| Debt | 8. Debt
5.50% Convertible Senior Notes Due 2020
In April and May 2015, the Company issued through a private placement $61.0 million in aggregate principal amount of the 5.50% Notes. Interest on the 5.50% Notes is payable semi-annually in arrears on April 1 and October 1 of each year and commenced on October 1, 2015. As of September 30, 2018, a total of $24.7 million in principal amount of the 5.50% Notes remained outstanding.
The 5.50% Notes are general, unsecured and unsubordinated obligations of Egalet Corporation and rank senior in right of payment to all of Egalet Corporation’s indebtedness that is expressly subordinated in right of payment to the 5.50% Notes. The 5.50% Notes are effectively subordinated to any secured indebtedness of the Company to the extent of the value of the assets securing such indebtedness.
The Company may not redeem the 5.50% Notes prior to maturity. Prior to the filing of the Bankruptcy Petitions (the “Petition Date”), the 5.50% Notes were convertible prior to maturity, subject to certain conditions described below, into shares of the Company’s common stock, par value $0.001 per share (“Common Stock”) at an initial conversion rate of 67.2518 shares per $1,000 principal amount of the 5.50% Notes (equivalent to an initial conversion price of approximately $14.87 per share of Common Stock). This conversion rate is subject to adjustment upon the occurrence of certain specified events, but will not be adjusted for accrued and unpaid interest. The Company is obligated to satisfy the conversion obligation by paying or delivering, as the case may be, cash, shares of the Company’s Common Stock or a combination thereof, at the Company’s election.
Prior to the Petition Date, holders would have the right to convert all or any portion of their 5.50% Notes, in multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding January 1, 2020 only under the following circumstances:
·
on or after the date that is six months after the last date of original issuance of the 5.50% Notes, if the last reported sale price of the Company’s Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending within the five trading days immediately preceding a conversion date is greater than or equal to the conversion price for the 5.50% Notes on each applicable trading day;
·
during the five business day period after any five consecutive trading day period, (the “measurement period”), in which the trading price per $1,000 principal amount of 5.50% Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s Common Stock and the conversion rate on each such trading day; or
·
upon the occurrence of specified corporate events, including Fundamental Changes, as defined in the indenture governing the 5.50% Notes (“the 5.50% Notes Indenture”).
On or after January 1, 2020 until the close of business on the second scheduled trading day immediately preceding the maturity date (April 1, 2020), holders may convert all or any portion of their 5.50% Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
Upon conversion, the Company would be obligated to pay or deliver cash, shares of the Company’s Common Stock or a combination of cash and shares of the Company’s Common Stock, at the Company’s election, and an interest make-whole payment in shares of the Company’s Common Stock, if applicable. If the Company satisfies the conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of the Company’s Common Stock, the amount of cash and shares of the Company’s Common Stock, if any, due upon conversion will be based on a daily conversion value calculated on a proportionate basis for each trading day in a 50 trading day observation period.
In addition, following certain corporate events that occur prior to the maturity date, the Company is obligated to increase the conversion rate for a holder who elects to convert its 5.50% Notes in connection with such a corporate event in certain circumstances. Holders will not receive any additional cash payment or additional shares representing accrued and unpaid interest, if any, upon conversion of a note, except in limited circumstances. Instead, interest will be deemed to be paid in full, rather than cancelled, extinguished or forfeited from the consideration paid to the holders upon conversion of a 5.50% Note.
On or after the date that is six months after the last date of original issuance of the 5.50% Notes, if the last reported sale price of the Company’s Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending within the five trading days immediately preceding a conversion date is greater than or equal to the conversion price for the 5.50% Notes on each applicable trading day, the Company is obligated to, in addition to the other consideration payable or deliverable in connection with such conversion, make an interest make-whole payment to the converting holder equal to the sum of the present value of the remaining scheduled payments of interest that would have been made on the 5.50% Notes to be converted had such notes remained outstanding from the conversion date through April 1, 2018, computed using a discount rate equal to 2%. The Company is obligated to pay any interest make-whole payment by delivering shares of the Company’s Common Stock valued at 95% of the simple average of the daily volume weighted average price for the 10 trading days ending on and including the trading day immediately preceding the conversion date. Notwithstanding the foregoing, the number of shares the Company may deliver in connection with a conversion of the 5.50% Notes, including those delivered in connection with an interest make-whole payment, will not exceed 77.3395 shares of the Company’s Common Stock per $1,000 principal amount of 5.50% Notes, subject to adjustment. The Company will not be required to make any cash payments in lieu of any fractional shares or have any further obligation to deliver any shares of the Company’s Common Stock or pay any cash in excess of the threshold described above. In addition, if in connection with any conversion the conversion rate is adjusted, then such holder will not receive the interest make-whole payment with respect to such 5.50% Note.
