Debt

9 Months Ended

Apr. 02, 2022

Debt Disclosure [Abstract]

Debt

3. Debt

Pre-Petition Financing Agreements

Through December 31, 2020, we were party to a credit agreement that provided for an asset-based, five-year senior secured revolving credit facility in the original amount of up to $180.0 million which was scheduled to mature on January 29, 2024 (the “Pre-Petition ABL Credit Agreement”). The availability of funds under the Pre-Petition ABL Credit Agreement was limited to the lesser of a calculated borrowing base and the lenders’ aggregate commitments under the Pre-Petition ABL Credit Agreement. Our indebtedness under the Pre-Petition ABL Credit Agreement was secured by a lien on substantially all of our assets.

As of December 31, 2020, we had no amounts outstanding under the Pre-Petition ABL Credit Agreement, and that agreement was terminated in connection with our legal emergence from bankruptcy.

Debtor-In-Possession Financing Agreements

On May 29, 2020, we entered into a Senior Secured Super Priority Debtor-in-Possession Credit Agreement (the “DIP ABL Credit Agreement”) among the Company, JPMorgan Chase Bank, N.A., as administrative agent, for itself and the other lenders, which provided for a super priority secured debtor-in-possession revolving credit facility in an aggregate amount of up to $100.0 million. On July 10, 2020, we entered into a Senior Secured Super Priority Debtor-In-Possession Delayed Draw Term Loan Agreement (the “DIP DDTL Agreement”) with the Franchise Group, Inc., which provided for delayed draw term loans in an amount not to exceed $25.0 million. We made no borrowings under the DIP ABL Credit Agreement or the DIP DDTL Agreement. On December 31, 2020, the DIP ABL Credit Agreement and the DIP DDTL Agreement were terminated in connection with our legal emergence from bankruptcy.

Post-Emergence Financing Arrangements

On December 31, 2020, the Company and its subsidiaries entered into a Credit Agreement (the “Post-Emergence ABL Credit Agreement”) with JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Bank of America, N.A. (collectively, the “Lenders”) that provided for a revolving credit facility in an aggregate amount of $110.0 million (the “Post-Emergence ABL Facility”). The Post-Emergence ABL Credit Agreement included conditions to borrowings, representations and warranties, affirmative and negative covenants, and events of default customary for financings of this type and size. The Post-Emergence ABL Credit Agreement required the Company to maintain a minimum fixed charge coverage ratio if borrowing availability fell below certain minimum levels, after the first anniversary of the agreement. We were not required to be compliant per the lender agreement until after the first anniversary of the agreement.

Under the terms of the Post-Emergence ABL Credit Agreement, amounts available for advances would be subject to a borrowing base as described in the Post-Emergence ABL Credit Agreement. Under the Post-Emergence ABL Credit Agreement, borrowings initially bore interest at a rate equal to the adjusted LIBOR rate plus a spread of 2.75% or the Commercial Bank Floating Bank rate plus a spread of 1.75%.

The Post-Emergence ABL Facility was secured by a first priority lien on all present and after-acquired tangible and intangible assets of the Company and its subsidiaries other than certain collateral that secures the Term Loan (as defined below). The commitments of the Lenders under the Post-Emergence ABL Facility were due to terminate and outstanding borrowings under the Post-Emergence ABL Facility was due to mature on December 31, 2023.

As of April 2, 2022, we had $54.1 million of borrowings outstanding under the Post-Emergence ABL Facility and, $14.6 million of letters of credit outstanding. We had borrowing availability of $26.6 million under the Post-Emergence ABL Facility, as of April 2, 2022.

As further described in Note 13 below, on May 9, 2022, we entered into the New ABL Credit Agreement (as defined in Note 13) and used a portion of the proceeds from borrowings under the New Facilities (as defined in Note 13) to repay all outstanding indebtedness under the Post-Emergence ABL Facility, along with accrued interest, expenses and fees. See Note 13 below for additional information regarding the New ABL Credit Agreement.

