Note 5 - Senior Credit Facility, Subordinated Convertible Note Payable, net - CD Financial, LLC and other Long Term Debt
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Mar. 31, 2013
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Debt Disclosure [Text Block] |
Note
5. Senior Credit Facility, Subordinated Convertible Note, net
- CD Financial, LLC and other Long Term Debt
As
of March 31, 2013 and June 30, 2012, the Company had the
following debt outstanding:
SENIOR
CREDIT FACILITY
On
June 27, 2012, the Company, MDC, AgroLabs, IHT, IHT
Properties Corp. (“IHT Properties”) and Vitamin
Factory (collectively, the “Borrowers”) entered
into a Revolving Credit, Term Loan and Security Agreement
(the “Loan Agreement”) with PNC as agent and
lender and the other lenders party thereto.
The
Loan Agreement provides for a total of $11,727 in senior
secured financing (the “Senior Credit Facility”)
as follows: (i) discretionary advances (“Revolving
Advances”) based on eligible accounts receivable and
eligible inventory in the maximum amount of $8,000 (the
“Revolving Credit Facility”) and (ii) a term loan
in the amount of $3,727 (the “Term Loan”). The
Senior Credit Facility is secured by all assets of the
Borrowers, including, without limitation, machinery and
equipment, real estate owned by IHT Properties, and the iBio
Stock owned by the Company. Revolving Advances bear interest
at PNC’s Base Rate or the Eurodollar Rate, at
Borrowers’ option, plus 2.75% (3.25% as of March 31,
2013 and June 30, 2012). The Term Loan bears interest at
PNC’s Base Rate or the Eurodollar Rate, at
Borrowers’ option, plus 3.25% (3.75% as of March 31,
2013 and June 30, 2012). Upon and after the
occurrence of any event of default under the Loan Agreement,
and during the continuation thereof, interest shall be
payable at the interest rate then applicable plus
2%. The Senior Credit Facility matures on June 27,
2017 (the “Senior Maturity Date”).
The
principal balance of the Revolving Advances is payable on the
Senior Maturity Date, subject to acceleration, based upon a
material adverse event clause, as defined, subjective
accelerations for borrowing base reserves, as defined or upon
the occurrence of any event of default under the Loan
Agreement or earlier termination of the Loan Agreement
pursuant to the terms thereof. The Term Loan shall
be repaid in sixty (60) consecutive monthly installments of
principal, the first fifty nine (59) of which shall be in the
amount of $44, commencing on the first business day of
August, 2012, and continuing on the first business day of
each month thereafter, with a final payment of any unpaid
balance of principal and interest payable on the first
business day of July, 2017. The foregoing is subject to
customary mandatory prepayment provisions and acceleration
upon the occurrence of any event of default under the Loan
Agreement or earlier termination of the Loan Agreement
pursuant to the terms thereof.
The
Revolving Advances are subject to the terms and conditions
set forth in the Loan Agreement and are made in aggregate
amounts at any time equal to the lesser of (x) $8.0 million
or (y) an amount equal to the sum of: (i) up to 85%, subject
to the provisions in the Loan Agreement, of eligible accounts
receivables (“Receivables Advance Rate”), plus
(ii) up to the lesser of (A) 65%, subject to the provisions
in the Loan Agreement, of the value of the eligible inventory
(“Inventory Advance Rate” and together with the
Receivables Advance Rate, collectively, the “Advance
Rates”), (B) 85% of the appraised net orderly
liquidation value of eligible inventory (as evidenced by the
most recent inventory appraisal reasonably satisfactory to
PNC in its sole discretion exercised in good faith) and (C)
the inventory sublimit in the aggregate at any one time
(“Inventory Advance Rate” and together with the
Receivables Advance Rate, collectively, the “Advance
Rates”), minus (iii) the aggregate Maximum Undrawn
Amount of all outstanding Letters of Credit, minus (iv) such
reserves as Agent may reasonably deem proper and necessary
from time to time.
The
Loan Agreement contains customary mandatory prepayment
provisions, including, without limitation, (i) the
requirement that if the trading price per share of the iBio
Stock falls below a certain amount, the Company shall sell
the iBio Stock and use the proceeds to repay the Term Loan
and (ii) the outstanding amount of all loans in an amount
equal to fifty percent (50%) of Excess Cash Flow for each
fiscal year commencing with the fiscal year ending June 30,
2013, payable upon delivery of the financial statements to
PNC referred to in and required by the Loan Agreement for
such fiscal year but in any event not later than one hundred
twenty (120) days after the end of each such fiscal year,
which prepayment amount shall be applied ratably to the
outstanding principal installments of the Term Loan in the
inverse order of the maturities thereof until the aggregate
amount of payments made with regard to the Term Loan pursuant
to Loan Agreement equals $1.0 million. The Loan
Agreement also contains customary representations and
warranties, covenants and events of default, including,
without limitation, (i) a fixed charge coverage ratio
maintenance requirement and (ii) an event of default tied to
any change of control as defined in the Loan
Agreement. As of March 31, 2013, the Company is in
compliance with the fixed charge coverage ratio maintenance
requirement.
