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Comtech Telecommunications(CMTL) - 2024 Q4 - Annual Results

Waiver and Amendment No. 1 to Credit Agreement This document details the first amendment to the Credit Agreement, addressing existing defaults and modifying terms between Comtech Telecommunications Corp. and its lenders Introduction and Background This document, dated October 17, 2024, constitutes the first amendment to the Credit Agreement originally dated June 17, 2024, between Comtech Telecommunications Corp. (the "Borrowers"), various lenders, Wingspire Capital LLC as Revolving Agent, and TCW Asset Management Company LLC as Agent. The amendment addresses several existing Events of Default and modifies the terms of the original agreement - The amendment was entered into on October 17, 2024, by Comtech Telecommunications Corp. and its lenders to address existing defaults under the original Credit Agreement from June 17, 202412 - Comtech was in default due to multiple covenant breaches and failures to deliver required financial reports2 Existing Events of Default | Default Type | Description | | :--- | :--- | | Financial Covenants | Failure to maintain a Fixed Charge Coverage Ratio of at least 1.20:1.0 for the period ended July 31, 2024 | | | Failure to maintain a Net Leverage Ratio not greater than 3.25:1.0 for the quarter ended July 31, 2024 | | Operational Covenants | Failure to comply with the definition of "Permitted Intercompany Advances" | | Reporting Failures | Failure to deliver financial statements and Compliance Certificate for the month ended July 31, 2024 | | | Failure to deliver various required reports for the month ended September 30, 2024 | Waiver and Amendments The Lenders have agreed to waive the specified "Existing Events of Default" and amend the Credit Agreement. This waiver is limited and does not cover any other breaches. Key schedules and exhibits related to financial reporting, collateral, and borrowing notices are amended and restated - The Lenders have formally waived the previously identified Events of Default, but this waiver is limited and does not apply to any other current or future breaches4 - The Credit Agreement is amended as detailed in Exhibit A, with specific schedules for Financial Statements (Schedule 5.1), Collateral Reporting (Schedule 5.2), and forms for Borrowing Base Certificate (Exhibit B-1) and Notice of Borrowing (Exhibit D-1) being fully replaced567 Conditions to Effectiveness and Fees The amendment's effectiveness is contingent upon several conditions, including the receipt of at least $25 million in cash proceeds from new subordinated debt, payment of various fees, and delivery of a 26-week cash flow forecast. A significant Term Loan Amendment Fee of approximately $4.06 million is to be paid-in-kind by adding it to the loan's principal - A key condition for the amendment is that the Borrowers must receive at least $25,000,000 in cash proceeds from the issuance of Specified Preferred Subordinated Debt9 - Other conditions include the delivery of a 26-week cash flow forecast and payment of all outstanding Lender Group Expenses9 Term Loan Amendment Fee | Item | Amount | Payment Method | | :--- | :--- | :--- | | Term Loan Amendment Fee | $4,058,410.62 | Paid-in-kind by adding to the outstanding principal of the Term Loan | Post-Closing Covenants and Release Comtech is required to deliver overdue financial statements and compliance certificates for July and September 2024 by specific deadlines in October and November 2024. Failure to comply constitutes an immediate Event of Default. As part of the agreement, the Loan Parties provide a broad release of all known claims against the Lenders and their affiliates - The company must deliver the overdue financial statements and related certificates for July 2024 by October 31, 202414 - The various overdue deliverables for September 2024 must be submitted by October 25, October 30, and November 15, 2024, respectively. Failure to meet these deadlines is an immediate Event of Default141516 - The Loan Parties have issued an unconditional release, discharging the Lenders and their affiliates from all known claims, demands, and liabilities arising on or prior to the date of the amendment18 Amended Credit Agreement This section details the comprehensive amendments to the original Credit Agreement, covering definitions, loan terms, conditions, covenants, and general administrative provisions Section 1: Definitions and Construction This section defines the key terms used throughout the amended credit agreement. Notable changes include revised definitions for "Applicable Margin," introducing a new pricing grid for Term Loans and an option for Paid-in-Kind (PIK) interest. It also introduces an "Amendment No. 1 Availability Block Amount" of $27.5 million, which reduces the available amount under the revolving credit facility - An "Amendment No. 1 Availability Block Amount" of $27,500,000 is established, which reduces the amount available for borrowing under the revolving loan facility49 - A portion of the interest on the Term Loan may be paid-in-kind ("PIK Interest"). The applicable PIK margin is 7.50% during the Initial Pricing Period and 2.50% thereafter58 Amended Applicable Margin for Revolving Loans | Level | Average Revolver Usage | Base Rate Margin | SOFR Margin | | :--- | :--- | :--- | :--- | | I | < $32,500,000 | 4.75% | 5.75% | | II | $32.5M to < $50M | 5.00% | 6.00% | | III | ≥ $50,000,000 | 5.25% | 