LONG-TERM DEBT AND FINANCING LEASE OBLIGATIONS

12 Months Ended

Dec. 29, 2019

Long-term Debt and Financing Lease Obligations

Long-term Debt and Financing Lease Obligations

(7)         LONG-TERM DEBT AND FINANCING LEASE OBLIGATIONS

Long-term debt

On June 20, 2019 (the “Effective Date”), we entered into a Loan Agreement among our company and Choice Financial Group (“Choice”). The Loan Agreement provides for a term loan from Choice to our company set forth therein in the principal amount of up to $24.0 million and is evidenced by a promissory note (the “First Note”) executed and delivered by our company to Choice on the Effective Date. The First Note has a maturity date of June 20, 2025. The first year of the First Note (the “Draw Period”) provides for payments of interest only, with the remaining five years requiring payments of interest and principal based on a 60 month amortization period. Interest shall be payable in an amount equal to the Wall Street Journal Prime Rate, but in no circumstances shall the rate of interest be less than 5.00%. The First Note may be prepaid, partially or in full, at any time and for no prepayment penalty.

Proceeds from the loan were used to repay our previous real estate loan, dated December 2, 2016, which had an outstanding balance as of the Effective Date of approximately $2.6 million. The remainder of the First Note may be drawn upon during the Draw Period, provided that there are no uncured events of default.

The Loan Agreement is secured by a mortgage and security agreement and fixture financing statement (the “First Mortgage”) granting to Choice a security interest in and title to certain real property in the state of Minnesota and as more fully described therein.

The Loan Agreement contains customary representations and warranties and financial and other covenants and conditions, including, among other things, minimum debt service coverage ratio and post-closing covenant to maintain a complete deposit and cash management relationship with Choice. The Loan Agreement also places certain restrictions on, among other things, our ability to incur additional indebtedness, to create liens or other encumbrances, to use funds for purposes other than as stated therein, to sell or otherwise dispose of assets without the consent of Choice.

In addition, the Loan Agreement contains events of default (subject to certain materiality thresholds and grace periods), including, without limitation, payment defaults; breaches of covenants; breaches of representations and warranties; failure to perform remediation of any environmental matters on the mortgaged property, as set forth in the First Mortgage; failure to perform or observe the covenants, conditions or terms of the First Loan Agreement and related agreements; certain bankruptcy events of our company and failure to timely provide financial statements.

Also on the Effective Date, we also entered into a Revolving Promissory Note among our company and Choice. The Revolving Promissory Note provided for a revolving line of credit from Choice to our company set forth therein in the principal amount of up to $1.0 million (the “Second Note”) executed and delivered by our company to Choice on the Effective Date. The Second Note had a maturity date of December 2, 2019. The Second Note provided for monthly payments of interest only, with a balloon payment of the remaining outstanding balance and applicable interest due on the maturity date. Interest was to be payable in an amount equal to the 30-day London Interbank Offer Rate (“LIBOR”) plus 325 basis points, but in no circumstances was the rate of interest be less than 3.75%. Second Note has matured and no balance is due.

As of December 29, 2019 and December 30, 2018, the weighted average interest rate on our long-term debt was 5.0% and 4.41%, respectively. The notes pursuant to the Loan Agreements are secured by substantially all of our assets and we are subject to various financial and non-financial covenants, including debt-service coverage ratio. As of December 29, 2019, we were in compliance with all of our covenants. In the event of a default, Choice has the right to terminate its obligations under the Loan Agreements and to accelerate the payment on any unpaid principal amounts then outstanding.

Long-term debt consisted of approximately the following as of the periods presented:

(in thousands)	December 29, 2019		December 30, 2018
Term Loan	$	6,924	$	—
Real Estate Loan		—		2,705
Less: deferred financing costs		(50)		(131)
Less: current portion of long-term debt		(616)		(163)
Long-term debt, less current portion	$	6,258	$	2,411

Future minimum principal payments on long-term debt, as of December 29, 2019, were as follows:

(in thousands)
Fiscal Year
2020	$	616
2021		1,280
2022		1,347

2023		1,417
2024		1,490
Thereafter		774
Total	$	6,924

Financing Lease Obligation

Pursuant to an amended sale leaseback transaction, our company had an option to repurchase two properties at the end of the lease term. Because of our continuing involvement in the properties, the transaction was accounting for as a financing arrangement. As of December 30, 2018, the weighted-average interest rate of such obligation was approximately 8.09%.  The Company repaid its financing lease obligation during the fiscal year ended December 29, 2019.