UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
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| Item 1.01 | Entry into a Material Definitive Agreement |
On November 9, 2020 (the “Closing Date”), World of Jeans & Tops, a California corporation (“WOJT”) and wholly-owned subsidiary of Tilly’s, Inc., a Delaware corporation (the “Company”), as borrower, and the Company, as guarantor, entered into a credit agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as lender, administrative agent and collateral agent (the “Agent”). The Credit Agreement replaced WOJT’s existing amended and restated credit agreement (the “Prior Credit Agreement”), dated as of May 3, 2012, as amended, with the Agent, under which WOJT had revolving commitments of $25.0 million and a sublimit on letters of credit of $15.0 million. The Prior Credit Agreement was terminated concurrently with the entry into the Credit Agreement. No borrowings were outstanding under the Prior Credit Agreement as of the Closing Date. Capitalized terms used without definition are defined in the Credit Agreement.
General Terms
The Credit Agreement provides for an asset-based, senior secured revolving credit facility (“Revolving Facility”) of up to $65.0 million (“Revolving Commitment”) consisting of revolving loans, letters of credit and swing line loans provided by Lenders, with a sublimit on letters of credit outstanding at any time of $10.0 million and a sublimit for swing line loans of $7.5 million. The Credit Agreement also includes an uncommitted accordion feature whereby WOJT may increase the Revolving Commitment by an aggregate amount not to exceed $12.5 million, subject to certain conditions. The Revolving Facility matures on November 9, 2023. The payment and performance in full of the secured obligations under the Revolving Facility are secured by a lien on and security interest in all of the assets of the Company and WOJT.
The maximum borrowings permitted under the Revolving Facility is equal to the lesser of (x) the Revolving Commitment and (y) the Borrowing Base. The Borrowing Base is equal to (a) 90% of the Borrowers’ eligible credit card receivables, plus (b) 90% of the Cost of the Borrowers’ eligible inventory, less inventory reserves established by the Agent, and adjusted by the appraised value of such eligible inventory, plus (c) 90% of the Cost of the Borrowers’ eligible in-transit inventory, less inventory reserves established by the Agent, and adjusted by the appraised value of such eligible in-transit inventory (not to exceed 10% of the total amount of all Eligible Inventory included in the Borrowing Base) less (d) reserves established by the Agent. As of the Closing Date, WOJT was eligible to borrow up to a total of $40.1 million under the Revolving Facility. As of the Closing Date, WOJT had no outstanding borrowings under the Credit Agreement and the only utilization of the letters of credit sublimit under the Credit Agreement was a $2.025 million irrevocable standby letter of credit, which was previously issued under the Prior Credit Agreement and was transferred on the Closing Date to the Credit Agreement.
Interest Rates and Fees
The unused portion of the Revolving Commitment accrues a commitment fee, which ranges from 0.375% to 0.50% per annum, based on the average daily borrowing capacity under the Revolving Facility over the applicable fiscal quarter. Borrowings under the Revolving Facility bear interest at a rate per annum that ranges from the LIBOR Rate plus 2.0% to the LIBOR Rate plus 2.25%, or the Base Rate plus 1.0% to the Base Rate plus 1.25%, based on the average daily borrowing capacity under the Revolving Facility over the applicable fiscal quarter. WOJT may elect to apply either the LIBOR Rate or Base Rate interest to borrowings at its discretion, other than in the case of swing line loans, to which the Base Rate shall apply.
Covenants
Under the Credit Agreement, WOJT and the Company are subject to a variety of affirmative and negative covenants of types customary in an asset-based lending facility, including a financial covenant relating to availability, and provides for customary events of default. Prior to the first anniversary of the Closing Date, WOJT and the Company are prohibited from declaring or paying any cash dividends to their respective stockholders or repurchasing
their own common stock. After the first anniversary of the Closing Date, WOJT and the Company are allowed to declare and pay cash dividends to their respective stockholders and repurchase their own common stock, provided, among other things, no default or event of default exists as of the date of any such payment and after giving effect thereto and certain minimum availability and minimum projected availability tests are satisfied.
Events of Default
Events of default under the Credit Agreement include, among other things, failure to pay principal, interest, fees or other amounts; covenant defaults; material inaccuracy of representations and warranties; bankruptcy events with respect to WOJT or the Company; actual or asserted invalidity of any of the Loan Documents; or a change of control of WOJT or the Company.
Ancillary Agreements
In connection with the entry into the Credit Agreement, on November 9, 2020, WOJT and the Company entered into certain ancillary agreements, including (i) a security agreement in favor of the Agent (the “Security Agreement”), and (ii) a guaranty by the Company in favor of the Agent (the “Guaranty”). The Security Agreement and the Guaranty replaced (i) the general pledge agreement, dated as of May 3, 2012, by the Company in favor of Wells Fargo Bank, National Association (the “Prior Pledge Agreement”), (ii) the continuing guaranty by the Company in favor of the agent, dated May 3, 2012, (the “Prior Guaranty”) and (iii) the amended and restated security agreement with respect to equipment and the amended and restated security agreement with respect to rights to payment and inventory, in each case, dated as of May 3, 2012, by WOJT in favor of Wells Fargo Bank, National Association (the “Prior Security Agreements”), which were all terminated concurrently with the termination of the Prior Credit Agreement. In addition, on November 8, 2020, WOJT, the Company and the Agent entered into a limited waiver letter, pursuant to which the Agent waived compliance with certain covenants under the Prior Credit Agreement for the fiscal quarter ending on or about October 31, 2020 and the month of October 2020.
The foregoing descriptions of the Credit Agreement, the Security Agreement and the Guaranty do not purport to be complete and are subject to, and qualified in their entirety by reference to the Credit Agreement, the Security Agreement and the Guaranty, respectively, copies of which are filed herewith as Exhibits 10.1, 10.2 and 10.3, respectively, and incorporated herein by reference.
| Item 1.02 | Termination of a Material Definitive Agreement |
The information included in 1.01 of this Current Report on Form 8-K regarding the termination of the Prior Credit Agreement, the Prior Pledge Agreement, the Prior Guaranty and the Prior Security Agreements is incorporated by reference into this Item 1.02.
| Item 2.03 | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant |
The information included in Item 1.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.03.
| Item 7.01 | Results of Operations and Financial Condition |
On November 9, 2020, the Company issued a press release announcing the entry into the Credit Agreement. A copy of this press release is furnished herewith as Exhibit 99.1. Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act or the Exchange Act, regardless of any general incorporation language in such filings.
| Item 9.01 | Financial Statements and Exhibits |
(d) Exhibits.
| 10.1 | Credit Agreement, dated November 9, 2020, by and among World of Jeans & Tops, Tilly’s, Inc. and Wells Fargo Bank, National Association. | |
| 10.2 | Security Agreement, dated November 9, 2020, by and among World of Jeans & Tops, Tilly’s, Inc. and Wells Fargo Bank, National Association. | |
| 10.3 | Guaranty, dated November 9, 2020, of Tilly’s, Inc. | |
| 99.1 | Press Release of Tilly’s, Inc., dated November 9, 2020. | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| TILLY’S, INC. | ||||||
| Date: November 16, 2020 | By: | /s/ Michael L. Henry | ||||
| Name: | Michael L. Henry | |||||
| Title: | Executive Vice President, Chief Financial Officer | |||||