In
connection with the Senior Credit Facility, each of E. Gerald
Kay, an officer, director and major stockholder of the
Company, and Carl DeSantis, a director and major stockholder
of the Company (collectively, the “Guarantors”),
entered into Continuing Limited Guarantees (collectively, the
“Individual Guarantees”) with PNC whereby each
Guarantor irrevocably and unconditionally guarantees the
full, prompt and unconditional payment, when due, whether by
acceleration or otherwise, of any and all obligations of the
Borrowers under the Loan Agreement and the other loan
documents. The liability of each Guarantor under his
respective Individual Guarantee is limited to a maximum of
$1.0 million. The Individual Guarantees will automatically
terminate upon the satisfaction of certain conditions set
forth in the Loan Agreement.
Also,
in connection with the Senior Credit Facility, PNC and CD
Financial, LLC (“CD Financial”) entered into the
Intercreditor and Subordination Agreement (the
“Intercreditor Agreement”), which was
acknowledged by the Borrowers, pursuant to which, among other
things, (a) the lien of CD Financial on assets of the
Borrowers is subordinated to the lien of PNC on such assets
during the effectiveness of the Senior Credit Facility, and
(b) priorities for payment of the debt for the Company and
its subsidiaries (as described in this Note 5) are
established.
In
addition, in connection with the Senior Credit Facility, the
following loan documents were executed: (i) the Company has
entered into a Stock Pledge Agreement with PNC, pursuant to
which the Company pledged to PNC the iBio Stock; (ii) IHT
Properties has entered into a Mortgage and Security Agreement
with PNC; and (iii) the Borrowers have entered into an
Environmental Indemnity Agreement with PNC.
CD
FINANCIAL, LLC TROUBLED DEBT RESTRUCTURING
On
June 27, 2012, the Company also entered into an Amended and
Restated Securities Purchase Agreement (the “CD
SPA”) with CD Financial, which amended and restated the
Securities Purchase Agreement, dated as of February 21, 2008,
between the Company and CD Financial, pursuant to which the
Company issued to CD Financial a 9.5% Convertible Senior
Secured Note in the original principal amount of $4,500 (the
“Original CD Note”). Pursuant to the
CD SPA, the Company issued to CD Financial (i) the
Amended and Restated Convertible Promissory Note in the
principal amount of $5,350 (the “CD Convertible
Note”) and (ii) the Promissory Note in the principal
amount of $1,714 (the “Liquidity Note”, and
collectively with the CD Convertible Note, the “CD
Notes”). The CD Notes mature on July 7,
2017. In accordance with the applicable accounting
guidance, this transaction was accounted for as a troubled
debt restructuring. No gain on debt extinguishment
was recognized as the undiscounted cash flows of the
restructured debt was greater than the carrying amount of the
debt prior to the restructuring.
The
CD Notes are secured by all assets of the Borrowers,
including, without limitation, machinery and equipment, real
estate owned by IHT Properties, and iBio Stock owned by the
Company. The CD Notes bear interest at an annual rate of 6%
and have a default rate of 10%.
The
CD Convertible Note is convertible at the option of CD
Financial into common stock of the Company at a conversion
price of $0.65 per share, subject to customary adjustments
including conversion price protection provisions.
Pursuant
to the terms of the Loan Agreement and the Intercreditor
Agreement, during the effectiveness of the Senior Credit
Facility, (i) the principal of the CD Convertible Note may
not be repaid, (ii) the principal of the Liquidity Note may
only be repaid if certain conditions under the Loan Agreement
are satisfied, and (iii) interest in respect of the CD Notes
may only be paid if certain conditions under the
Intercreditor Agreement are satisfied.
The
CD SPA contains customary representations and warranties,
covenants and events of default, including, without
limitation, an event of default tied to any change of control
as defined in the CD SPA.
In
connection with the CD SPA, the Borrowers entered into an
Amended and Restated Security Agreement and Amended and
Restated Subsidiary Guaranty.
As
of March 31, 2013 and June 30, 2012, the related embedded
derivative liability with respect to conversion price
protection provisions on the CD Convertible Note has an
estimated fair value of $1,164 and $555, respectively.
The
Company used the following assumptions to calculate the fair
value of the derivative liability using the Black-Scholes
option pricing model:
OTHER
LONG TERM DEBT
On
June 27, 2012, MDC and the Company entered into separate
promissory notes with (i) Vitamin Realty Associates, LLC
(“Vitamin Realty”), which is 90% owned by E.
Gerald Kay, the Company’s Chairman of the Board,
President and major shareholder and certain of his family
members, who are also executive officers and directors of the
Company, and (ii) E. Gerald Kay, in the principal amounts of
approximately $686 (the “Vitamin Note”) and $27
(the “Kay Note”), respectively (collectively the
“Related Party Notes”). The principal amount of
the Vitamin Note represents the aggregate amount of unpaid,
past due rent owing by MDC under the Lease Agreement, dated
as of January 10, 1997, between MDC, as lessor, and Vitamin
Realty, as landlord, pertaining to the real property located
at 225 Long Avenue, Hillside, New Jersey. (See
Note 7. Commitments and Contingencies (a) Leases –
Related Parties). The Kay Note represents amounts
owed to Mr. Kay for unreimbursed business expenses incurred
by Mr. Kay in the fiscal year ended June 30,
2008. The Related Party Notes mature on July 7,
2017 and accrue interest at an annual rate of 4% per annum.
Interest in respect of the Related Party Notes is payable on
the first business day of each calendar
month. Pursuant to the terms of the Loan
Agreement, during the effectiveness of the Senior Credit
Facility, the Related Party Notes may only be repaid or
prepaid if certain conditions set forth in the Loan Agreement
are satisfied.
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