6.25% | Amended Applicable Margin for Term Loan | Period / Level | Condition | Base Rate Margin | SOFR Margin | | :--- | :--- | :--- | :--- | | Initial Pricing Period | From Amendment Date until Pricing Reset | 12.00% | 13.00% | | Pricing Grid Period | After Pricing Reset | | | | Level I | Net Leverage Ratio < 1.75:1.0 | 7.50% | 8.50% | | Level II | 1.75:1.0 ≤ Net Leverage Ratio < 2.50:1.0 | 8.00% | 9.00% | | Level III | 2.50:1.0 ≤ Net Leverage Ratio < 3.25:1.0 | 8.50% | 9.50% | | Level IV | Net Leverage Ratio ≥ 3.25:1.0 | 9.00% | 10.00% | Section 2: Loans and Terms of Payment This section outlines the terms of the revolving loans and the term loan, including borrowing procedures, payment schedules, prepayments, and interest rate calculations. The revolving facility has a maximum of $60 million, reduced by a $27.5 million availability block. The term loan has an amended repayment schedule, requiring a significant payment of $4.05 million on July 31, 2025, followed by quarterly payments of $1.0125 million. The agreement introduces new mandatory prepayment triggers, including an "Available Cash Sweep" if cash exceeds $55 million - The revolving loan facility allows for borrowings up to the lesser of the Revolver Commitment or an amount based on the Borrowing Base, but is subject to a new $27,500,000 "Amendment No. 1 Availability Block Amount"292 - The Term Loan repayment schedule was amended. A payment of $4,050,000 is due on July 31, 2025, followed by quarterly principal payments of $1,012,500295 - A new mandatory prepayment is required if Available Cash exceeds $55,000,000. The prepayment amount is the excess over $55,000,000, but capped to ensure the Revolver Usage does not fall below $15,000,000327 - Prepayment of the Term Loan will trigger a permanent pro-rata reduction in the Maximum Revolver Amount and corresponding Revolver Commitments324337 Section 3: Conditions; Term of Agreement This section details the conditions precedent for extending credit and the term of the agreement. The agreement will remain in effect until the Maturity Date, which is the earlier of July 31, 2028, or 90 days prior to the maturity of the Specified Preferred Subordinated Debt. It also references post-closing covenants that must be fulfilled to avoid an Event of Default - The agreement's maturity date is July 31, 2028, unless accelerated by the maturity of the new Specified Preferred Subordinated Debt190388 - All extensions of credit are subject to conditions, including the accuracy of representations and warranties, no existing Default or Event of Default, and not exceeding the availability limits387 - The company must fulfill specific post-closing obligations as detailed in Schedule 3.6, and failure to do so will constitute an Event of Default392 Section 4: Representations and Warranties This section contains standard representations and warranties made by the Borrowers to the Lenders. These cover the company's legal status, authority to enter the agreement, financial condition, compliance with laws (including Patriot Act and OFAC), litigation, and other customary matters. These representations must be true and correct at the time of the agreement and for all subsequent extensions of credit - The Borrowers provide comprehensive representations regarding their due organization, good standing, and authority to execute the loan documents395399 - The company affirms that since July 31, 2023, no event has occurred that has had or could reasonably be expected to have a Material Adverse Effect409 - The Borrowers represent compliance with all applicable laws, including Sanctions, Anti-Corruption Laws, and Anti-Money Laundering Laws, and confirm that loan proceeds will not be used in violation of these regulations426 Section 5: Affirmative Covenants This section details the ongoing obligations of the Borrowers. Key covenants include timely delivery of financial statements and reports, maintaining corporate existence and properties, paying taxes, and maintaining adequate insurance. New covenants require the engagement of a Financial Advisor acceptable to the Agent and participation in weekly conference calls with the Agents and advisors to provide updates on liquidity and operations - Borrowers must deliver financial statements, compliance certificates, and other reports according to the schedules outlined in the agreement434435 - A new covenant requires the engagement of a Financial Advisor acceptable to the Agent within 10 business days of the Agent's request470 - Commencing after the engagement of the Financial Advisor, the company must participate in weekly conference calls with the Agents to provide updates on liquidity and operations471 - During any Board Observation Period, the Agent is entitled to designate a non-voting Board Observer to attend meetings of the Board of Directors462 Section 6: Negative Covenants This section imposes restrictions on the Borrowers' activities to protect the Lenders. It limits the ability to incur additional debt, create liens, undergo fundamental corporate changes (mergers, dissolutions), dispose of assets, make investments, and engage in transactions with affiliates. It also restricts prepayments of other debt and amendments to key documents, including the new subordinated debt and preferred equity documents - The company is restricted from incurring any indebtedness or liens, other than those explicitly defined as "Permitted Indebtedness" and "Permitted Liens"473 - Restricted