Certain provisions in the 5.50% Notes could require accelerated payment of principal and interest. The 5.50% Notes provide that the delisting of the Company’s Common Stock from the Nasdaq Global Market would constitute a “fundamental change” under the 5.50% Notes, which would entitle the holder, at the holder’s option, to require the Company to repurchase for cash all or any portion of such holder’s 5.50% Notes at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon.
On July 31, 2018, the Company filed a Tender Offer Statement on Schedule TO with respect to the Offer in accordance with the requirements of the indenture governing the 5.50% Notes Indenture. The expiration, termination and withdrawal of the Offer without payment on September 19, 2018 resulted in none of the 5.50% Notes that were tendered in the Offer being accepted for purchase and no consideration was paid to holders of 5.50% Notes who tendered their 5.50% Notes in the Offer. All 5.50% Notes previously tendered and not withdrawn were returned or credited back to the respective holders thereof. Consequently, the failure of the Company to complete the Offer in accordance with the terms of the 5.50 % Notes Indenture constituted an Event of Default thereunder. Refer to Note 1– Organization and Description of the Business – Liquidity and Substantial Doubt in Going Concern – Nasdaq Transfer and Delisting; Tender Offer and Note 17 – Subsequent Events for further details.
As a result of the Nasdaq Transfer and the corresponding Fundamental Change under the 5.50% Notes Indenture, the conversion criteria for the 5.50% Notes was met as of July 11, 2018 and, as an Event of Default (as defined in the 5.50% Indenture) occurred on September 19, 2018 when the Company failed to consummate the Offer and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the outstanding 5.50% Notes have the right pursuant to the 5.50% Note Indenture to declare all the outstanding 5.50% Notes to be due and payable immediately. However, any efforts to enforce such payment obligations under the 5.50% Notes Indenture are automatically stayed as a result of the Bankruptcy Petitions and the creditors’ rights of enforcement in respect of the 5.50% Notes Indenture are subject to the applicable provisions of the Bankruptcy Code. In addition, pursuant to the Support Agreement, the Supporting Noteholders have agreed to forbear from exercising any of their rights and remedies under the applicable Existing Debt Instruments (as defined below) pending the outcome of the Bankruptcy Petitions.
The Company accounts for convertible debt instruments by recording the liability and equity components of the convertible debt separately. The liability is computed based on the fair value of a similar debt instrument that does not include the conversion option. The liability component includes both the value of the embedded interest make-whole derivative and the carrying value of the 5.50% Notes. The equity component is computed based on the total debt proceeds less the fair value of the liability component. The equity component is also recorded as debt discount and amortized as interest expense over the expected term of the 5.50% Notes, using the effective interest method.
The failure of the Company to complete the Tender Offer in accordance with the terms of the Indenture governing the 5.50% Notes constituted an Event of Default. Accordingly, the holders of the 5.50% Notes (or the trustee under the applicable indenture) have the right to accelerate and declare due and payable immediately all principal and accrued but unpaid interest with respect to the 5.50% Notes.
The liability component of the 5.50% Notes on the date of issuance was computed as $41.6 million, including the value of the embedded interest make-whole derivative of $0.9 million and the carrying value of the 5.50% Notes of $40.6 million. Accordingly, the equity component on the date of issuance was $19.4 million. The discount on the 5.50% Notes is being amortized to interest expense over the term of the 5.50% Notes, using the effective interest method.
Transaction costs of $4.1 million related to the issuance of the 5.50% Notes were allocated to the liability and equity components in proportion to the allocation of the proceeds and accounted for as debt discount and equity issuance costs, respectively. Approximately $1.3 million of this amount was allocated to equity and the remaining $2.8 million was recorded as debt discount at issuance.
In September 2016, in connection with the issuance of the 13% Notes (as defined below), the Company and its subsidiaries entered into supplemental indentures with the trustee for the 5.50% Notes pursuant to which the Company’s subsidiaries became guarantors under the 5.50% Notes Indenture.
