UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): July 17, 2020

 

YUNHONG CTI LTD.

(Exact name of registrant as specified in charter)

 

Illinois

 

000-23115

 

36-2848943

(State or other jurisdiction

 

(Commission

 

(IRS Employer

of incorporation)

 

File Number)

 

Identification No.)

 

22160 N. Pepper Road, Lake Barrington, IL 60010

(Address of principal executive offices) (Zip Code)

 

(847) 382-1000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock

 

CTIB

 

The Nasdaq Stock Market LLC

(The Nasdaq Capital Market)

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mart if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 

 

Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.

 

As previously disclosed on a Current Report on Form 8-K of Yunhong CTI Ltd. (the “Company”), on December 14, 2017, the Company entered into a Revolving Credit, Term Loan and Security Agreement (the “Loan Agreement”) with PNC Bank, National Association (“Lender”).

 

Prior to January 13, 2020, certain events of default under the Loan Agreement had occurred (the "Prior Defaults"). On January 13, 2020, a Limited Waiver, Consent, Amendment No. 5 and Forbearance Agreement (the “Forbearance Agreement”) between Lender and the Company became effective, pursuant to which Lender agreed to, among other things, forebear from exercising the rights and remedies in respect of the Prior Defaults afforded to Lender under the Loan Agreement for a period ending no later than December 31, 2020 (the “Forbearance Period”).

 

On June 15, 2020, the Lender provided the Company notice (the “Default Notice”) that (i) an additional Event of Default (as defined in the Loan Agreement) had occurred and is continuing as a result of the Company's failure to maintain a Fixed Charge Coverage Ratio (as defined in the Loan Agreement) of 0.75 to 1.00 for the three-month period ended March 31, 2020 (the "March FCCR Default"), (ii) as a result of the occurrence and continuance of the March FCCR Default, the Forbearance Period has ended, and (iii) as a result of the termination of the Forbearance Period, the Lender is entitled to exercise immediately all of its rights and remedies under the Loan Agreement including, without limitation, ceasing to make further advances to the Company and declaring all obligations to be immediately due and payable in accordance with the Loan Agreement.

 

The Lender has continued to make advances to the Company (“Discretionary Advances”), although it is not required to do so under the terms of the Loan Agreement due to the Events of Default. On July 17, 2020, the Lender provided the Company notice that multiple previously disclosed events, which each constitute an Event of Default, are continuing to occur. Additionally, the Lender required that the Company obtain a commitment for third-party equity funding in an amount not less than $3,000,000 by no later than July 31, 2020. Absent such commitment, the Lender advised that it may cease making discretionary advances to the Company. On July 22, 2020, the Company’s board of directors authorized the Company to seek such funding. In addition, Mr. Yubao Li, the Company’s Chairman, committed that, in the event the Company does not obtain funding of at least $3,000,000 by August 31, 2020, he would provide the necessary funding to ensure the Company meets this requirement.

 

 

Item 9.01   Financial Statements And Exhibits.

 

(d) Exhibits

 

The exhibits listed below are furnished as Exhibits to this Current Report on Form 8-K.

 

Exhibit No.

 

Description

99.1

 

Notice of Default and Reservation of Rights

 

 

SIGNATURE

 

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.

 

Date: July 23, 2020

 

 

YUNHONG CTI LTD.

 

 

 

By:

/s/ Frank Cesario

 

 

Frank Cesario

 

 

President and Chief Executive Officer

 

 
ex_194884.htm

Exhibit 99.1 

 

 

July 17, 2020

 

 

VIA FEDERAL EXPRESS AND FACSIMILE

 

Yunhong CTI Ltd. (f/k/a CTI Industries Corporation)

22160 N. Pepper Road

Barrington, Illinois 60010

Attention: Stephen M. Merrick

Facsimile: (847) 382-1219

 

NOTICE OF DEFAULT AND RESERVATION OF RIGHTS

 

Ladies and Gentlemen:

 

Reference is hereby made to (i) that certain Revolving Credit, Term Loan and Security Agreement, dated as of December 14, 2017 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), by and among Yunhong CTI Ltd. (f/k/a CTI Industries Corporation), an Illinois corporation ("Borrower"), each other Credit Party party thereto from time to time, the financial institutions which are now or which hereafter become a party thereto (collectively, the "Lenders") and PNC Bank, National Association ("PNC"), as agent for Lenders (PNC, in such capacity, the "Agent"), (ii) that certain Limited Waiver, Consent, Amendment No. 5 and Forbearance Agreement dated as of January 3, 2020 (the "Forbearance Agreement") among Borrower, the other Credit Parties party thereto, and Agent, and (iii) that certain Notice of Default and Reservation of Rights date as of June 15, 2020, and sent by Agent to Borrower on June 15, 2020 (the "June Default Notice"). Capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the Loan Agreement.