Payments, such as dividends and share repurchases, are generally prohibited, with specific exceptions for tax-related distributions and other limited circumstances, contingent on meeting liquidity and leverage tests478480 - The limit for Permitted Intercompany Advances from a Loan Party to a Specified Loan Party was increased from $10,000,000 to $15,000,000218 - The company is prohibited from prepaying the new Specified Preferred Subordinated Debt or other subordinated debt, and cannot amend the terms of such debt or the Specified Preferred Equity Documents if it would be materially adverse to the Lenders476 Section 7: Financial Covenants This section establishes the key financial metrics that the Borrowers must maintain, measured on a quarterly basis. The amendment sets specific, evolving targets for the Fixed Charge Coverage Ratio, Net Leverage Ratio, Minimum TTM EBITDA, and Minimum Average Liquidity through the life of the loan Fixed Charge Coverage Ratio Covenant | Period Ending | Minimum Ratio | | :--- | :--- | | Jul 31, 2024 - Jan 31, 2025 | 1.20 : 1.0 | | Apr 30, 2025 - Apr 30, 2026 | 1.25 : 1.0 | | Jul 31, 2026 - Apr 30, 2027 | 1.30 : 1.0 | | From Jul 31, 2027 onwards | 1.35 : 1.0 | Net Leverage Ratio Covenant | Period Ending | Maximum Ratio | | :--- | :--- | | Jul 31, 2024 - Apr 30, 2025 | 3.25 : 1.0 | | Jul 31, 2025 - Oct 31, 2025 | 3.15 : 1.0 | | Jan 31, 2026 - Apr 30, 2026 | 3.00 : 1.0 | | Jul 31, 2026 - Oct 31, 2026 | 2.90 : 1.0 | | Jan 31, 2027 - Apr 30, 2027 | 2.75 : 1.0 | | From Jul 31, 2027 onwards | 2.65 : 1.0 | Minimum TTM EBITDA Covenant | Period Ending | Minimum TTM EBITDA | | :--- | :--- | | Oct 31, 2025 - Jan 31, 2026 | $35,000,000 | | Apr 30, 2026 - Jul 31, 2026 | $37,500,000 | | From Oct 31, 2026 onwards | $40,000,000 | - The company must maintain a Minimum Average Liquidity of at least $20,000,000 for each fiscal quarter497 Section 8: Events of Default This section defines what constitutes an "Event of Default." Triggers include failure to make payments, breaches of affirmative, negative, or financial covenants, material misrepresentations, insolvency proceedings, cross-defaults on other significant indebtedness (including the new subordinated debt), and the occurrence of a Change of Control - Failure to make any principal, interest, or fee payments within specified grace periods constitutes an Event of Default498 - Breach of any covenant in Sections 5, 6, or 7, including the newly established financial covenants, is an Event of Default, with varying cure periods depending on the specific covenant498500 - A cross-default is triggered by a default on the Specified Preferred Subordinated Debt or any other indebtedness exceeding $5,000,000502 - Insolvency proceedings, whether voluntary or involuntary (if not dismissed within 45 days), are immediate Events of Default500 Section 9: Rights and Remedies This section outlines the Lenders' rights upon an Event of Default, which include accelerating all obligations to become immediately due and payable and terminating all commitments. A key provision is the "Curative Equity" right, which allows the Borrowers to cure a breach of certain financial covenants by raising new qualified equity and using the proceeds to prepay the loans. This right is limited to four times in total and not more than twice in any four-quarter period - Upon an Event of Default, the Agent, at the direction of the Required Lenders, can declare all Obligations immediately due and payable and terminate all lending commitments505506 - The agreement includes a "Curative Equity" provision, allowing the company to cure a breach of the Fixed Charge Coverage Ratio or Net Leverage Ratio covenants by issuing new Qualified Equity Interests510 - The Curative Equity right can be used a maximum of four times during the term of the agreement, and no more than twice in any four-consecutive-quarter period514 - The full cash proceeds from any Curative Equity issuance must be used to prepay the Obligations511 Sections 10 - 17: General and Administrative Provisions These sections cover standard legal and administrative aspects of the credit agreement. Section 10 includes waivers and indemnification clauses. Section 11 specifies procedures for notices. Section 12 establishes New York law as the governing law and venue. Section 13 governs the assignment of loans and participations. Section 14 details the process for amendments and waivers, generally requiring consent of the Required Lenders. Section 15 outlines the roles, rights, and responsibilities of the Agent and Revolving Agent. Section 16 addresses withholding taxes. Section 17 contains miscellaneous provisions, including confidentiality, integration, and an acknowledgment of bank resolution powers ("Bail-In") - The agreement is governed by New York law, and legal proceedings are to be held in New York County. All parties waive the right to a jury trial527529530 - Amendments and waivers generally require the consent of the Required Lenders (more than 50% of loan exposure), but more significant changes (e.g., increasing commitments, extending maturity, reducing principal/interest) require the consent of all affected Lenders550552 - The agreement outlines the roles and protections for the Agent and Revolving Agent, who act on behalf of the Lenders but do not have a fiduciary relationship with them560 - The agreement includes provisions for handling withholding taxes (Section 16) and erroneous payments by the Agent (Section 17.18)602644