In December 2017, the Company exchanged, with certain existing 5.50% Noteholders, $36.4 million in principal amount of the 5.50% Notes for (i) approximately $23.9 million of the Company’s new 6.50% Notes, (ii) a warrant exercisable for 3.5 million shares of the Company’s Common Stock and (iii) payments, in cash, of all accrued but unpaid interest as of the closing of the 5.50% Notes exchanged in the transaction. This exchange was accounted for as a debt extinguishment and the gain on debt extinguishment of $13.2 million, inclusive of the make-whole payments and write-off of deferred financing fees, is reflected in the Company’s consolidated statements of operations during the year ended December 31, 2017.
The following table summarizes how the issuance of the 5.50% Notes is reflected in the Company’s consolidated balance sheets at December 31, 2017 and September 30, 2018:
December 31, 2017
September 30, 2018
(in thousands)
Principal
$
24,650
$
24,650
Unamortized debt discount
(4,222)
—
Carrying value
$
20,428
$
24,650
The carrying value of the 5.50% Notes was classified as a non-current liability on the Company’s consolidated balance sheets at December 31, 2017. The carrying value of the 5.50% Notes was classified as a current liability on the Company’s consolidated balance sheets at September 30, 2018 due to the circumstances described above with respect to the continuing Events of Default. Given these continuing Events of Default, the Company reevaluated the remaining contractual term of the 5.50% Notes and recorded a charge to interest expense of $2.9 million during the three and nine months ended September 30, 2018. Refer to Note 1- Organization and Description of the Business and Note 17 – Subsequent Events for further details.
6.50% Convertible Notes Due 2024
In December 2017, the Company entered into exchange agreements (the “Exchange Agreements”) with certain holders (the “Holders”) of the Company’s 5.50% Notes pursuant to which the Holders agreed to exchange, in the aggregate, approximately $36.4 million of outstanding principal amount of the 5.50% Notes for, in the aggregate, (i) approximately $23.9 million of the Company’s new 6.50% Notes, (ii) a warrant exercisable for 3.5 million shares of the Company’s Common Stock at an exercise price of $0.01 per share and (iii) payments, in cash, of all accrued but unpaid interest as of the closing on the 5.50% Notes exchanged in the transaction (the “Exchange”). At the closing of the Exchange, 2.5 million warrants were exercised. The remaining 1.0 million warrants were exercised in January 2018.
The Company consummated the Exchange in reliance upon the exemption from registration provided by Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”) and pursuant to an indenture (the “Indenture”), dated December 27, 2017, by and among the Company, the subsidiary guarantors party thereto as of the date thereof, and The Bank of New York Mellon, as trustee (the “Trustee”).
At the date of Exchange, December 27, 2017, the Company did not have sufficient unissued authorized shares to cover the conversion of the outstanding 6.50% Notes and as a result was required to account for the bifurcated conversion feature as a derivative liability which results in a debt discount on the 6.50% Notes. The fair value of the derivative liability for the conversion feature at the date of Exchange was determined to be approximately $15.0 million and was classified as a liability in the Company’s consolidated balance sheet as of December 31, 2017, with subsequent changes to fair value recorded through earnings at each reporting period on the Company’s consolidated statements of operations and comprehensive loss as change in fair value of derivative liabilities.
As a result of the Charter Amendment, as of February 14, 2018, the Company had reserved sufficient shares of its Common Stock to satisfy the conversion provisions of the 6.50% Notes and accordingly, the conversion feature is considered indexed to the Company’s Common Stock and the fair value of the conversion feature at the date of approval, $12.5 million, was reclassified from a liability into stockholders' equity during the first quarter of 2018.
