Annual report pursuant to Section 13 and 15(d)

Note 12 - Notes Payable

v3.19.1
Note 12 - Notes Payable
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Debt Disclosure [Text Block]
1
2
.
Notes Payable
 
Platinum
 
In
July 2012,
we entered into an agreement with Platinum to provide us with a credit facility of up to
$50.0
million. Following the approval of
Tc99m
tilmanocept, Platinum was committed under the terms of the agreement to extend up to
$35.0
million in debt financing to the Company. The agreement also provided for Platinum to extend an additional
$15.0
million on terms to be negotiated. Through
June 25, 2013,
we drew a total of
$8.0
million under the original facility.
 
In
June 2013,
in connection with entering into a Loan Agreement with General Electric Capital Corporation (“GECC”) and MidCap Financial SBIC, LP (“MidCap”) (the “GECC/MidCap Loan Agreement”), the Company and Platinum entered into an Amendment to the Platinum Loan Agreement (the “First Platinum Amendment”). Concurrent with the execution of the First Platinum Amendment, the Company delivered an Amended and Restated Promissory Note (the “First Amended Platinum Note”) to Platinum, which amended and restated the original promissory note issued to Platinum, in the principal amount of up to
$35.0
million. The First Amended Platinum Note also adjusted the interest rate to the greater of (a) the U.S. Prime Rate as reported in the Wall Street Journal plus
6.75%;
(b)
10.0%;
or (c) the highest rate of interest then payable pursuant to the GECC/MidCap Loan Agreement plus
0.125%.
 
In connection with the First Platinum Amendment, the Company and Platinum entered into a Warrant Exercise Agreement (“Exercise Agreement”), pursuant to which Platinum exercised its Series
X
Warrant and Series AA Warrant. The warrants were exercised on a cashless basis by canceling a portion of the indebtedness outstanding under the Platinum Loan Agreement equal to
$4.8
million, the aggregate exercise price of the warrants. Pursuant to the Exercise Agreement, in lieu of common stock, Platinum received on exercise of the warrants
2,364.9
shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”), convertible into
7,733,223
shares of our common stock in the aggregate (
3,270
shares of common stock per preferred share).
 
In
March 2014,
in connection with entering into a Loan and Security Agreement (the “Oxford Loan Agreement”) with Oxford Finance, LLC, we entered into a
second
amendment to the Platinum Loan Agreement (the “Second Platinum Amendment”). Concurrent with the execution of the Second Platinum Amendment, the Company delivered an Amended and Restated Promissory Note (the “Second Amended Platinum Note”) to Platinum, which amended and restated the First Amended Platinum Note. The Second Amended Platinum Note adjusted the interest rate to the greater of (i) the U.S. prime rate as reported in The Wall Street Journal plus
6.75%,
(ii)
10.0%,
and (iii) the highest rate of interest then payable by the Company pursuant to the Oxford Loan Agreement plus
0.125%.
 
In
May 2015,
in connection with the execution of the CRG Loan Agreement (discussed below), the Company amended the existing Platinum credit facility to allow this facility to remain in place in a subordinated role to the CRG Loan (the “Third Platinum Amendment”). Among other things, the Third Platinum Amendment (i) extended the term of the Platinum Loan Agreement until a date
six
months following the maturity date or earlier repayment of the CRG Term Loan; (ii) changed the interest rate to the greater of (a) the U.S. prime rate as reported in The Wall Street Journal plus
6.75%,
(b)
10.0%
and (c) the highest rate of interest then payable pursuant to the CRG Term Loan plus
0.125%;
(iii) required such interest to compound monthly; and (iv) changed the provisions of the Platinum Loan Agreement governing Platinum’s right to convert advances into common stock of the Company. The Third Platinum Amendment provided for the conversion of all principal and interest outstanding under the Platinum Loan Agreement, but
not
until such time as the average daily volume weighted average price of the Company’s common stock for the
ten
preceding trading days exceeds
$2.53
per share. The Third Platinum Amendment became effective upon initial funding of the CRG Loan Agreement.
 
In accordance with the terms of a Section
16
(b) Settlement Agreement, Platinum agreed to forgive interest owed on the credit facility in an amount equal to
6%,
effective
July 1, 2016.
During the years ended
December 31, 2018
and
2017,
$153,000
and
$265,000,
respectively, of interest was compounded and added to the balance of the Platinum Note.
 
In connection with the closing of the Asset Sale to Cardinal Health
414
in
March 2017,
the Company repaid to PPCO an aggregate of approximately
$7.7
million in partial satisfaction of the Company’s liabilities, obligations and indebtedness under the Platinum Loan Agreement between the Company and Platinum-Montaur, which were transferred by Platinum-Montaur to PPCO. See Note
15.
 
The Platinum Note is reflected on the consolidated balance sheets at its principal balance plus the estimated fair value of the embedded conversion option of
$0
at
December 31, 2018
and
2017.
During the years ended
December 31, 2018
and
2017,
changes in the estimated fair value of the Platinum conversion option were
$0
and a decrease of
$153,000,
respectively, and were recorded as non-cash changes in the fair value of financial instruments. The balance of the Platinum Note, including the fair value of the embedded conversion option, was
$0
and
$2.0
million as of
December 31, 2018
and
2017,
respectively.
 
Capital Royalty Partners II, L.P.
 