On December 31, 2020, the Company, Alter Domus (US), LLC, as administrative agent, and the lenders named therein including Tensile Capital Partners Master Fund LP ("Tensile") and affiliates of Osmium Partners, LLC, ("Osmium") entered into a Credit Agreement (as amended from time to time, the “Term Loan Credit Agreement”) to provide a term loan of $25.0 million to the Company (the “Term Loan”).

In accordance with the Plan of Reorganization, on December 31, 2020, three new directors were selected for membership on the Board of Directors by Osmium Partners (Larkspur SPV), LP, ("Larkspur SPV") an affiliate of Tensile and Osmium. Pursuant to the Term Loan Credit Agreement, Tensile and affiliates of Osmium held $19.0 million and $1.0 million, respectively, of the $25.0 million outstanding Term Loan. Representatives of Osmium and Tensile both hold seats on the board and therefore Osmium and Tensile are related parties to the Company.

Pursuant to the terms of the Term Loan Credit Agreement, the Term Loan has a maturity date of December 31, 2024 and bears interest at a rate of 14% per annum, with interest payable in-kind (“PIK”). Under the terms of the Term Loan Credit Agreement, the Term Loan is secured by a second lien on the collateral securing the New Facilities (as defined in Note 13) and a first lien on certain other assets of the Company as described in the Term Loan Credit Agreement. The Term Loan is subject to optional prepayment after the first anniversary of the date of issuance at a prepayment price equal to (1) the outstanding principal amount of the Term Loan, plus (2) accrued and unpaid interest to the date of prepayment, plus (3) the prepayment premium, if any. The prepayment premium (which may not be less than zero) is equal to (1) 125% of the original principal amount of the Term Loan, minus (2) the aggregate principal amount of the loans advanced as of the prepayment date, plus all accrued interest thereon accrued as of such date. The Term Loan is subject to

mandatory prepayment in connection with a change of control of the Company as described in the Term Loan Credit Agreement. The Term Loan Credit Agreement also includes customary covenants and events of default.

The following table provides details on our Term Loan (in thousands):

Term Loan
	April 2, 2022			June 30, 2021
Loan balance	$	25,000		$	25,000
Debt issuance costs		(269	)		(432	)
Accrued paid-in-kind interest		4,800			1,806
Loan balance, ending	$	29,531		$	26,374

As further described in Note 13 below, the Term Loan Credit Agreement was amended on May 9, 2022 and $5.0 million borrowed under the New Facilities was used to repurchase a portion of principal amount of the Term Loan for an aggregate purchase price of $5.0 million.

As of April 2, 2022, we are in compliance with covenants in the Post-Emergence ABL Facility and Term Loan.

Interest Expense

Interest expense for the three months ended April 2, 2022 was $2.0 million, and was comprised of $1.0 million in interest on the Post-Emergence ABL Facility and PIK interest on the Term Loan, $0.4 million amortization of financing fees, and $0.6 million commitment fees. Interest expense for the three months ended March 31, 2021 was $1.4 million from the DIP ABL Credit Agreement and the DIP Term Facility, and was comprised of $1.2 million amortization of financing fees and $0.2 million of commitment fees.

Interest expense for the nine months ended April 2, 2022 was $5.5 million and was comprised of $3.0 million in interest on the Post-Emergence ABL Facility and PIK interest on the Term Loan, $1.0 million amortization of financing fees, and $1.5 million commitment fees. Interest expense for the nine months ended March 31, 2021 was $6.7 million from the Post-Emergence ABL Facility, DIP ABL Credit Agreement, and the Term loan, and was comprised of $5.2 million amortization of financing fees, $0.6 million of commitment fees, and accrued PIK interest on the Term Loan of $0.9 million.

Fair Value Measurements

The fair value of our Term Loan was determined based on observable market data provided by a third party for similar types of debt which are considered Level 2 inputs within the fair value hierarchy. The carrying value of our Term Loan as of April 2, 2022 and June 30, 2021 was $29.5 million and $26.4 million, respectively. The fair value of our Term Loan as of April 2, 2022 and June 30, 2021 was $30.0 million and $29.6 million, respectively.