The Company borrows money under an Amended and Restated Revolving Credit and Security Agreement with PNC Bank, National Association (“PNC”), which governs the Company’s Revolving Credit Facility (“PNC Facility”). The PNC Facility matures on November 8, 2023. Borrowing made under the PNC Facility bear interest at the U.S. base rate plus an applicable margin ranging from 0.75% to 1.25%, or LIBOR plus an applicable margin ranging from 2.50% to 3.00%. The base commercial lending rate should approximate U.S. prime rate.

The Company also borrows money under a Financing Agreement (the “Financing Agreement”). The lenders party to the Financing Agreement from time to time (collectively, the “Lenders”), and TCW Asset Management Company LLC, as administrative and collateral agent for the Lenders (“TCW”), govern a term loan A facility (“Term A Loan Facility”) and previously governed a term loan B facility (the “Term Loan B Facility”) until it was paid in full on July 3, 2019. The Term A Loan Facility matures on November 8, 2023 (the “Maturity Date”). The Term Loan A Facility bore interest LIBOR plus an applicable margin of 8.75% through June 30, 2020, and borrowings under the Financing Agreement thereafter bear interest at LIBOR plus an applicable margin ranging from 7.25% to 8.75%. Payments made under the Term Loan A Facility at any time prior to the Maturity Date (other than scheduled amortization payments and mandatory prepayments) are subject to an applicable premium equal to the amount of such payment multiplied by (i) 3.00% in the event that such payment occurs before November 8, 2019, (ii) 2.00% in the event that such payment occurred after November 8, 2019 and on or before November 8, 2020 and (iii) 1.00% in the event that such payment occurred after November 8, 2020 and on or before November 8, 2021. No such applicable premium is payable for any payment of loans made under the Term Loan A Facility occurring after November 8, 2021.

The table below outlines the Term A Loan Facility scheduled amortization payments and the balance which would be due at maturation on November 8, 2023:

On March 29, 2019, the Company entered into Amendment No. 1 to the PNC Facility and the Financing Agreement. The Amendments, among other things, amends the required senior leverage ratio initially set forth in the PNC Facility and the Financing Agreement by increasing the senior debt leverage ratio from 3.50x to 3.75x.

On July 3, 2019, the Company, entered into Amendment No. 2 to Financing Agreement. The Amendment, among other things, provides that the net cash proceeds received by the loan parties from the Company’s (i) offering of subscription rights to the Company’s stockholders and holders of the Company’s outstanding warrants that closed in June 2019, and (ii) registered direct offering of shares of the Company’s common stock directly to certain investors that closed in June 2019 shall be applied (a) first, to the Company’s term loan B facility (and the accrued and unpaid interest thereon) until paid in full in the aggregate amount of $12,022, and (b) second, to the borrowers under the Agreement in the remaining amount thereof for working capital and general corporate purposes.

On August 8, 2019, the Company and certain of its subsidiaries entered into that certain Amendments No. 2 to the Amended and Restated Revolving Credit and Security Agreement (the “PNC Amendment No. 2”) and that certain Amendment No. 3. to the Financing Agreement (the “TCW Amendment No. 3”). The PNC Amendment No. 2, among other things, (i) increased the total amount available for borrowings under the PNC Facility to $65,000, (ii) provided for borrowings of up to $15,000 on assets located in Mexico, (iii) provided that borrowings under the PNC Facility bear interest at the U.S. base rate plus an applicable margin ranging from 0.75% to 1.25%, or LIBOR plus an applicable margin ranging from 2.50% to 3.00%, (iv) reset the financial covenants, and (v) permitted the pay down of the Term A Loan Facility by up to $10,000. The TCW Amendment No. 3, among other things, (i) provided for a $20,000 increase in the total amount available for borrowings under the PNC Facility, (ii) provided for the pay down of the Term A Loan Facility by up to $10,000, (iii) provided that the interest rate for borrowings under the Financing Agreement was reset to LIBOR plus an applicable margin of 8.75% through June 30, 2020, and borrowings under the Financing Agreement will thereafter bear interest at LIBOR plus an applicable margin ranging from 7.25% to 8.75%, (iv) deleted the senior leverage ratio covenant, (v) amended the total leverage ratio covenant, including the definition of total leverage ratio, to increase the maximum total leverage on a quarterly basis beginning with the fiscal quarter ended September 30, 2019, (vi) amended the fixed charge coverage ratio covenant to decrease the minimum fixed charge coverage ratio on a quarterly basis beginning with the fiscal quarter ending September 30, 2020 through the fiscal quarter ending December 31, 2021 and (vii) reset the call protection on the Term Loan A Facility.

