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Subsequent Events
3 Months Ended
Mar. 31, 2017
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE 21 – SUBSEQUENT EVENTS

 

On April 5, 2017, the Company and GKS Funding, as administrative agent under the Loan Agreement (as defined above) entered into a Cooperation Agreement (the “Cooperation Agreement”) in connection with a loan (the “Loan”) made to the Company pursuant to that certain Loan and Security Agreement, dated as of February 1, 2017 (as amended and in effect from time to time, the “Loan Agreement”), between the Company, the Lenders party thereto and GKS Funding. As previously reported, on March 31, 2017, the Company received a notice of default from GKS Funding stating that the Company was in default of the Loan for failure to make a scheduled interest payment on the Loan that was due on March 31, 2017. If such failure described above was not cured within the 15-day cure period, which was April 15, 2017, the Lenders (through GKS Funding, as administrative agent under the Loan Agreement) intended to exercise all rights and remedies available to them under the Loan Agreement, related note and applicable law, which included foreclosing on the collateral under the Loan Agreement.

 

As of the date of the Cooperation Agreement, the outstanding balance of the Company’s obligations under the Loan Agreement was approximately $1,011,800, plus accrued and accruing legal fees and expenses. Over the past several months, the Company has experienced significant operating losses and has been unable to raise additional capital in order to pay the expenses necessary to continue to operate its business. For the same reason, the Company was unable to pay interest on the Loan on March 31, 2017 (the “Existing Default”).

 

As a result of the foregoing, and after considering all options, the Board of Directors of the Company determined that the Company would not have sufficient funds to cure the Existing Default on or before April 15, 2017. In addition, given the inability to raise additional capital to fund ongoing operations, the Company also determined that it would be unable continue to operate as a going concern. Thus, the Company determined that it was in the best interests of all constituents and the Company to cooperate with GKS Funding and its exercise of remedies.

 

Pursuant to the Cooperation Agreement, the Company and GKS Funding agreed as follows: (i) the Company waived the 15-day cure period with respect to the Existing Default immediately upon execution of the Cooperation Letter and GKS Funding has the right to exercise its remedies under the Loan Agreement and applicable law with respect to such event of default, including, without limitation, by scheduling and conducting a sale of all of the collateral under the Loan Agreement on or about April 17, 2017 (the “UCC Sale”); (ii) GKS Funding agreed to fund loans to the Company up to the date of the UCC Sale to permit the Company to pay the Budgeted Expenses (as defined in the Cooperation Agreement) as and when due with this new loan, which is (a) secured by a first priority security interest in all of the real and personal assets, property, fixtures, rights and interests of the Company, (b) shall have priority in payment over the Loan made pursuant to the Loan Agreement; and (c) shall be repaid, before any other payments are made by the Company, out of the first cash proceeds of the collateral received by the Company; and (iii) the Company consented to fully cooperate with GKS Funding in connection with the UCC Sale, as well as the exercise by GKS Funding of any of its other right and remedies in connection therewith.

 

On April 5, 2017, the Company and GKS Funding entered into a letter agreement (the “Letter Agreement”), pursuant to which (i) the Company informed GKS Funding that the Company has determined (1) it will not have sufficient funds to cure the interest payment default that occurred on March 31, 2017, under the Loan Agreement and the Note as previously described in Amendment No. 2 and (2) it cannot continue to operate as a going concern and (ii) the Company and GKS Funding agreed as follows:

 

(1) The Company waived the cure period with respect to the Existing Default (as defined in the Letter Agreement). As a result, the Company agreed, immediately upon execution of the Letter Agreement, the Existing Default became an Event of Default (as defined in the Loan Agreement) (with, for avoidance of doubt, no further right to cure or grace period), and GKS Funding had the right to exercise its remedies under the Loan Agreement and applicable law with respect to such Event of Default, including, without limitation, by scheduling and conducting a UCC sale of all of the Collateral (as defined in the Loan Agreement) on or about April 17, 2017 (the “UCC Sale”).

