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): April 15, 2007
All American Semiconductor, Inc.
(Exact name of registrant as specified in its charter)
Delaware 000-16207 59-2814714
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
16115 Northwest 52nd Avenue, Miami, Florida 33014
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): (305) 621-8282
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))
Item 1.01 Entry into a Material Definitive Agreement.
On April 15, 2007, All American Semiconductor, Inc. (the "Company") and
its wholly owned subsidiaries (together with the Company, the "Designated
Companies") entered into a Second Forbearance Agreement (the "Second Forbearance
Agreement") with Harris N.A., successor by merger to Harris Trust and Savings
Bank, as administrative agent for the Lenders (defined below), U.S. Bank
National Association, as co-administrative agent for the Lenders, and the
lenders from time to time party thereto (collectively, the "Lenders"). The
Second Forbearance Agreement addresses certain events of default existing and
anticipated under that certain Credit Agreement, as amended (the "Credit
Agreement"), originally entered into as of May 14, 2003, by and among the
Company, the several financial institutions from time to time party thereto, as
Lenders, Harris Trust and Savings Bank, as administrative agent, and U.S. Bank
National Association, as co-administrative agent.
The Lenders agreed to extend and continue the forbearance period which
would have expired on April 15, 2007 under the First Forbearance Agreement (as
hereafter defined) until April 24, 2007 unless sooner terminated in the event of
a Forbearance Default (defined below) (the "Forbearance Period"). Pursuant to
the Second Forbearance Agreement the Lenders have agreed for the Forbearance
Period to forbear from exercising their default-related rights and remedies
against the Company and the other Designated Companies with respect to
(collectively, the "Specified Defaults"): (1) current events of default
resulting from (a) the Company's failure to immediately and without notice or
demand pay over any overadvance that existed immediately prior to giving effect
to the Second Forbearance Agreement, (b) breach of a representation by the
Company that there has been no change in the financial condition or business
prospects of the Designated Companies which could reasonably be expected to
result in a material adverse effect, (c) breach of the Company's obligation to
provide to the Lenders on a weekly basis a 13-week cash flow forecast in form,
substance and detail reasonably satisfactory to the administrative agent, (d)
breach of certain financial and other covenants by the Company, including
covenants related to tangible net worth, debt service coverage, aging of
receivables, excess availability of commitments under the Credit Agreement, and
EBITDA, and (e) failure of the Company to comply with certain sections of the
Forbearance Agreement (the "First Forbearance Agreement") entered into by the
Designated Companies, Harris N.A., U.S. Bank National Association and the
Lenders on March 29, 2007 related to payment of certain supplemental shipping
costs, delivery of appraisals and a statutory lien owed to Westminster County,
Colorado; and (2) anticipated events of default resulting from the expected
failure of the Company to (a) timely deliver audited financial statements to the
Lenders for the fiscal year ended December 31, 2006, and (b) satisfy certain
other financial and other covenants, including covenants related to capital
expenditures and inventory turnover.
The parties to the Second Forbearance Agreement also agreed to the
following terms, among others, notwithstanding any provision to the contrary set
forth in the Second Forbearance Agreement, the Credit Agreement or any other
loan document:
o Subject to certain limitations, the Lenders agreed to provide
additional liquidity to the Company during the Forbearance
Period by allowing the Company up to approximately $4.95
million of overadvances from April 16, 2007 through April 20,
2007 and up to approximately $4.91 million of overadvances
from April 21, 2007 until April 24, 2007. During the
Forbearance Period, the Company generally may use available
capital to purchase inventory only if (i) each vendor and
proposed payments are set forth on the applicable weekly
Proposed Vendor Payment Schedule (defined below) as long as
the Lenders approve of the schedule (or an amendment thereto
is approved by the administrative agent), (ii) such payments
are made pursuant to "cash on delivery" or "cash in advance"
payment terms, (iii) all inventory being purchased is at the
time of ordering subject to existing customer purchase orders
and (iv) each vendor enters into an approved vendor agreement.
The Company is also subject to additional limitations on
types, manner and amount of disbursements that may be made
during the Forbearance Period in accordance with a budget
provided by the Company and acceptable by the Lenders.
o The Company must continue to pay interest at the applicable
default rate under the Credit Agreement on all outstanding
obligations at all times during the continuance of an event of
default (including, without limitation, at all times during
the Forbearance Period).
o On April 16, 2007 and on or prior to each Thursday thereafter
during the Forbearance Period, the Company is required to
prepare and deliver to Harris N.A. a schedule setting forth
every vendor payment that the Company proposes to make during
1
the immediately following week (or portion thereof) (each, a
"Proposed Vendor Payment Schedule").
o The Company does not have the right to request, and none of
Harris N.A. or any Lender is obligated to issue or renew, any
letter of credit during the Forbearance Period.
o The Lenders' revolving credit commitment under the Credit
Facility was reduced from $70 million to $60 million.
o The Company is required to cause an appraisal firm
satisfactory to Harris N.A. to submit an offer binding on such
appraiser to the Company for its consideration with respect to
the purchase or sale, as agent, of the Company's and the other
Designated Companies' assets and properties.
