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Long-Term Debt
 12 Months Ended
May 31, 2018
Debt Disclosure [Abstract]  
Long-Term Debt

Note 4. LONG-TERM DEBT

 

Long-term debt consists of the following as of May 31:

 

    2018     2017  
Term loan A payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing April 30, 2023   $ 3,945,443     $ 4,626,191  
                 
Term loan B payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing January 7, 2019     -       1,715,132  
                 
Term loan C payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing August 4, 2020     1,613,445       -  
                 
Term loan D payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.75%, maturing January 10, 2022     2,314,935       -  
                 
Term loan E payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.75%, maturing January 10, 2022     843,200       -  
                 
Revolving loan payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.75%, due January 31, 2020     1,879,000       2,260,000  
                 
Term loan payable by GRE to International Bank of Commerce, interest rate of 4.5%, monthly principal and interest payments of $26,215, due April 30, 2023     2,652,428       2,841,285  
                 
Note payable to Robert Rosene, 7.5% interest, due January 15, 2020     4,469,355       4,469,355  
                 
Note payable to First Bank, prime rate of interest plus 1.45% but not less than 4.95%, monthly principal and interest payment of $30,628, due August 21, 2021     1,099,447       1,396,448  
                 
Note payable to Yorktown Management & Financial Services, LLC, 5.0% interest, due February 28, 2019, monthly principal and interest payments of $20,629     181,850       413,969  
                 
Other     252,493       310,036  
Face value of long-term debt     19,251,596       18,032,416  
Less: Debt issue costs, net of amortization     (91,370 )     (228,426 )
      19,160,226       17,803,990  
Less: Current portion     (2,324,046 )     (2,493,236 )
Long-term debt   $ 16,836,180     $ 15,310,754  

 

The prime rate of interest as of May 31, 2018 was 4.75%. Effective June 15, 2018, the prime rate of interest increased to 5.00%.

 

Loan Agreement between Greystone and International Bank of Commerce (“IBC”)

 

On January 31, 2014, Greystone and GSM (the “Borrowers”) and International Bank of Commerce (“IBC”) entered into a Loan Agreement (the “IBC Loan Agreement”). The IBC Loan Agreement, as amended, provides for certain term loans and a revolver loan.

 

Effective January 10, 2018, the Borrowers and IBC entered into the Fifth Amendment to the IBC Loan Agreement providing (i) a conversion of the existing revolver loan with an outstanding balance of $2,500,000 into Term Loan D with a maturity date of January 10, 2022, (ii) an advancing Term Loan E of $1,000,000 with a maturity date of January 10, 2022 for the procurement of production equipment, and (iii) an amended and modified revolving loan of $3,000,000 with a maturity date of January 31, 2020. The three notes bear interest at the greater of the prime rate of interest plus 0.5%, or 4.75%. At May 31, 2018, IBC had advanced $843,200 against Term Loan E.

 

Effective August 4, 2017, the Borrowers and IBC entered into the Fourth Amendment to the IBC Loan Agreement providing for Term Loan C in the amount of $1,795,000 for the purchase of certain production equipment. Term Loan C bears interest at the greater of prime plus 0.5%, or 4.00% and matures August 4, 2020.

 

The IBC term loans make equal monthly payments of principal and interest in such amounts sufficient to amortize the principal balance of (i) Term Loan A over a seven-year period beginning January 31, 2016 (currently $74,455 per month), (ii) Term Loan C over a seven-year period beginning August 31, 2017 (currently $25,205 per month) and (iii) Term Loan D over a four-year period beginning August 4, 2020 (currently $57,469 per month). Term Loan E requires monthly interest payments until January 10, 2019, after which monthly payments of principal and interest are required in an amount sufficient to amortize the loan over a four-year period. The monthly payments of principal and interest on the IBC term loans may vary as a result of changes in the prime rate of interest.

 

The IBC Loan Agreement, as amended, provides a revolving loan in an aggregate principal amount of up to $3,000,000 (the “Revolving Loan”). The exact amount which can be borrowed under the Revolving Loan from time to time is dependent upon the amount of the borrowing base, but can in no event exceed $3,000,000. The Revolving Loan bears interest at greater of the prime rate of interest plus 0.5%, or 4.75% and matures January 31, 2020. The Borrowers are required to pay all interest accrued on the outstanding principal balance of the Revolving Loan on a monthly basis. Any principal on the Revolving Loan that is prepaid by the Borrowers does not reduce the original amount available to the Borrowers.