The Company is obligated to pay interest on the 6.50% Notes semiannually in arrears on January 1 and July 1 of each year commencing July 1, 2018 at a rate of 6.50% per year, which rate is subject to adjustment in accordance with the terms of the Indenture (the 6.50% Notes Indenture”) and as described below. The 6.50% Notes are general unsecured obligations of the Company and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The 6.50% Notes will mature on December 31, 2024, unless earlier repurchased, redeemed or converted in accordance with the terms of the 6.50% Notes Indenture prior to such date. Subject to certain conditions, on or after January 1, 2021, the Company may redeem for cash all or a part of the 6.50% Notes. The 6.50% Notes will be convertible at any time until the close of business on the business day immediately preceding the maturity date. Upon conversion and subject to certain conditions, holders of the 6.50% Notes are entitled to receive shares of the Company’s Common Stock at an initial conversion rate of 749.6252 shares of Common Stock per $1,000 principal amount of 6.50% Notes, which is equivalent to an initial conversion price of approximately $1.33 per share and is subject to adjustment under the terms of the 6.50% Notes Indenture. Similar to the 5.50% Notes, the 6.50% Notes provide for an interest make-whole payment in connection with conversions that occur prior to January 1, 2021. For any Conversion Date that occurs prior to the close of business on the business day immediately preceding January 1, 2021, the Company is obligated to, in addition to the other consideration payable or deliverable in connection with any conversion of Notes, make an interest make-whole payment in cash or in shares of Common Stock, at the Company’s election, to such converting Holder equal to the sum of the present value of the remaining scheduled payments of interest that would have been made on the Notes to be converted had such Notes remained outstanding from the Conversion Date through January 1, 2021. The present values will be computed using a discount rate equal to 2% by a U.S. nationally recognized independent investment banking firm.
If an event of default (as defined in the 6.50% Notes Indenture) occurs and is continuing (other than specified events of bankruptcy or insolvency with respect to the Company), the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding 6.50% Notes may declare all the outstanding 6.50% Notes to be due and payable immediately. If an event of default relating to specified events of bankruptcy or insolvency with respect to the Company occurs, all the outstanding 6.50% Notes will immediately become due and payable without any declaration or other act on the part of the trustee or any holders of the 6.50% Notes. Notwithstanding the foregoing, the 6.50% Notes Indenture provides that, to the extent the Company elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the 6.50% Notes Indenture will, for the first 180 days after such event of default, consist exclusively of the right to receive additional interest on the 6.50% Notes. Events of default under the 6.50% Notes Indenture include, among other things, a default in payment of principal on the 6.50% Notes (including upon any required repurchase), a default in payment of any other indebtedness for money borrowed in excess of $5,000,000 if such default is not cured or waived within 30 days and certain events of bankruptcy or insolvency, both voluntary and involuntary.
In addition, the 6.50% Notes Indenture required the Company to use its reasonable best efforts to (i) seek stockholder approval of an amendment to the Company’s Third Amended & Restated Certificate of Incorporation, as amended, to increase the amount of authorized shares available for issuance thereunder, and (ii) upon such approval, to reserve from such amount the number of shares that may be issued in respect of the 6.50% Notes and any other securities issued in connection with the Exchange. In February 2018, the Company held a special meeting of stockholders (the “Special Meeting”) and received stockholder approval of an amendment to the Company’s Third Amended and Restated Certificate of Incorporation (the “Charter Amendment”) to increase authorized shares by 200,000,000 shares. Refer to Note 9- Stockholders’ Equity for further details. The Exchange Agreements also provide that, for a period of nine months, the Company will not enter into additional exchange transactions with the other holders of the 5.50% Notes the economic terms of which, taken is a whole, are more favorable to the 5.50% Note holders than the December 2017 Exchange.
Certain provisions in the 6.50% Notes could require accelerated payment of principal and interest. The 6.50% Notes provide that the delisting of the Company’s Common Stock from the Nasdaq Capital Market would constitute a “fundamental change” under the 6.50% Notes, which would require the Company to make an offer to repurchase for cash all or any portion of each holder’s 6.50% Notes at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon. The Nasdaq Transfer did not constitute a fundamental change under the 6.50% Notes, but the Company’s delisting from the Nasdaq Capital Market on September 19, 2018 did constitute a fundamental change under the 6.50% Notes Indenture when complete.
In addition, the expiration, termination and withdrawal of the Offer without payment resulted in none of the 5.50% Notes that were tendered in the Offer being accepted for purchase and no consideration was paid to holders of 5.50% Notes who tendered their 5.50% Notes in the Offer. All 5.50% Notes previously tendered and not withdrawn were returned or credited back to the respective holders thereof. Consequently, the failure of the Company to complete the Offer in accordance with the terms of the 5.50 % Notes Indenture constituted a cross-defaults under the 6.50% Notes Indenture. Accordingly, the holders of the 6.50% Notes (or the trustee under the applicable indenture) would have the right to accelerate and declare due and payable immediately all principal and accrued but unpaid interest with respect to the 6.50% Notes if the 5.50% Notes holders (or the trustee under the 5.50% Notes Indenture) were to accelerate the 5.50% Notes in accordance with their rights under the 5.50% Notes Indenture. The filing of the Chapter 11 Cases after the period of this report also constituted an Event of Default under the 6.50% Notes Indenture.
