Note 8 - Borrowings

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Debt Disclosure [Text Block]

Note

8.

Borrowings

Note Refinancing and

2017

Notes

— On

August 9, 2019,

the Company and Taberna Preferred Funding I, Ltd. (“Taberna I”), Taberna Preferred Funding II, Ltd. (“Taberna II”) and Kodiak CDO I, Ltd. (“Kodiak” and, together with Taberna I and Taberna II, the “Noteholders”) executed a First Amendment to Senior Secured Note Purchase Agreement (the “Amendment”) amending the terms of the Note Purchase Agreement (as defined below) and the

2017

Notes (as defined below) to, among other things, significantly reduce the interest rate applicable from

January 2019

through the

third

quarter of

2028

and allow the Company to apply certain surplus interest payments against future quarterly interest payments. As of

December 31, 2019

, the Company had

$85.9

million in aggregate borrowings outstanding under

three

senior secured promissory notes (the

“2017

Notes”). The unpaid principal amounts of the

2017

Notes bear interest at the following rates until the maturity date on

March 30, 2033,

with interest payable quarterly in arrears as follows:

1%

per annum from

April 1, 2019

through

December 31, 2023;

2%

per annum from

January 1, 2024

through

December 31, 2028;

and

10%

per annum from

January 1, 2029

through the maturity date. Commencing with the delivery to the Noteholders of the financial statements for the fiscal year ending

December 31, 2019,

the Company is required to remit

50%

of excess cash flow each year to the Noteholders to be applied as a principal reduction to the outstanding balance of the debt. The

2017

Notes generally rank senior in right of payment to any existing or future subordinated indebtedness of the Credit Parties (as defined below). The Company

may

at any time upon

30

days’ notice to the Noteholders redeem all or part of the

2017

Notes at a redemption price equal to

101%

of the principal amount redeemed plus any accrued and unpaid interest thereon. The

2017

Notes were entered into on

July 27, 2017

as a result of a refinancing of the Company’s then outstanding senior notes with the same aggregate principal amount through the execution of the Senior Secured Note Purchase Agreement, dated as of the same date (as amended, the “Note Purchase Agreement”), with NHI and HCS as guarantors (together with the Company, collectively, the “Credit Parties”).

On

April 1, 2019

and on

July 1, 2019,

the Company made payments under the

2017

Notes totaling

$2.6

million. The actual aggregate amounts due for those dates totaled

$0.4

million. Under the terms of the Amendment, the Company is permitted to apply the payment surplus of

$2.2

million against future quarterly interest
payments. Therefore, the Company will

not

have another quarterly interest payment due until

April 1, 2022.

The Note Purchase Agreement contains customary affirmative and negative covenants, including but

not

limited to certain financial covenants. Under the terms of the Amendment, the financial covenants have been waived until the quarter ending

December 31, 2021.

The Note Purchase Agreement also contains customary events of default, including but

not

limited to payment defaults, cross defaults with certain other indebtedness, breaches of covenants and bankruptcy events. In the case of an event of default, the Noteholders

may,

among other remedies, accelerate the payment of all obligations under the Note Purchase Agreement and the

2017

Notes. The Credit Parties entered into a Pledge and Security Agreement, dated as of the same date, pursuant to which each of the Credit Parties granted a

first

priority lien generally covering all of its assets, other than accounts receivable and inventory, for the benefit of the Noteholders, to secure the obligations under the Note Purchase Agreement and the

2017

Notes.

Under the terms of the Amendment, the Company issued to the Noteholders

9,000,000

shares of common stock of the Company and

ten

-year warrants allowing the Noteholders to purchase up to

22,250,000

shares of the Company’s common stock at an exercise price of

$0.01

per share. These warrants can be exercised at any time prior to expiration. See the Company’s discussion in Note

10

to the consolidated financial statements for additional information regarding the Amendment.

Revolving Credit Agreement

— As of

December 31, 2018,

HCS had

$1.9

million outstanding under a Revolving Credit and Security Agreement (the “White Oak Credit Agreement”) between HCS and White Oak Global Advisors, LLC ("White Oak'), which provided HCS with a line of credit of up to

$5,000,000.

Availability under the White Oak Credit Agreement was based on a formula tied to HCS’s eligible accounts receivable. Borrowings bore interest at the prime rate plus

1.25%.

The initial term of the White Oak Credit Agreement expired on

November 17, 2018

but was renewed automatically for a consecutive

one

-year term per the provisions of the White Oak Credit Agreement. The obligations of HCS under the White Oak Credit Agreement were secured by HCS’s inventory and accounts receivable. In the case of an event of default, White Oak was able to, among other remedies, have accelerated payment of all obligations under the White Oak Credit Agreement. In connection with the White Oak Credit Agreement, the Company executed a guaranty in favor of White Oak guaranteeing all of HCS’s obligations under the White Oak Credit Agreement. HCS terminated the White Oak Credit Agreement in

February 2019

and the Company fully repaid the outstanding obligations at that time.