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Senior Convertible Notes
12 Months Ended
Dec. 31, 2011
Senior Convertible Notes [Abstract]  
Senior Convertible Notes

Note F. Senior Convertible Notes

On July 26, 2004, the Company issued $65 million of 5-1/2% Convertible Senior Notes Due 2014 (the "Senior Notes"), with a maturity date of July 31, 2014 and each Holder, as defined under the indenture dated July 26, 2004 (the "Indenture"), had the right to demand that we repurchase the Senior Notes at par plus accrued interest on July 31, 2009. The Senior Notes ranked senior in right of payment to all of our existing and future subordinated indebtedness. The Senior Notes were secured by our tangible and intangible assets and by a pledge of the equity interests of each of our subsidiaries and a mortgage on our property in Monticello, New York. The Senior Notes accrued interest from and after July 31, 2005 at an annual rate of 8%.

Under the terms of the Senior Notes, the Company had an obligation to repurchase any of the Senior Notes at a price equal to 100% of their principal amount on July 31, 2009; to the extent that the Holder, as defined under the Indenture, delivered a properly executed Put Notice, as defined under the Indenture. The Company sought a judicial determination, which it refers to as the "Action," in the Supreme Court of New York, Sullivan County (the "Sullivan County Court"), against the beneficial owners of the Senior Notes, as well as The Depository Trust Company ("DTC") and the Bank of New York Mellon Corporation (the "Trustee," and together with DTC, the "Defendants") that (1) no Holder, delivered an executed Put Notice to the office of the Trustee within the lawfully mandated time for exercise of a Holder's put rights under the Indenture prior to the close of business on July 31, 2009, and that (2) the three entities that gave the purported notice of default may not and have not accelerated the Senior Notes or invoked certain other consequences of a default. On April 8, 2010, the Company received the Decision and Order (the "Decision") from the Sullivan County Court granting the Defendants' motion for summary judgment. The Decision provides that the Sullivan County Court has determined that the Defendants properly exercised the option requiring the Company to repurchase the Senior Notes, that the Company is in default under the Senior Notes with respect to its failure to repurchase the Senior Notes on July 31, 2009 and that the company must now repurchase the Senior Notes. On May 11, 2010, the Company filed a notice of appeal with the Third Judicial Department of the Appellate Division of the Supreme Court of the State of New York (the "Appellate Division") to appeal the Decision.

 

A failure to have repurchased the Senior Notes when required would have resulted in an "Event of Default" under the Indenture. Due to the "Event of Default," the accrued interest increased to an annual rate of 9% on the overdue principal as of August 4, 2009, the date of the purported occurrence of the Event of Default, through November 18, 2010, the date the Company paid-off the Senior Notes.

In connection with settlement discussions with the holders of the Senior Notes, the Company redeemed $5 million principal amount of the Senior Notes on July 30, 2010 and an additional $5 million principal amount of the Senior Notes on August 12, 2010. On September 23, 2010, the Company entered into a settlement agreement with beneficial owners of approximately 93.7% of the outstanding principal amount of the Senior Notes and the Trustee, pursuant to which the parties agreed to settle all claims relating to the Action (the "Settlement Agreement"). All accrued and unpaid interest to be paid with respect to the Senior Notes pursuant to the terms of the Settlement Agreement included interest due on overdue principal and interest at the default rate provided in the Senior Notes, assuming that the principal of and interest on the Senior Notes became due and payable in full on August 3, 2009. Upon the consummation of the transactions contemplated by the Settlement Agreement, the parties thereto have agreed to release mutually all claims.

On November 17, 2010, Empire entered into a loan agreement (the "Loan Agreement") with Kien Huat Realty III Limited ("Kien Huat"), our largest stockholder, to provide, subject to the conditions contained therein to us a short-term bridge loan to a rights offering (the "Bridge Loan") pursuant to which Empire received aggregate proceeds of $35 million from Kien Huat, which proceeds was used, together with available funds, to repay in full its obligations under the Senior Notes, including outstanding principal and interest then owed on the Senior Notes plus an additional $975,000, as permitted under the Settlement Agreement (see Note G).

We recognized interest expense associated with the Senior Notes of approximately $5.2 million during the year ended December 31, 2010. Included in the interest expense associated with the Senior Notes for the year ended December 31, 2010, was default interest expense of approximately $814,000.