However, any efforts to enforce such payment obligations under the 6.50% Notes Indenture are automatically stayed as a result of the Bankruptcy Petitions and the creditors’ rights of enforcement in respect of the 6.50% Notes Indenture are subject to the applicable provisions of the Bankruptcy Code. In addition, pursuant to the Support Agreement, the Supporting Noteholders have agreed to forbear from exercising any of their rights and remedies under the applicable Existing Debt Instruments pending the outcome of the Bankruptcy Petitions. Refer to Note 1- Organization and Description of the Business and Note 17 – Subsequent Events for further details.
Transaction costs of $1.7 million related to the issuance of the 6.50% Notes were accounted for as debt discount.
The following table summarizes how the issuance of the 6.50% Notes is reflected in the Company’s consolidated balance sheets at December 31, 2017 and September 30, 2018:
December 31, 2017
September 30, 2018
(in thousands)
Principal
$
23,888
$
23,888
Unamortized debt discount
(20,919)
—
Carrying value
$
2,969
$
23,888
The carrying value of the 6.50% Notes was classified as a non-current liability on the Company’s consolidated balance sheet at December 31, 2017. The carrying value of the 6.50% Notes was classified as a current liability on the Company’s consolidated balance sheets at September 30, 2018 due to the fundamental change provisions of the 6.50% Notes Indenture and the Event of Default. Given the Event of Default, the Company reevaluated the remaining contractual term of the 6.50% Notes and recorded a charge to interest expense $20.8 million during the three and nine months ended September 30, 2018. Refer to Note 1 – Organization and Description of the Business and Note 17 - Subsequent Events for further details
13% Senior Secured Notes (the “13% Notes”)
In August 2016, the Company completed the initial closing (the “Initial Closing”) of its offering (the “Offering”) of up to $80.0 million aggregate principal amount of its 13% Notes and entered into an indenture (the “Indenture”) governing the 13% Notes with the guarantors party thereto (the “Guarantors”) and U.S. Bank National Association, a national banking association, as trustee (the “Trustee”) and collateral agent (the “Collateral Agent”).
The Company issued $40.0 million aggregate principal amount of the 13% Notes at the Initial Closing and issued an additional $40.0 million aggregate principal amount upon the FDA’s approval of ARYMO™ ER in January 2017 (the “Second Closing”). Net proceeds from the Initial Closing and Second Closing were $37.2 million and $38.3 million, respectively, after deducting the estimated Offering expenses payable by the Company in connection with the Initial Closing and Second Closing. The 13% Notes were sold only to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended.
The Company has used the net proceeds from the 13% Notes and the Royalty Rights (as defined below) to repay all outstanding obligations to Hercules under the Loan Agreement with Hercules, to support the commercialization of ARYMO ER and for general corporate purposes.
Prior to the Second Closing, interest on the 13% Notes accrued at a rate of 13% per annum and was payable semi-annually in arrears on March 20 and September 20 of each year (each, a “Payment Date”) commencing on March 20, 2017. On each Payment Date commencing on March 20, 2018, the Company was required to also pay an installment of principal of the 13% Notes pursuant to a straight-line fixed amortization schedule. Following the Second Closing in January 2017, in lieu of the straight-line fixed amortization schedule, on each Payment Date commencing on March 20, 2018, the Company is obligated to pay an installment of principal on the 13% Notes in an amount equal to 15% (or 17% if certain sales targets are not met) of the aggregate net sales of SPRIX Nasal Spray, OXAYDO, ARYMO ER and, if approved, Egalet-002 for the two consecutive fiscal quarterly period most recently ended, less the amount of interest payable on the 13% Notes on such Payment Date.
The 13% Notes are senior secured obligations of the Company and equal in right of payment to all existing and future pari passu indebtedness of the Company (including the 5.50% Notes), will be senior in right of payment to all existing and future subordinated indebtedness of the Company, have the benefit of a security interest in the 13% Notes collateral and are junior in lien priority in respect of any collateral that secures any first priority lien obligations incurred, which includes intellectual property (“IP”), from time to time in accordance with the indenture governing the 13% Notes (the “13% Notes Indenture”). Following the Second Closing, the stated maturity date of the 13% Notes became September 30, 2033. Upon the occurrence of a Change of Control, subject to certain conditions, or certain Asset Sales events (each, as defined in the 13% Notes Indenture), holders of the 13% Notes may require the Company to repurchase for cash all or part of their 13% Notes at a repurchase price equal to 101.00% of the principal amount of the 13% Notes to be repurchased, plus accrued and unpaid interest to the date of repurchase.