On September 27, 2019, the Company and certain of its subsidiaries entered into that certain Amendments No. 3 to the Amended and Restated Revolving Credit and Security Agreement (the “PNC Amendment No. 3”) and that certain Amendment No. 4. to the Financing Agreement (the “TCW Amendment No. 4”). The PNC Amendment No. 3, among other things, amended the (i) definition of “Consolidated EBITDA” by permitting an addback for restructuring and transition costs and charges incurred on or before December 31, 2020 in connection with the Company’s previously announced closure of business operations in Dongguan, China, subject to certain exceptions, not to exceed (a) with respect to cash restructuring costs, $2,300, (b) with respect to write-offs of accounts receivable, $1,623, and (c) with respect to write-offs of Inventory (as defined in the Amended and Restated Revolving Credit and Security Agreement), $1,607, (ii) definition of “Permitted Intercompany Investments” by permitting certain investments by a Domestic Loan Party (as defined in the Amended and Restated Revolving Credit and Security Agreement) to or in SMTC Electronics Dongguan Company Limited, a limited liability company organized under the laws of China (“SMTC Dongguan”), solely to facilitate the closure of business operations in Dongguan, China, so long as, among other things, (a) such Investments (as defined in the PNC Agreement) are made prior to March 31, 2020, (b) the aggregate amount of all such Investments does not exceed $2,300 during the term of the Amended and Restated Revolving Credit and Security Agreement, (c) the Borrowers (as defined in the Amended and Restated Revolving Credit and Security Agreement) maintain certain minimum liquidity requirements and (iii) negative covenant regarding excess cash. The TCW Amendment No. 4, among other things, amended the (i) definition of “Consolidated EBITDA” by permitting an addback for restructuring and transition costs and charges incurred on or before December 31, 2020 in connection with the closure of business operations in Dongguan, China, subject to certain exceptions, not to exceed (a) with respect to cash restructuring costs, $2,300, (b) with respect to

write-offs of accounts receivable, $1,623, and (c) with respect to write-offs of Inventory (as defined in the Financing Agreement), $1,607, (ii) definition of “Permitted Intercompany Investments” by permitting certain investments by a Domestic Loan Party (as defined in the Financing Agreement) to or in SMTC Dongguan solely to facilitate the closure of business operations in Dongguan, China, so long as, among other things, (a) such Investments (as defined in the Financing Agreement) are made prior to March 31, 2020, (b) the aggregate amount of all such Investments does not exceed $2,300 during the term of the Financing Agreement and (c) the Borrowers (as defined in the Financing Agreement) maintain certain minimum liquidity requirements and (iii) negative covenant regarding excess cash.

On June 26, 2020, the Company, entered into the Fourth Amendment to the Amended and Restated Revolving Credit and Security Agreement (“PNC Amendment No. 4”) and the Fifth Amendment to the Financing Agreement (“TCW Amendment No. 5”).  PNC Amendment No. 4, among other things, amended the definition of “Consolidated EBITDA” by permitting an addback for (i) non-recurring labor costs, temporary employee bonuses to reduce absenteeism, personal protective equipment costs, facility sanitation costs, and excess freight and logistics costs, (a) $200,000 for the fiscal quarter ended March 31, 2020, and (b) $1.0 million for the fiscal quarter ended June 30, 2020, and (ii) restructuring and severance charges, accruals and reserves in connection with permanent headcount reductions, in an aggregate amount not to exceed (a) $844,000 with respect to employees at the Zacatecas, Mexico facility and (b) $156,000 with respect to corporate selling, general and administrative employees, in each case, for the period from June 1, 2020, to and including July 31, 2020.  PNC Amendment No. 4 also amended the definition of “Permitted Purchase Money Indebtedness” to (i) allow for Indebtedness (as defined in the amended and restated revolving credit and security agreement) pursuant to financing provided by Mazuma Capital Corp for any fixed or tangible assets acquired prior to the June 26, 2020, and (ii) increase the aggregate principal amount of all Indebtedness (as defined in the amended and restated revolving credit and security agreement) permitted under the amended and restated revolving credit and security agreement to $3.75 million. In connection with PNC Amendment No. 4, the Company paid PNC an amendment fee of $50,000. TCW Amendment No. 5, among other things, amended the definition of “Consolidated EBITDA” by permitting an addback for (i) non-recurring labor costs, temporary employee bonuses to reduce absenteeism, personal protective equipment costs, facility sanitation costs, and excess freight and logistics costs, not to exceed (a) $200,000 for the fiscal quarter ended March 31, 2020, and (b) $1.0 million for the fiscal quarter ended June 30, 2020, and (ii) restructuring and severance charges, accruals and reserves in connection with permanent headcount reductions, in an aggregate amount not to exceed (a) $844,000 with respect to employees at the Zacatecas, Mexico facility and (b) $156,000 with respect to corporate selling, general and administrative employees, in each case, for the period from June 1, 2020, to and including July 31, 2020.  TCW Amendment No. 5 also amended the definition of “Permitted Purchase Money Indebtedness” to (i) allow for Indebtedness (as defined in the financing agreement) pursuant to financing provided by Mazuma Capital Corp for any fixed or tangible assets acquired prior to June 26, 2020, and (ii) increase the aggregate principal amount of all Indebtedness (as defined in the financing agreement) permitted under the financing agreement to $3.75 million. In connection with the TCW Amendment, the Company paid TCW an amendment fee of $75,000.

