7. NOTES PAYABLE
|12 Months Ended|
Dec. 31, 2018
|Debt Disclosure [Abstract]|
|7. NOTES PAYABLE||
Senior Notes Payable
A summary of outstanding senior notes payable as of December 31, 2018 and 2017 is as follows:
On October 10, 2017 (the “Marathon Closing Date”), the Company entered into a Credit Agreement (the “Marathon Credit Agreement”) with Marathon Healthcare Finance Fund, L.P. (“Marathon” or the “Lender”) and Wilmington Trust, National Association, as the administrative agent for the Lender (the “Administrative Agent”). The Marathon Credit Agreement provided for a senior secured term loan facility in an aggregate amount of up to $40.0 million (collectively, the “Marathon Credit Facility”), comprised of (i) a term loan made on the Marathon Closing Date in the principal amount of $30.0 million evidenced by a secured promissory note (the “Tranche One Note”), and (ii) an additional term loan evidenced by a secured promissory note to be made in the maximum principal amount not to exceed $10.0 million (the “Tranche Two Note” and, together with the Tranche One Note, the “Notes”), which Tranche Two Note availability was subject to the satisfaction of certain conditions. The Notes each had a maturity date of April 10, 2022 (the “Maturity Date”), subject to acceleration pursuant to the Marathon Credit Agreement, including upon an Event of Default (as defined in the Marathon Credit Agreement).
Borrowings under the Marathon Credit Agreement bore interest at a rate per annum equal to LIBOR plus 9.50% with a 1% LIBOR floor. During an Event of Default under the Marathon Credit Agreement, the outstanding amount of indebtedness under the Marathon Credit Agreement would bear interest at a rate per annum equal to the interest rate then applicable to the borrowings under the Marathon Credit Agreement plus 5% per annum. Quarterly cash interest payments were due the first business day of each March, June, September and December, beginning on December 1, 2017. During the years ended December 31, 2018 and 2017, the interest rate on the Tranche One Note ranged from 10.86% to 12.24%.
The Marathon Credit Agreement required payment of a facility fee to Marathon in an amount equal to 9.20% of the amount of the Tranche One Note, payment of which was deferred until the earlier of the prepayment date or the Maturity Date. Commencing on October 10, 2020, the Company would have been required to make principal payments on the Tranche One Note in equal monthly installments over 18 months, subject to certain conditions in the Marathon Credit Agreement.
The Marathon Credit Agreement contained market representations and warranties, affirmative covenants, negative covenants, financial covenants, and conditions that are customarily required for similar financings. The affirmative covenants, among other things, required the Company to undertake various reporting requirements. The negative covenants restricted or limited the ability of the Company and its subsidiaries to, among other things, incur new indebtedness; create liens on assets; engage in certain fundamental corporate changes or changes to the Company’s business activities; sell or otherwise dispose of assets; repurchase stock, pay dividends; repay certain other indebtedness; engage in certain affiliate transactions; or enter into any other agreements that restrict the Company’s ability to make loan repayments.
The Marathon Credit Agreement also required the establishment of a debt service reserve account, and the Company was required to maintain a certain minimum level of liquidity at all times. Liquidity is defined in the Marathon Credit Agreement as cash held in the debt service reserve account and any other deposit account subject to a control agreement with the Administrative Agent, and the required liquidity amount is reflected as restricted cash in the accompanying consolidated balance sheets as of December 31, 2018 and December 31, 2017. The minimum liquidity requirement was $4.0 million and $5.5 million as of December 31, 2018 and December 31, 2017, respectively. On May 31, 2018, the Marathon Credit Agreement was amended to reduce the minimum liquidity requirement to $5.25 million, and $250,000 was released from the debt service reserve account to the Company on June 25, 2018. On June 26, 2018, the Lender and the Administrative Agent acknowledged that the Company had met the requirements regarding its leased properties as set forth in the Marathon Credit Agreement, and an additional $1.25 million was released from the debt service reserve account to the Company.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the accompanying consolidated balance sheets and statements of cash flows:
The Marathon Credit Agreement also contained customary Events of Default which include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgments, cross-defaults to material contracts and events constituting a change of control. The occurrence of an Event of Default could have resulted in, among other things, the termination of commitments under the Marathon Credit Facility and the declaration that all outstanding Loans were immediately due and payable in whole or in part. At December 31, 2018 and December 31, 2017, the Company was in compliance with all of the covenants contained in the Marathon Credit Agreement.
As consideration for the Marathon Credit Agreement, the Company issued warrants to purchase an aggregate of 339,301 shares of the Company’s common stock to the Lender and certain of its affiliates (the “Tranche One Warrants”). The Tranche One Warrants, which the Company valued at $0.6 million, have (i) an exercise price equal to $3.0946, which was the trailing 10-day volume weighted-average price of the Company’s common stock prior to the Marathon Closing Date, and (ii) an expiration date of October 10, 2024. The Company issued the Tranche One Warrants in reliance upon an exemption from registration contained in Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”). The Tranche One Warrants and the shares of common stock issuable thereunder may not be offered, sold, pledged or otherwise transferred in the U.S. absent registration or an applicable exemption from the registration requirements under the Securities Act.
As a result of the diligence fees, legal and other expenses associated with the Marathon Credit Facility, the Tranche One Warrants and the facility fee, the Company recognized a discount on the Tranche One Note on the Marathon Closing Date in the amount of $4.8 million as follows:
The Company records debt discount as a reduction to the face amount of the debt, and debt discount is amortized as interest expense over the life of the debt using the interest method. Based on the fair value of the Tranche One Warrants, the facility fee and the fees and expenses associated with obtaining the Credit Facility, the effective interest rate on the Tranche One Note as of the Marathon Closing Date was approximately 16.5%. The Company’s obligations under the Marathon Credit Agreement were secured by a first-priority lien and security interest in substantially all of the Company’s assets, including a mortgage on the Boca Facility, and those of the Company’s subsidiaries as well as all of the equity interests in each subsidiary.
On February 11, 2019, the Company entered into a new senior credit facility with another lender, as more fully described in Note 17, whereby the Company repaid in full all of the outstanding obligations under the Marathon Credit Facility, including the deferred facility fee, and Marathon released to the Company the remaining $4.0 million contained in the debt service reserve account.
Related Party Note Payable
A summary of the outstanding related party note payable is as follows:
In connection with the acquisition of the Biotest Assets (see Note 3), ADMA BioManufacturing issued a subordinated note payable to BPC and in connection therewith received cash proceeds of $15.0 million. The note bears interest at a rate of 6.0% per annum and matures on June 6, 2022. The Company is obligated to make semi-annual interest payments, with all principal and unpaid interest due at maturity. The note is subordinate to the amounts outstanding under the Company’s existing senior credit facility. In the event of default, all principal and unpaid interest is due on demand. The subordinated note also contains several non-financial covenants with which the Company was in compliance as of December 31, 2018 and 2017. The Company incurred $0.2 million of debt issuance costs in connection with the issuance of this note, which were recorded as a debt discount. The debt discount is being amortized as interest expense over the term of the note.
On July 20, 2018, in connection with the U.S. Government required divestiture of all of BPC’s U.S. assets in connection with the sale of Biotest AG to CREAT Group Corporation, Biotest AG, BPC, ADMA BioManufacturing and the Company entered into an Assignment and Assumption Agreement whereby BPC transferred to Biotest AG all of its obligations, rights, title and interest in the subordinated note and the related loan agreements.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef