Air Industries Group - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K covers events occurring on May 25 and May 26, 2016. Air Industries Group (the "Company") executed a private placement of Series A Convertible Preferred Stock and amended its existing credit facility with PNC Bank. The filing details the entry into material definitive agreements, the unregistered sale of equity securities, and amendments to the Company's Articles of Incorporation.
Key Financial Metrics and Capital Structure
- Capital Raised: The Company sold 452,250 shares of Series A Convertible Preferred Stock at $10.00 per share, yielding net proceeds of approximately $3.95 million.
- Debt Conversion: An additional 175,000 shares of Series A Preferred Stock were issued to directors Michael N. Taglich and Robert F. Taglich in exchange for promissory notes totaling $1.75 million ($1.1 million and $650,000 respectively).
- Transaction Costs: Placement agent fees totaled $439,075 (7% of gross proceeds), plus $113,370 in reimbursed expenses.
- Debt Restructuring: Four outstanding term loans were aggregated into a single Term Loan of $7,387,854.33. The revolving credit facility maturity was extended to April 30, 2018.
- Excess Advances: The Company acknowledged $12.5 million in Excess Advances under the Credit Agreement, with a repayment schedule starting with a $1.5 million payment on the closing date.
Material Changes and Agreements
- Private Placement: Entered into a Placement Agency Agreement with Craig-Hallum Capital Group LLC and Taglich Brothers, Inc. for a best-efforts offering of up to $7 million in securities.
- Credit Facility Amendment: The Twelfth Amendment to the Credit Agreement waived defaults related to the Fixed Charge Coverage Ratio for periods ended December 31, 2015, and March 31, 2016.
- Equity Issuance: Authorized and issued 900,000 shares of Series A Preferred Stock. The initial closing involved the sale of 452,250 shares to accredited investors and 175,000 shares to directors.
Terms of Series A Preferred Stock and Outlook
- Dividends: Cumulative dividends are payable at 12% annually for the first two years, increasing to 16% thereafter. Dividends may be paid in cash or in-kind (PIK Shares). Failure to pay minimum cash dividends triggers increased PIK rates (up to 15% or 19% annually depending on the period).
- Conversion: Convertible at the holder's option at a rate of 2.0325 common shares per preferred share (approx. $4.92 conversion price). The Company may force conversion if the common stock price exceeds $9.84 for 30 consecutive trading days.
- Liquidation Preference: Holders are entitled to $10.00 per share plus accrued dividends prior to any distribution to common stockholders.
- Redemption: The Company may redeem shares commencing May 26, 2018, at $10.00 plus accrued dividends.
- Warrants: Placement agents received five-year warrants to purchase 8% of the common stock issuable upon conversion, exercisable at 125% of the conversion price.
Investor Verification Checklist
- Verify the Company's ability to meet the $1.5 million immediate repayment of Excess Advances and the subsequent $100,000 weekly payments.
- Confirm the Company's cash flow sufficiency to service the 12% to 16% cumulative dividend obligations on the new preferred stock.
- Review the impact of the 175,000 shares issued to directors on the total authorized share count and potential dilution upon conversion.
- Assess the risk of forced conversion if the common stock price rises above $9.84, potentially increasing the share count significantly.
- Monitor the status of the registration statement for resale of common stock, which must be filed within 15 days of the offering's final closing.