 

The IBC Loan Agreement includes customary representations and warranties and affirmative and negative covenants which include (i) requiring the Borrowers to maintain a debt service coverage ratio of 1:25 to 1:00 and a funded debt to EBIDA ratio not exceeding 3:00 to 1:00, (ii) subject to certain exceptions, limiting the Borrowers’ combined capital expenditures on fixed assets to $1,500,000 per year, (iii) prohibiting Greystone, without IBC’s prior written consent, from declaring or paying any dividends, redemptions of stock or membership interests, distributions and withdrawals (as applicable) in respect of its capital stock or any other equity interest, other than additional payments to holders of its preferred stock in an amount not to exceed $500,000 in any fiscal year, (iv) subject to certain exceptions, prohibiting the incurrence of additional indebtedness by the Borrowers, and (v) requiring the Borrowers to prevent (A) any change in capital ownership such that there is a material change in the direct or indirect ownership of (1) Greystone’s outstanding preferred stock, and (2) any equity interest in GSM, or (B) Warren Kruger from ceasing to be actively involved in the management of Greystone as President and/or Chief Executive Officer. The foregoing list of covenants is not exhaustive and there are several other covenants contained in the IBC Loan Agreement.

 

As of May 31, 2018, Greystone was not in compliance to maintain the debt service coverage ratio required by the IBC Loan Agreement. IBC issued a waiver, dated August 27, 2018, to Greystone for failure to maintain the debt service coverage ratio at May 31, 2018.

 

The IBC Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the IBC Loan Agreement from time to time, inaccuracy of representations, violation of covenants, defaults under other agreements, bankruptcy and similar events, the death of a guarantor, certain material adverse changes relating to a Borrower or guarantor, certain judgments or awards against a Borrower, or government action affecting a Borrower’s or guarantor’s ability to perform under the IBC Loan Agreement or the related loan documents. Among other things, a default under the IBC Loan Agreement would permit IBC to cease lending funds under the IBC Loan Agreement, and require immediate repayment of any outstanding loans with interest and any unpaid accrued fees.

 

The IBC Loan Agreement is secured by a lien on substantially all of the assets of the Borrowers. In addition, the IBC Loan Agreement is secured by a mortgage granted by GRE on the real property owned by GRE in Bettendorf, Iowa (the “Mortgage”). GRE is owned by Warren F. Kruger, Greystone’s President and CEO, and Robert B. Rosene, Jr., a director of Greystone. Messrs. Kruger and Rosene have provided a combined limited guaranty of the Borrowers’ obligations under the IBC Loan Agreement, with such guaranty being limited to a combined amount of $6,500,000 (the “Guaranty”). The Mortgage and the Guaranty also secure or guaranty, as applicable, the obligations of GRE under the Loan Agreement between GRE and IBC dated January 31, 2014 as discussed in the following paragraph.

 

Loan Agreement between GRE and IBC

 

On January 31, 2014, GRE and IBC entered into a Loan Agreement (Real Estate Term Loan) (“GRE Loan Agreement) which provided for a mortgage loan to GRE of $3,412,500. The loan provides for a 4.5% interest rate and a maturity of January 31, 2019 and is secured by a mortgage on the two buildings in Bettendorf, Iowa which are leased to Greystone. As discussed in Note 16, Subsequent Event, GRE and IBC entered into the First Amendment to the GRE Loan Agreement providing for an extension of the maturity date of the loan to April 30, 2023 and a new interest rate of 5.5%.

 

Note Payable between Greystone and Robert B. Rosene, Jr.

 

Effective December 15, 2005, Greystone entered into an agreement with Robert B. Rosene, Jr., a member of Greystone’s Board of Directors, to convert $2,066,000 of advances into a note payable at 7.5% interest.

 

Effective June 1, 2016, the note payable to Mr. Rosene was restated (the “Restated Note”) whereby accrued interest of $2,475,690 was combined with the outstanding principal of $2,066,000 resulting in a note payable in the principal amount of $4,541,690 with an interest rate of 7.5% and a maturity of January 15, 2018, subsequently amended to January 15, 2020. The Restated Note requires the payment of accrued interest to Mr. Rosene. In addition, the Restated Note allows Greystone to make additional payments, at Greystone’s discretion, up to an amount allowed by the IBC Loan Agreement.

 

Note Payable between Greystone and First Bank

 

In connection with the acquisition of certain equipment from Yorktown Management & Financial Services, LLC (“Yorktown”) effective February 1, 2017, Greystone assumed a note payable in the amount of $1,469,713 between Yorktown and First Bank. The note bears interest at the prime rate of interest plus 1.45% but not less than 4.95%. The rate of interest was 6.20% at May 31, 2018. The First Bank note is secured by certain production equipment.

 

Note Payable between Greystone and Yorktown Management & Financial Services, LLC (“Yorktown”)

 

On February 29, 2016, Greystone entered into an unsecured note payable to Yorktown in the amount of $688,296 in connection with the acquisition of equipment from Yorktown. The note payable bears interest at the rate of 5% and is payable over three years with monthly principal and interest payments of $20,629.

 

Maturities

 

Maturities of Greystone’s long-term debt for the five years after May 31, 2018 are $2,324,046, $8,764,654, $3,470,454, $2,168,481 and $2,523,961.