|6 Months Ended|
Jun. 30, 2016
All of our material assets, except our intellectual property, have been pledged as collateral for our borrowings under the Term Loan Agreement (the CRG Loan Agreement) with CRG. In addition to the security interest in our assets, the CRG Loan Agreement carries covenants that impose significant requirements on us, including, among others, requirements that we (1) pay all principal, interest and other charges on the outstanding balance of the borrowed funds when due; (2) maintain liquidity of at least $5 million during the term of the CRG Loan Agreement; and (3) meet certain annual EBITDA or revenue targets ($22.5 million of Lymphoseek sales revenue in 2016) as defined in the CRG Loan Agreement. The events of default under the CRG Loan Agreement also include a failure of Platinum-Montaur Life Sciences LLC, an affiliate of Platinum Management (NY) LLC, Platinum Partners Value Arbitrage Fund L.P., Platinum Partners Liquid Opportunity Master Fund L.P., Platinum Liquid Opportunity Management (NY) LLC, and Montsant Partners LLC (collectively, Platinum) to perform its funding obligations under the Platinum Loan Agreement (as defined below) at any time as to which the Company had negative EBITDA for the most recent fiscal quarter, as a result either of Platinum’s repudiation of its obligations under the Platinum Loan Agreement, or the occurrence of an insolvency event with respect to Platinum.
Our ability to comply with the covenants of the CRG Loan Agreement may be affected by changes in our business condition or results of our operations, or other events beyond our control. An event of default would entitle CRG to accelerate the maturity of our indebtedness, increase the interest rate from 14% to the default rate of 18% per annum, and invoke other remedies available to it under the loan agreement and the related security agreement.
During the second quarter of 2016, CRG alleged multiple claims of default on the CRG Loan Agreement, and filed suit in The District Court of Harris County, Texas. On June 22, 2016, CRG exercised control over one of the Company’s primary bank accounts, withdrawing $4.1 million and applying $3.9 million of the cash to various fees, including collection fees, a prepayment premium and an end-of-term fee. The remaining $189,000 was applied to the principal balance of the debt. As of June 30, 2016, the Company’s unrestricted cash balance was $1.2 million. Also in June 2016, CRG contacted our primary distribution partner, Cardinal Health, and demanded that Cardinal Health make all future payments for Lymphoseek sales directly to CRG, rather than to Navidea. Cardinal Health filed an interpleader in Franklin County, Ohio court, requesting that the court make a determination as to whom Cardinal Health should make such payments. On June 28, 2016, Navidea won a temporary restraining order (TRO) from the Ohio court, allowing the Company to receive 50% of the receivables due from Cardinal Health, with the remaining 50% to be placed in a court-controlled escrow account until the Texas Court has ruled. On August 1, 2016, Navidea successfully negotiated a revised TRO, allowing the Company to receive 75% of the receivables due from Cardinal Health, with the remaining 25% to be placed in escrow until the escrow account reaches $1 million, after which 100% of payments are to be made to Navidea.
The Company maintains that CRG’s allegations of multiple events of default under the CRG Loan Agreement are without merit and the Company believes it has defenses against these claims. Furthermore, the Company believes that CRG’s actions constitute a material breach of the CRG Loan Agreement and therefore, the Company is no longer subject to certain provisions of the CRG Loan Agreement. We are continuing to explore alternative financing arrangements in order to refinance the CRG debt. We believe that our best course of action is to refinance the CRG debt and pursue claims for damages. There can be no assurance that CRG will not prevail in exercising control over any additional banking arrangements that the Company creates, that the Company will be able to refinance the CRG debt or that the Company will be successful in its claims for damages. In light of current circumstances, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon its ability to generate sufficient cash flow to sustain its operations on a timely basis, to obtain additional financing as may be required, and to refinance the CRG debt. See Notes 8 and 9.
In addition, our Loan Agreement with Platinum (the Platinum Loan Agreement) carries standard non-financial covenants typical for commercial loan agreements, many of which are similar to those contained in the CRG Loan Agreement, that impose significant requirements on us. Our ability to comply with these provisions may be affected by changes in our business condition or results of our operations, or other events beyond our control. The breach of any of these covenants would result in a default under the Platinum Loan Agreement, permitting Platinum to terminate our ability to obtain additional draws under the Platinum Loan Agreement and accelerate the maturity of the debt, subject to the limitations of the Subordination Agreement with CRG. Such actions by Platinum could materially adversely affect our operations, results of operations and financial condition, including causing us to substantially curtail our product development activities.
The Platinum Loan Agreement includes a covenant that results in an event of default on the Platinum Loan Agreement upon default on the CRG Loan Agreement. As discussed above, the Company is maintaining its position that CRG’s alleged claims do not constitute events of default under the CRG Loan Agreement and believes it has defenses against such claims. The Company has obtained a waiver from Platinum confirming that we are not in default under the Platinum Loan Agreement as a result of the alleged default on the CRG Loan Agreement and as such, we are currently in compliance with all covenants under the Platinum Loan Agreement.
As of June 30, 2016, the outstanding principal balance of the Platinum Note was approximately $9.1 million, with $27.3 million currently available under the credit facility. An additional $15 million is potentially available under the credit facility on terms to be negotiated. However, based on Platinum’s recently stated intent to liquidate their funds, Navidea has substantial doubt about Platinum’s ability to fund future draw requests under the credit facility. The inability to access credit under the Platinum Loan Agreement or other potentially available arrangements could materially adversely affect our operations and financial condition and our ability to continue as a going concern. See Note 8.