The Company and the other Designated Companies also agreed to a general
release, forever waiving, releasing and discharging the administrative agents,
the Lenders and their respective affiliates from any and all liens, claims,
interests and causes of action of any kind that the Company and the other
Designated Companies has or thereafter may have against such parties based on
facts existing on or before April 15, 2007, and agreed not to sue any such party
on the basis of any claim released.
Upon expiration of the Forbearance Period, the agreement of the
administrative agents and the Lenders to forbear from exercising their
default-related rights and remedies will automatically and immediately
terminate. In addition, the Second Forbearance Agreement will automatically and
immediately terminate in the event of a Forbearance Default, defined as any of:
(a) the occurrence of any default or event of default other than the Specified
Defaults; (b) the failure of the Company or any other Designated Company to
timely and strictly comply with any term, condition, covenant, agreement or
other obligation set forth in the Second Forbearance Agreement; (c) the failure
of any representation or warranty made by the Company or any other Designated
Company under or in connection with the Second Forbearance Agreement to be true
and complete in all material respects as of the date when made or any other
material breach of any such representation or warranty; (d) the taking of any
action by the Company or any other Designated Company to in any way repudiate or
assert a defense to any obligation under the Credit Agreement, the Second
Forbearance Agreement or any of the other loan documents or the assertion of any
claim or cause of action against either of the administrative agents or any
Lender relating in any way thereto; (e) the date on which written notice is duly
delivered to the Company at the direction of the Lenders which terminates the
Forbearance Period due to the Lenders' refusal to consent to the use of any loan
or collateral proceeds to fund payments reflected in a Proposed Vendor Payment
Schedule; and (f) the failure of the Company to receive inventory purchased on
"cash in advance" payment terms within six business days of paying for such
inventory.
The Company has agreed to pay the Lenders a forbearance fee equal to
$25,000 upon expiration or termination of the Forbearance Period and the Company
is required to pay or reimburse Harris N.A. for certain fees and expenses
incurred by it.
Item 2.02 Results of Operations and Financial Condition.
As previously announced, in an effort to improve operating
efficiencies, in the fourth quarter of 2006, the Company terminated its
relationship with certain suppliers which accounted for an aggregate of $7.7
million of the Company's unaudited 2006 revenues. The Company further announced
on April 16, 2007 that its continuing operating and liquidity issues have
resulted in the loss of other suppliers as of April 11, 2007 aggregating sales
of $50.4 million of the Company's unaudited 2006 revenues. In addition, the
Company announced that its backlog of customer orders has declined from $96.4
million at the end of the third quarter of 2006 to $52.8 million as of March 23,
2007 and to $34.6 million as of April 12, 2007. The Company also announced that
it has reduced its bank borrowings from a reported high during 2006 of $94.8
million at the end of the second quarter of 2006 to approximately $55.0 million
as of March 27, 2007 and to approximately $46.0 million as of April 11, 2007.
Furthermore, as part of its efforts to reduce costs, as of April 16, 2007, the
Company has begun closing nine of its 33 sales offices in North America and one
distribution center and it has also reduced its workforce since February 28,
2007 by approximately 135 persons. A copy of the Company's press release issued
on April 16, 2007 concerning certain of the foregoing matters is furnished as
part of this report.
2
Item 8.01 Other Events.
The Company's April 16, 2007 press release also stated that, as
previously announced, it has been exploring a variety of strategic alternatives,
including a sale, additional financing, refinancing or recapitalization, but has
not yet secured any such transaction to address the Company's liquidity issues,
and that it continues to consider its alternatives including a potential sale of
the Company's assets and a Chapter 11 bankruptcy filing. The Company cannot
provide any assurance that its efforts will enable it to continue as a going
concern.
In addition, the Company announced that it does not expect to complete
its year-end audit in time to file its Form 10-K for the year ended December 31,
2006 by April 17, 2007, the extended due date pursuant to Form 12b-25 which the
Company previously filed with the Securities and Exchange Commission. The
Company cannot determine at this time when it will be able to file the Form
10-K.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
Number Description
------------ --------------------------------------------------------------
10.1 Second Forbearance Agreement entered into as of April 15,
2007, by and among All American Semiconductor, Inc., the other
"Designated Companies," Harris N.A., U.S. Bank National
Association and the lenders from time to time party thereto,
as amended by that certain letter dated April 16, 2007 to All
American Semiconductor, Inc. from Harris N.A., as
Administrative Agent, on behalf of itself and the lenders
99.1 Press Release dated April 16, 2007
3
SIGNATURES
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.
ALL AMERICAN SEMICONDUCTOR, INC.
Dated: April 17, 2007 By: /s/ HOWARD L. FLANDERS
-------------------------------------
Howard L. Flanders
Executive Vice President and
Chief Financial Officer
4
EXHIBIT INDEX
Exhibit
Number Description
------------ --------------------------------------------------------------
10.1 Second Forbearance Agreement entered into as of April 15,
2007, by and among All American Semiconductor, Inc., the other
"Designated Companies," Harris N.A., U.S. Bank National
Association and the lenders from time to time party thereto,
as amended by that certain letter dated April 16, 2007 to All
American Semiconductor, Inc. from Harris N.A., as
Administrative Agent, on behalf of itself and the lenders
99.1 Press Release dated April 16, 2007