The Company was entitled to redeem the 13% Notes at its option, in whole or in part from time to time, prior to August 31, 2018, at a redemption price equal to 100.00% of the principal amount of the 13% Notes being redeemed, plus accrued and unpaid interest, if any, through the redemption date, plus a make-whole premium computed using a discount rate equal to the treasury rate in respect of such redemption date plus 100 basis points. The Company may redeem the 13% Notes at its option, in whole or in part from time to time, on or after August 31, 2018 at a redemption price equal to: (i) from and including August 31, 2018 to and including August 30, 2019, 109.00% of the principal amount of the 13% Notes to be redeemed, (ii) from and including August 31, 2019 to and including August 30, 2020, 104.50% of the principal amount of the 13% Notes to be redeemed, and (iii) from and including August 31, 2020 and thereafter, 100.00% of the principal amount of the 13% Notes to be redeemed, in each case, plus accrued and unpaid interest to the redemption date. In addition, prior to August 31, 2018, the Company may redeem, at its option, up to 35% of the aggregate principal amount of the 13% Notes with the proceeds of one or more public or private equity offerings at a redemption price equal to 113.50% of the aggregate principal amount of the 13% Notes to be redeemed, plus accrued and unpaid interest to the date of redemption in accordance with the 13% Notes Indenture; provided that at least 65% of the aggregate principal amount of 13% Notes issued under the 13% Notes Indenture remains outstanding immediately after each such redemption and provided further that each such redemption occurs within 90 days of the date of closing of each such equity offering. No sinking fund is provided for the 13% Notes, which means that the Company is not required to periodically redeem or retire the 13% Notes.
The obligations of the Company under the 13% Notes Indenture and the 13% Notes are unconditionally guaranteed on a secured basis by the Guarantors. Under the terms of the 13% Notes Indenture, the Company may designate entities within its corporate structure as unrestricted subsidiaries, which entities will therefore not be guarantors provided that certain conditions set forth in the Indenture are met.
Pursuant to the 13% Notes Indenture, the Company and its restricted subsidiaries must also comply with certain affirmative covenants, such as furnishing financial statements to the holders of the 13% Notes, and negative covenants, including limitations on the following: the incurrence of debt; the issuance of preferred and/or disqualified stock; the payment of dividends, the repurchase of shares and under certain conditions making certain other restricted payments; the prepayment, redemption or repurchase of subordinated debt; the merger, amalgamation or consolidation involving the Company; engaging in certain transactions with affiliates; and the making of investments other than those permitted by the 13% Notes Indenture.
The 13% Notes Indenture contains customary events of default with respect to the 13% Notes, and upon certain events of default occurring and continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding 13% Notes by notice to the Company and the Trustee, may (subject to the provisions of the 13% Notes Indenture) declare 100% of the principal of and accrued and unpaid interest, if any, on all of the 13% Notes to be due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, as well as the then-applicable optional redemption premium under the 13% Notes Indenture, will be due and payable immediately. In the case of certain events of bankruptcy, insolvency or reorganization involving the Company or a Restricted Subsidiary (as defined in the 13% Notes Indenture), the 13% Notes will automatically become due and payable. Events of default under the 13% Notes Indenture include, among other things, a default in payment of principal on the 13% Notes (including upon any required repurchase or redemption), a default in payment of any other indebtedness for money borrowed in excess of $2,000,000 and certain events of bankruptcy or insolvency, both voluntary and involuntary.
In connection with the filing of the Bankruptcy Petitions, which constitutes an event of default under the 13% Notes Indenture, with the principal and accrued but unpaid interest thereunder subject to acceleration to be due and payable, the Company reclassified the principal and accrued but unpaid interest balance to current liabilities. However, any efforts to enforce such payment obligations under the 13% Notes Indenture are automatically stayed as a result of the Bankruptcy Petitions and the creditors’ rights of enforcement in respect of the 13% Notes Indenture are subject to |