 

As Borrower is aware, the Cumulative Defaults (as defined in the June Default Notice) have occurred and are continuing. As a result of the occurrence and continuance of the Cumulative Defaults, Agent and Lenders are entitled to exercise immediately all of their rights and remedies under the Loan Agreement, the Other Documents and applicable law, including, without limitation, ceasing to make further Advances and declaring all Obligations to be immediately due and payable in accordance with the Loan Agreement and the Other Documents. Notwithstanding the occurrence and continuance of the Cumulative Defaults, Agent and Lenders have made certain Advances to Borrower, in their sole and absolute discretion (each such Advance made prior to the date hereof and any future Advances that Agent and Lenders may make, in their sole and absolute discretion, notwithstanding the Cumulative Defaults, the "Discretionary Advances") at Borrower's request. Agent's and Lenders' willingness to make such Discretionary Advances to date has been, in part, based on repeated assurances by the Borrower that the Purchasers (as defined in the Forbearance Agreement) intended to make equity contributions to the Borrower to address the Borrower's liquidity needs and facilitate the Borrower's planned relocation of its facility and operations to Mexico and Texas.

 

Agent's and Lenders' willingness to consider making future Discretionary Advances is conditioned upon Borrower delivering to Agent, together with any Advance request, on a daily basis, a written certification (which may be by email) by Borrower's chief financial officer that the payments identified in such written certification to be made with such requested Advance are expenses critical to preserving the value of the Collateral. Borrower is hereby further advised that unless Borrower provides evidence to Agent of a third-party commitment for an equity funding in an amount not less than $3,000,000 on or before July 31, 2020 that is in form and substance acceptable to Agent, Agent's and Lenders' willingness to consider making any further Discretionary Advances will be reevaluated. Further, Agent requests that Borrower start preparing a wind down plan so that Borrower is prepared to maximize the value of its assets and businesses in the event that Borrower the above reference equity raise is not promptly completed. For the avoidance of doubt, however, notwithstanding anything to the contrary herein, any further Discretionary Advances will be in the Agent's and Lenders' sole and absolute discretion, and the making of any such Discretionary Advance shall not obligate any Lender to make any other Discretionary Advance to Borrowers at any time.

 

Agent and Lenders have not waived and are not by this letter waiving, any Events of Default (including the Cumulative Defaults) which may be continuing on the date hereof or any Events of Default which may occur after the date hereof (whether the same or similar to the Cumulative Defaults or otherwise), and Agent and Lenders have not agreed to forbear with respect to any rights or remedies concerning any Events of Default occurring at any time.  Agent and Lenders reserve the right, in their sole discretion, to exercise at any time any or all of their rights and remedies under the Loan Agreement and the Other Documents as a result of the Cumulative Defaults or any other Events of Default occurring at any time. Agent and Lenders have not waived any of such rights or remedies, and nothing herein, and no delay in exercising any such rights or remedies, should be construed as a waiver or modification of any such rights or remedies. Agent and Lenders expect Borrower to strictly comply at all times with the terms and provisions of the Loan Agreement and the Other Documents, including all provisions thereof that restrict the rights of Borrower to take certain actions once an Event of Default has occurred. Nothing herein shall affect Agent's or any Lenders' right to declare additional Events of Default, including any Events of Default that may have arisen prior to the Cumulative Defaults, for purposes of exercising its rights and remedies against Borrower or any other party, and Agent and Lenders reserve the right to exercise their other rights and remedies at any time without further notice as a result of the Cumulative Defaults.

 

 

Sincerely,

 

 
 

cc:

Harold D. Israel (via email)

  Danielle Wildern Juhle (via email)

 

- 2 -