess the impact of the new interest rate structure (LIBOR + spread) on future interest expense compared to the prior Wells Fargo facility.