ARC Group Worldwide, Inc.

Subsequent to the period covered by this report, on May 15, 2019, the Company entered into the Ninth Amendment to the Subordinated Loan Agreement (the “Ninth Subordinated Amendment”).  The Ninth Subordinated Amendment extended the maturity date of the Subordinated Loan Agreement to March 31, 2021.  The Ninth Subordinated Amendment also authorized the Company to enter into the Junior Revolving Credit Facility, described below.  The ranking of the Subordinated Loan Agreement remains junior to the Senior ABL Credit Facility in repayment and lien priority, however, in conjunction with the Ninth Subordinated Amendment, the Subordinated Loan Agreement ranking was modified to be junior to the Junior Revolving Credit Facility in payment priority and pari passu to the Junior Revolving Credit Facility in lien priority.  Subject to such priorities and rankings applicable to the Subordinated Loan Agreement, McLarty has established liens and security interests in substantially all of the personal property of the Company’s domestic subsidiaries. 

The Company’s Subordinated Loan Agreement contains certain financial covenants that require the Company’s compliance.  As of March 31, 2019, these financial covenants have not been met, and as part of the Eighth Subordinated Amendment, McLarty has waived such noncompliance.  

Subsequent to the period covered by this report, on May 15, 2019, the Company, as borrower, entered into the $7.5 million Junior Revolving Credit Facility with QMI.  At the closing of the Junior Revolving Credit Facility, the liability of the Company to repay the $1.0 million Bridge Loan was rolled into the Company’s repayment obligations of the Junior Revolving Credit Facility and an additional $6.5 million was made available by QMI to the Company.  The Bridge Loan terminated upon rollover of its repayment obligation into the Junior Revolving Credit Facility.  The Junior Revolving Credit Facility is not limited by any borrowing base or similar requirement.  The Junior Revolving Credit Facility has an interest rate of 4.5% per annum on drawn capital, to be paid in kind and capitalized in lieu of cash payments.  The maturity date of the Junior Revolving Credit Facility is March 31, 2021.  No financial covenants apply to the Junior Revolving Credit Facility.  There are no mandatory prepayments in respect of the Junior Revolving Credit Facility. 

On May 15, 2019, the Company also entered into (i) an Amended and Restated Subordination Agreement with Citizens, McLarty and QMI (the “Subordination Agreement”); and (ii) a Guarantee and Collateral Agreement with McLarty, together with the Company’s domestic subsidiaries (the “McLarty Guarantee Agreement”); (iii) a Guarantee and Collateral Agreement with QMI, together with the Company’s domestic subsidiaries (the “QMI Guarantee Agreement”); and an Intercreditor Agreement, among the Company, each of its domestic subsidiaries, McLarty and QMI (the “Intercreditor Agreement”), in each case reflecting with respect to the priorities of security interests among Citizens, McLarty and QMI, and the terms and conditions applicable to the guarantees and the collateral granted by the Company and its subsidiaries to Citizens, McLarty and QMI, in each case responsive to the terms and conditions of the Eighth Senior Amendment, the Ninth Subordinated Amendment, and the QMI Junior Revolving Credit Facility, respectively.

Related Party Transactions

If the Company does not achieve compliance with the Minimum Bid Requirement by October 15, 2019, the Company may be eligible for an additional 180 calendar days compliance period if it elects to transfer to the NASDAQ Capital Market, so as to take advantage of the additional compliance period offered on that market.  To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the NASDAQ Capital Market, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period.  However, if it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Staff would notify the Company that its securities would be subject to delisting.  In the event of such notifications, the Company may appeal the Staff’s determination to delist its securities, but there can be no assurance the Staff would grant the Company’s request for continued listing.

On  May 14, 2019, Mr. Aaron Willman accepted updated terms of employment offered by the Company in respect of his services as Chief Financial Officer of the Company and as General Manager of the Company’s subsidiary ARC Metal Stamping, LLC.  Mr. Willman will continue to serve in all capacities as an employee at will.  Mr. Willman will receive an annual combined base salary for all services in the aggregate amount of $200,000 per annum, subject to increase to match the salary of any new Company Chief Executive Officer if such person is employed by the Company or an affiliate of the Company prior to his or her appointment as CEO.  Mr. Willman will continue to be eligible to participate in all employee benefit plans, practices, and programs maintained by the Company.  Mr. Willman will be eligible for bonuses which could range from $80,000 to $475,000 in the aggregate, subject to accomplishing certain value enhancement milestones for the Company. 

If the Company does not achieve compliance with the Minimum Bid Requirement by October 15, 2019, the Company may be eligible for an additional 180 calendar days compliance period if it elects to transfer to the NASDAQ Capital Market, so as to take advantage of the additional compliance period offered on that market.  To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the NASDAQ Capital Market, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the deficiency during the second compliance period.  However, if it appears to the Staff that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible, the Staff would notify the Company that its securities would be subject to delisting.  In the event of such notifications, the Company may appeal the Staff’s determination to delist its securities, but there can be no assurance the Staff would grant the Company’s request for continued listing.

A delisting of our common stock from the NASDAQ Capital Market could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock.  In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, employees and fewer business development opportunities.