On September 25, 2020, the Company, entered into the Fifth Amendment to the Amended and Restated Revolving Credit and Security Agreement (“PNC Amendment No. 5”) and the Sixth Amendment to the Financing Agreement (“TCW Amendment No. 6”).  PNC Amendment No. 5, among other things, (i) amended the definition of “Consolidated EBITDA” by permitting an addback for non-recurring labor costs, temporary employee bonuses to reduce absenteeism, personal protective equipment costs, facility sanitation costs, and excess freight and logistics costs, not to exceed an additional $1.5 million for the fiscal quarter ended September 27, 2020, and (ii) provides for borrowings of up to $2,000 on certain consigned assets. TCW Amendment No. 6, among other things, amended the definition of “Consolidated EBITDA” by permitting an addback for non-recurring labor costs, temporary employee bonuses to reduce absenteeism, personal protective equipment costs, facility sanitation costs, and excess freight and logistics costs, not to exceed an additional $1.5 million for the fiscal quarter ended September 27, 2020.

On December 28, 2020, the Company, entered into the Sixth Amendment to the Amended and Restated Revolving Credit and Security Agreement (“PNC Amendment No. 6”), and the seventh Amendment to the Financing Agreement (the “TCW Amendment No. 7”).  PNC Amendment No. 6, among other things: (i) amended the definition of “Consolidated EBITDA” by permitting addbacks with respect to the Company’s Zacatecas, Mexico facility for (A) restructuring and severance charges, accruals and reserves in connection with permanent headcount reductions in an amount not to exceed an additional $1.0 million for the period from June 1, 2020 through and including July 31, 2020, (B) cash severance and other facility closure and relocation costs in an amount not to exceed an additional $4.0 million from December 28, 2020 and ending on June 30, 2021, and (C) write-offs of accounts receivable, inventory and fixed assets in an amount not to exceed an additional $1.5 million from December 28, 2020 and ending on June 30, 2021; and (ii) revises the required liquidity covenants from the period beginning on December 28, 2020 and ending on the later to occur of June 30, 2021 or the permanent closure of the Company’s Zacatecas, Mexico facility. TCW Amendment No. 7, among other things: (i) amends the definition of “Consolidated EBITDA” by permitting addbacks with respect to the Company’s Zacatecas, Mexico facility for (A) restructuring and severance charges, accruals and reserves in connection with permanent headcount reductions in an amount not to exceed an additional $1.0 million for the period from June 1, 2020 through and including July 31, 2020, (B) cash severance and other facility closure and relocation costs in an amount not to exceed an additional $4.0 million from December 28, 2020 and ending on June 30, 2021, and (C) write-offs of accounts receivable, inventory and fixed assets in an amount not to exceed an additional $1.5 million from

December 28, 2020 and ending on June 30, 2021, (ii) prohibits the Liquidity (as defined in TCW Amendment No. 7) of the Company and its subsidiaries from being less than $7.5 million during the period beginning on December 28, 2020 and ending on the later to occur of June 30, 2021 or the permanent closure of the Company’s Zacatecas, Mexico facility, (iii) amends the total debt leverage ratios (iv) permits add back of certain expenditures related to COVID-19 pandemic; and (v) provides for the issuance to each other loan party that is a party to the financing agreement and each financial institution that is a party to the financing agreement (collectively, the “TCW Lenders”) or their designees of the Warrants as defined below.

The Credit Facilities are joint and several obligations of the Company and its subsidiaries that are borrowers under the facilities and are jointly and severally guaranteed by other subsidiaries of the Company. Repayments under the Credit Facilities are collateralized by the assets of the Company and each of its subsidiaries. The Credit Facilities contain certain financial and non-financial covenants, including restrictions on dividend payments. The financial covenants under each Credit Facility require the Company to maintain a fixed charge coverage ratio and a total leverage ratio quarterly during the term of the Credit Facilities.

At January 3, 2021, $34,694 (December 29, 2019 - $34,701) was outstanding under the PNC Facility and is classified as a current liability based on the requirement to hold a “lock-box” under the terms of the PNC Facility. As at January 3, 2021, the funds available to borrow under the PNC Facility after deducting the current borrowing base conditions was $28,447 (December 29, 2019 - $21,644). The maximum amount of funds that could be available under the PNC Revolving Credit Facility is $65,000. However, availability under the PNC Revolving Credit Facility is subject to certain conditions, including borrowing base conditions based on eligible inventory and accounts receivable, and certain conditions as determined by PNC. The Company is required to use a “lock-box” arrangement for the PNC Facility, whereby remittances from customers are swept daily to reduce the borrowings under this facility.

