13. Debt

Citizen’s Bank

The Company entered into a three-year, $5.0 million revolving line of credit facility (RLOC) with Citizen’s Bank (the “Bank”) on December 29, 2016, to fund general working capital needs, including acquisitions. The Company is not required to maintain a restricted cash collateral account at the Bank for outstanding letters of credit and working capital advances. The credit facility agreement is subject to standard financial covenants and reporting requirements.

On May 11, 2018, the Company entered into an Amended and Restated Credit and Security Agreement (the Credit Agreement) with the Bank, amending and restating the Company’s existing Credit and Security Agreement with the Bank, which included a $5.0 million asset-based revolving credit facility between the Company and the Bank, to now include (a) a $5.0 million revolving credit facility not subject to a borrowing base, including a letter of credit sub-facility, and (b) a $25.0 million delayed-draw term loan facility available to be drawn upon for up to 18 months and to finance certain permitted acquisitions by the Company. The credit facilities mature in five years and bear interest at LIBOR plus a margin that varies depending on the overall leverage ratio of the Company and its subsidiaries. Revolving loans are interest-only with principal due at maturity, while term loans require monthly payments of principal and interest based on an amortization schedule.

The Company’s obligations under the Credit Agreement are guaranteed by GSE’s wholly-owned subsidiaries Hyperspring, Absolute, and True North and by any future material domestic subsidiaries (collectively, the Guarantors). Attendant to the Company’s acquisition of DP Engineering, the Company and the Bank entered into a Third Amendment and Reaffirmation Agreement and a Fourth Amendment and Reaffirmation Agreement on February 15, 2019 and March 20, 2019, respectively. On June 28, 2019, the Company and the Bank entered into a Fifth Amendment and Reaffirmation Agreement, which changed the fixed charge coverage ratio from 1.25, to four different ratios ranging from 1.05 to 1.25 among different time periods and changed the leverage ratio to: (i) 2.75 to 1.00 for the periods ending on June 30, 2019, September 30, 2019, December 31, 2019 and March 31, 2020; (ii) 2.50 to 1.00 for the periods ending June 30, 2020 and September 30, 2020; (iii) 2.25 to 1.00 for the periods ending December 31st, March 31st, June 30th and September 30th thereafter.

On January 8, 2020, the Company entered into a Sixth Amendment and Reaffirmation Agreement. The amendments contained therein relaxed the fixed charge coverage ratio and leverage ratio, as well as delayed testing of both financial covenants, but added a covenant requiring that the Company maintain a consolidated, Adjusted EBITDA target of $4.25 million to be tested as of December 31, 2019, March 31, 2020, and June 30, 2020. Further, the Company agreed to maintain a minimum USA Liquidity of at least $5.0 million in the aggregate, to be tested bi-weekly as of the fifteenth (15th) and the last day of each month beginning on December 31, 2019 and thereafter until June 30, 2020 In addition to the revised covenants, GSE was required to pay a $20,000 bank fee and additional principal payments as follows: January 6, 2020 of $3.0 million, March 31, 2020 of $1.0 million, and June 30, 2020 of $1.0 million.

On April 17, 2020, the Company entered into a Seventh Amendment and Reaffirmation Agreement. The Company shall maintain a minimum fixed charge coverage ratio of 1.25 to 1.00, to be tested quarterly as of the last day of each quarter beginning with the quarter ending June 30, 2021, on rolling four-quarter basis. The Company shall not exceed a maximum leverage ratio, to be tested quarterly as of the last day of each quarter beginning with the quarter ending September 30, 2020, on a rolling four-quarter basis as follows: (i) 3.00 to 1.00 for the period ending on September 30, 2020, (ii) 2.50 to 1.00 for the period ending on December 31, 2020, and (iii) 2.25 to 1.00 for the period ending on March 31, 2021 and for the periods ending on each December 31, March 31, June 30 and September 30 thereafter. In addition to the revised covenants, GSE was required to pay a $50,000 bank fee and additional principal payments as follows: April 17, 2020 $0.75, and June 30, 2020 $0.5 million. The Company has the option to refinance the term loan facility if certain requirements are met, including meeting certain covenant thresholds.

RLOC

The Company entered into a three-year, $5.0 million revolving line of credit facility with the Bank on December 29, 2016, to fund general working capital needs. We intend to continue using the RLOC for short-term working capital needs and the issuance of letters of credit in connection with business operations. Letter of credit issuance fees range between 1.25% and 2% depending on the Company’s overall leverage ratio, and the Company pays an unused RLOC fee quarterly based on the average daily unused balance.

At December 31, 2019, there were no outstanding borrowings under the RLOC and four letters of credit totaling $1.2 million. The amount available at December 31, 2019, after consideration of the letters of credit was approximately $3.8 million. At December 31, 2018, there were no outstanding borrowings on the RLOC and 5 letters of credit totaling $2.3 million.

Term Loan

As discussed in Note 4, we acquired DP Engineering on February 15, 2019 for approximately $13.5 million in cash. The purchase price was subject to customary pre- and post-closing working capital adjustments plus an additional earn-out amount not to exceed $5.0 million potentially payable in 2020 and 2021. We drew down $14.3 million to finance the acquisition of DP Engineering. The loan bears interest at the adjusted LIBOR plus a margin ranging between 2% and 2.75% depending on the overall leverage ratio of the Company and matures in five years. There were no debt issuance costs and loan origination fees associated with the loan related for our acquisition of DP Engineering.

Additionally, as discussed in Note 4, we acquired True North on May 11, 2018 for total consideration of approximately $9.9 million in cash. We drew down $10.3 million to finance the acquisition of True North, $0.5 million of which was repaid to the Bank on the same day. The loan bears interest at the adjusted one month-LIBOR plus a margin ranging between 2% and 2.75% depending on the overall leverage ratio of the Company and matures in five years on May 11, 2023. We also incurred $70,000 debt issuance costs and $75,000 loan origination fees related to the Credit Agreement. Debt issuance costs and loan origination fees are reported as a direct deduction from the carrying amount of the loan and are amortized over the term of the loan using the effective interest method.

At December 31, 2019, the outstanding debt under the delayed draw term loan facility was as follows:


Long-term debt, net of discount	$	18,481
Less: current portion of long-term debt		18,481
Long-term debt, less current portion	$	-

As discussed in Note 1, substantial doubt has been raised regarding the Company’s ability to continue as a going concern due to a probable covenant violation. As such, the classification of our debt is current.

The Credit Agreement contains customary covenants and restrictions typical for a financing of this type that, among other things, require the Company to satisfy certain financial covenants and restrict the Company’s ability to incur additional debt, pay dividends and make distributions, make certain investments and acquisitions, repurchase its stock and prepay certain indebtedness, create liens, enter into agreements with affiliates, modify the nature of its business, enter into sale-leaseback transactions, transfer and sell material assets and merge or consolidate. Non-compliance with one or more of the covenants and restrictions after any applicable grace period could result in the obligations under the Credit Agreement becoming immediately due and payable and termination of the credit facilities. In addition to non-compliance with covenants and restrictions, the Credit Agreement also contains other customary events of default. If an event of default under the Credit Agreement occurs and is continuing, then the Bank may declare the obligations under the Credit Agreement to be immediately due and payable and may terminate the credit facilities.