 

(2) GKS Funding agreed to fund loans to the Company up to the date of the UCC Sale to permit the Company to pay the Budgeted Expenses (as defined in the Letter Agreement) as and when due and payable in accordance with Exhibit A to the Letter Agreement, pursuant to documentation in form and substance acceptable to GKS Funding and Company (the “New Loans”). The New Loans: (a) were secured by a first priority security interest in all of the real and personal assets, property, fixtures, rights and interests of the Company, whether now existing or owned and hereafter arising or acquired and wherever located; (b) had priority in payment over the Loans (as defined in the Loan Agreement) made by GKS Funding pursuant to the Loan Agreement; and (c) were to be repaid, before any other payments are made by the Company, out of the first cash proceeds of the Collateral received by the Company.

 

(3) The Company consented to fully cooperate with GKS Funding in connection with, the UCC Sale and the disposition of the Collateral in connection therewith, as well as the exercise by GKS Funding of any of its other right and remedies in connection therewith.

 

The New Loans were evidenced by a promissory note (the “New Note”). The New Note accrued interest at a rate per annum equal to 5%. Accrued and unpaid interest on the outstanding principal was payable monthly in arrears on the last business day of each month in which any amount remains outstanding under the New Note. The principal amount, together with all accrued and unpaid interest thereon, was required to be repaid to GKS Funding out of the proceeds received from the accounts receivable of the Company collected after April 7, 2017, immediately upon such receipt. The New Note was secured by all of the assets of the Company pursuant to a Security Agreement and a Patent Security Agreement.

 

The proceeds of the $60,000 New Loans that were be made on April 7, 2017, were used by the Company to pay critical vendors of the Company and for the Company to fund payroll.

 

As a condition to the making of the loan under the New Note, GKS Funding required the lenders under the Loan Agreement (which include GKS Funding) to enter into a subordination agreement with the Company and GKS Funding (the “New Subordination Agreement”). The New Subordination Agreement will make the New Note the senior secured debt of the Company, provided that the balance of the Second Promissory Note, which is less than $300, will be senior to the New Note until paid in full. The form of the New Subordination Agreement is attached to a Schedule 13D and is incorporated by reference herein.

 

The foregoing descriptions of the New Note, the Security Agreement, the Patent Security Agreement and the New Subordination Agreement are qualified in their entirety by reference to the New Note, the Security Agreement, the Patent Security Agreement and the New Subordination Agreement, which are attached to a Schedule 13D and is incorporated by reference herein.

 

All additional New Loans made to the Company by GKS Funding after April 7, 2017, pursuant to the Letter Agreement were made on the same terms and conditions as set forth in the New Note, the Security Agreement, the Patent Security Agreement and the New Subordination Agreement.

 

The proceeds of the $60,000 New Loans made on April 7, 2017, will be used by the Company to pay critical vendors of the Company and for the Company to fund payroll. $30,000 was contributed by Mr. Kahn from his personal funds to GKS Funding on April 7, 2017, and was used by GKS Funding to fund $60,000 of New Loans on April 7, 2017. Mr. Kahn intends to use personal funds for additional contributions to GKS Funding in the event GKS Funding funds additional New Loans pursuant to the Letter Agreement. $30,000 was contributed by Mr. Garfinkle from his personal funds to GKS Funding on April 7, 2017, and was used by GKS Funding to fund $60,000 of New Loans on April 7, 2017. Mr. Garfinkle intends to use personal funds for additional contributions to GKS Funding in the event GKS Funding funds additional New Loans pursuant to the Letter Agreement.

 

On April 14, 2017, Edward B. Smith, III was appointed interim Chief Executive Officer and interim Chief Financial Officer.

 

On April 17, 2017, (i) the UCC Sale was conducted by GKS Funding and (ii) at the UCC Sale, GKS Funding credit bid $996,000 of its claims under the Loan Agreement to purchase all of the collateral. There were no other bids for any of the collateral. Following conclusion of the UCC Sale, GKS Funding assigned its right to acquire the Collateral to AgriFiber Solutions LLC, a Delaware limited liability company (“AgriFiber”). Mr. Kahn and Mr. Garfinkle are (i) control persons of AgriFiber and (ii) along with others, are equity owners of AgriFiber.

 

 As of April 18, 2017, the Company had total net assets of $0 and total liabilities of $6.6 million.