At January 3, 2021, $37,188 (December 29, 2019 - $38,750) was outstanding under the TCW Term Loan A Facility. The Term Loan A Facility is reported on the consolidated balance sheet net of deferred financing fees of $2,016 (December 29, 2019 - $2,286) and a discount on debt of $1,742 (December 29, 2019 - $1,464) related to the outstanding warrants described below. On August 8, 2019, the Company repaid an additional $10,000 on the TCW Term Loan A Facility. In addition, the Company made scheduled amortization payments of $1,562 on the Term Loan A Facility during 2020.

The PNC Facility and Term A Loan Facility (together the “Credit Facilities”) are joint and several obligations of the Company and its subsidiaries that are borrowers under the Credit Facilities and are jointly and severally guaranteed by certain other subsidiaries of the Company. Repayments under the PNC Facility and the Term A Loan Facility are collateralized by the assets of the Company and each of its subsidiaries. 

The Credit Facilities contain certain financial and non-financial covenants, including restrictions on dividend payments. The financial covenants under each Credit Facility require the Company to maintain a fixed charge coverage ratio and a total leverage ratio quarterly during the term of the Credit Facilities.

The Company was in compliance with the covenants included in the Credit Facilities as at January 3, 2021.  Management projects continued compliance with the financial covenants included in the Credit Facilities throughout 2021. There are key assumptions included in these cash flow projections to support covenant calculations specifically related to forecasted earnings before interest, income taxes and depreciation, as well as anticipated debt levels.  If we do not meet our forecast results this could result in the breach of a covenant.  The Company safeguards against this through taking measures to reduce its inventory, revolving credit facility and term debt balances accordingly in order to comply with lenders covenants.

Unless our underlying customers demand changes as a result of the coronavirus outbreak, we expect to see minimal impact on our business. Beyond that as a result of the measures being taken that are designed to contain the spread of the virus, our suppliers may not have the materials, capacity or capability to supply our components according to our schedule and specifications if the outbreak continues which could delay our release or delivery of our customers products or require us or our customers to make unexpected changes to such products which may materially affect our business and operating results and future compliance with our financial covenants for 2021.  

The Company continues to monitor operations and results closely and manage debt levels relative to our operational results to ensure compliance with its lenders covenants.

On November 8, 2018, 504,735 warrants were issued to TCW in connection with the Financing Agreement and remained outstanding as at January 3, 2021. As a result of the anti-dilution provision contained in the warrants that were triggered in connection with the Offerings (as defined below) in June 2019, the warrants were exercisable to purchase an additional 7,214 shares of common stock (or a total of 511,949) at December 29, 2019. In connection with and as part of the consideration paid by the Company for the TCW Amendment No. 7, on December 28, 2020, the Company issued 140,000 additional warrants to TCW(for a total of 651,949).  The warrants are exercisable beginning on the date of original issuance at a nominal exercise price of $0.01 per share, subject to adjustment as provided therein, and expire 84 months after the date of issuance.

The Company initially recorded the value of the warrants issued in 2018 as a warrant liability with a corresponding discount on the long-term debt in the amount of $1,898. The fair value has been assessed at $4.96 per unit or $3,233 as at January 3, 2021 ($3.38 per unit or $1,730 – December 29, 2019). The Company recorded the issuance of the 140,000 during the fourth quarter of 2020 based on a fair value of $4.65 per unit as warrant liability with the corresponding discount on the long-term debt in the amount of $651.  The fair value of the warrant obligation is presented as a warrant liability on the consolidated balance sheet with changes to the fair value recorded each reporting period as either a gain or a loss in the consolidated statement of operations and comprehensive loss. 

The Company leases certain facility leases in various jurisdictions, including office space, leasehold improvements, manufacturing and warehouse space. The Company also leases certain production equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Operating lease expense is recognized on a straight-line basis over the lease term. Total short-term lease costs for the three and nine months ended January 3, 2021 was not significant.

Most leases contain renewal options, which are exercisable at the Company’s sole discretion. The extension terms are typically one to five years. Some leases may include options to purchase the leased property. The depreciable life is limited to the lease term unless title transfers or it is reasonably certain that a purchase option will be exercised. Operating lease liabilities recognized do not include $4,518 related to options to extend lease terms that were not reasonably certain of being exercised as at January 3, 2021. Finance lease liabilities do not include $6,456 related to options to extend lease terms that were not reasonably certain of being exercised as at January 3, 2021.

We rent and sublease one facility lease that is not occupied by SMTC.