In
May 2015,
Navidea and MT, as guarantor, executed a Term Loan Agreement (the “CRG Loan Agreement”) with CRG in its capacity as a lender and as control agent for other affiliated lenders party to the CRG Loan Agreement (collectively, the “Lenders”) in which the Lenders agreed to make a term loan to the Company in the aggregate principal amount of
$50.0
million (the “CRG Term Loan”), with an additional
$10.0
million in loans to be made available upon the satisfaction of certain conditions stated in the CRG Loan Agreement. Closing and funding of the CRG Term Loan occurred on
May 15, 2015 (
the “Effective Date”). The principal balance of the CRG Term Loan bore interest from the Effective Date at a per annum rate of interest equal to
14.0%.
Through
March 31, 2019,
the Company had the option of paying (i)
10.00%
of the per annum interest in cash and (ii)
4.00%
of the per annum interest as compounded interest which is added to the aggregate principal amount of the CRG Term Loan. During
2015
and
2016,
a total of
$1.8
million of interest was compounded and added to the balance of the CRG Term Loan. In addition, the Company began paying the cash portion of the interest in arrears on
June 30, 2015.
Principal was due in
eight
equal quarterly installments during the final
two
years of the term. All unpaid principal, and accrued and unpaid interest, was due and payable in full on
March 31, 2021.
Pursuant to a notice of default letter sent to Navidea by CRG in
April 2016,
the Company stopped compounding interest in the
second
quarter of
2016
and began recording accrued interest.
 
The CRG Term Loan was collateralized by a security interest in substantially all of the Company's assets. In addition, the CRG Loan Agreement required that the Company adhere to certain affirmative and negative covenants, including financial reporting requirements and a prohibition against the incurrence of indebtedness, or creation of additional liens, other than as specifically permitted by the terms of the CRG Loan Agreement. The Lenders could accelerate the payment terms of the CRG Loan Agreement upon the occurrence of certain events of default set forth therein, which include the failure of the Company to make timely payments of amounts due under the CRG Loan Agreement, the failure of the Company to adhere to the covenants set forth in the CRG Loan Agreement, and the insolvency of the Company. The covenants of the CRG Loan Agreement included a covenant that the Company shall have EBITDA of
no
less than
$5.0
million in each calendar year during the term or revenues from sales of
Tc99m
tilmanocept in each calendar year during the term of at least
$22.5
million in
2016,
with the target minimum revenue increasing in each year thereafter until reaching
$45.0
million in
2020.
However, if the Company were to fail to meet the applicable minimum EBITDA or revenue target in any calendar year, the CRG Loan Agreement provided the Company a cure right if it raised
2.5
times the EBITDA or revenue shortfall in equity or subordinated debt and deposited such funds in a separate blocked account. Additionally, the Company was required to maintain liquidity, defined as the balance of unencumbered cash and permitted cash equivalent investments, of at least
$5.0
million during the term of the CRG Term Loan. The events of default under the CRG Loan Agreement also included a failure of Platinum to perform its funding obligations under the Platinum Loan Agreement 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. 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 course of
2016,
CRG alleged multiple claims of default on the CRG Loan Agreement, and filed suit in the District Court of Harris County, Texas (the “Texas Court”) on
April 7, 2016.
On
June 22, 2016,
CRG exercised control over
one
of the Company’s primary bank accounts and took possession of
$4.1
million that was on deposit, 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. Multiple motions, actions and hearings followed over the remainder of
2016
and into
2017.
 
On
March 3, 2017,
the Company entered into a Global Settlement Agreement with MT, CRG, and Cardinal Health
414.
In accordance with the Global Settlement Agreement, on
March 3, 2017,
the Company repaid
$59.0
million of its indebtedness and other obligations outstanding under the CRG Term Loan.
 
Following a trial in
December 2017,
the Texas Court ruled that the Company’s total obligation to CRG was in excess of
$66.0
million, limited to
$66.0
million under the Global Settlement Agreement. The Texas Court acknowledged only the
$59.0
million payment made in
March 2017,
concluding that the Company owed CRG another
$7.0
million, however the Texas Court did
not
expressly take the Company’s
June 2016
payment of
$4.1
million into account and awarded, as part of the
$66.0
million, amounts that had already been paid as part of the
$4.1
million. In
April 2018,
CRG drew approximately
$7.1
million on a letter of credit that was established pursuant to the Global Settlement Agreement. This was in addition to the
$4.1
million and the
$59.0
million that Navidea had previously paid to CRG. The Company believes that the
$4.1
 million should be credited against the
$7.0
million and is currently pursuing recovery of
$4.1
million and other damages. See Note
15.
 
I
PFS Corporation
 
In
November 2017,
we prepaid
$396,000
of insurance premiums through the issuance of a note payable to IPFS Corporation (“IPFS”) with an interest rate of
4.0%.
The note was payable in
ten
monthly installments of
$40,000,
with the final payment made in
August 2018.
In
November 2018,
we prepaid
$393,000
of insurance premiums through the issuance of a note payable to IPFS with an interest rate of
5.1%.
The note is payable in
ten
monthly installments of
$40,000,
with the final payment due in
August 2019.
 
Interest expense related to the IPFS notes payable totaled
$8,000
and
$12,000
during the years ended
December 31, 2018
and
2017,
respectively. The balance of the IPFS note was approximately
$316,000
and
$318,000
as of
December 31, 2018
and
2017,
respectively, and was included in notes payable, current in the consolidated balance sheets.
 
Summary
 
During the years ended
December 31, 2018
and
2017,
we recorded interest expense of
$161,000
and
$159,000,
respectively, related to our notes payable. Of those amounts,
$153,000
and
$134,000
was compounded and added to the balance of our notes payable during the years ended
December 31, 2018
and
2017.
 
Interest expense in the amount of
$1,706,491
during the year ended
December 31, 2017
has been reclassified to discontinued operations. See Note
3.
 
Annual principal maturities of our notes payable are
$316,000
in
2019.