According to Form 8-K filed on September 22, 2017, Appliance Recycling Centers of America, Inc. received a written notice of default from MidCap Funding X Trust, asserting that events of default had occurred with respect to its Credit and Security Agreement. The Agent alleges in the Notice of Default that, as a result of the Company’s recent acquisition of GeoTraq Inc. and the issuance of promissory notes to the stockholders of GeoTraq, the Borrowers have failed to comply with certain terms of the Loan Agreement, and that such failure constitutes one or more Events of Default. Specifically, the Notice of Default states that as a result of the acquisition and related issuance of promissory notes, the Borrowers have failed to comply with a covenant not to incur additional indebtedness other than Permitted Debt, without the Agent’s prior written consent, and a covenant not to make acquisitions or investments other than Permitted Acquisitions or Permitted Investments. The Notice of Default also states that the Borrowers’ failure to pledge the stock in GeoTraq as collateral under the Loan Agreement and to make GeoTraq a “Borrower” under the Loan Agreement will become an Event of Default if not cured within the applicable cure period. Read more on distressed companies.
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