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Long-term Debt and Capital Lease
 12 Months Ended
May 31, 2017
Debt Disclosure [Abstract]  
Long-term Debt and Capital Lease

Note 5. LONG-TERM DEBT AND CAPITAL LEASE

 

Long-term debt consists of the following as of May 31

 

    2017     2016  
Term note A payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing January 7, 2019   $ 4,626,191     $ 5,310,179  
                 
Term note B payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, maturing January 7, 2019     1,715,132       2,688,659  
                 
Revolving note payable to International Bank of Commerce, prime rate of interest plus 0.5% but not less than 4.0%, due January 31, 2019     2,260,000       1,675,000  
                 
Term note payable by GRE to International Bank of Commerce, interest rate of 4.5%, monthly principal and interest payments of $26,215, due January 31, 2019     2,841,285       3,021,734  
                 
Note payable to Robert Rosene, 7.5% interest, due January 15, 2019     4,469,355       2,066,000  
                 
Note payable to First Bank, prime rate of interest plus 1.45% but not less than 4.95%, monthly principal and interest payment of $30,628, due August 21, 2021     1,396,448       -  
                 
Note payable to Yorktown Management & Financial Services, LLC, 5.0% interest, due February 28, 2019, monthly principal and interest payments of $20,629     413,969       634,616  
                 
Other     310,036       50,560  
Face value of long-term debt     18,032,416       15,446,748  
Less: Debt issue costs, net of amortization     (228,426 )     (69,185 )
      17,803,990       15,377,563  
Less: Current portion     (2,493,236 )     (2,088,327 )
Long-term debt   $ 15,310,754     $ 13,289,236  

 

The prime rate of interest as of May 31, 2017 was 4.0%. Effective June 15, 2017, the prime rate of interest increased to 4.25%.

 

Capital lease consists of the following as of May 31:

 

    2017     2016  
Non-cancellable capital lease with private company,                
interest rate of 5%, due August 7, 2019   $ 3,794,063     $ -  
                 
Less: current portion     (2,261,560 )     -  
                 
Non-cancellable capital lease, net of current portion   $ 1,532,503     $ -  

 

Loan Agreement between Greystone and International Bank of Commerce (“IBC”)

 

On January 31, 2014, Greystone and GSM (the “Borrowers”) and International Bank of Commerce (“IBC”) entered into a Loan Agreement (the “IBC Loan Agreement”). The IBC Loan Agreement provides for a revolving loan in an aggregate principal amount of up to $2,500,000 (the “Revolving Loan”) and a term loan in the aggregate principal amount of $9,200,000 (the “Term Loan”). The exact amount which can be borrowed under the Revolving Loan from time to time is dependent upon the amount of the borrowing base, but can in no event exceed $2,500,000. On January 7, 2016, the Borrowers and IBC entered into the First Amendment to the IBC Loan Agreement (the “First Amendment”) whereby IBC made an additional term loan to Borrowers in the original principal amount of $2,530,072 (the “New Equipment Loan”). The New Equipment Loan and $2,917,422 of the principal amount outstanding on the Term Loan were consolidated into a new loan in the combined principal amount of $5,447,504 (the “Term Loan A”). The Term Loan’s remaining principal balance of $3,000,000 was deemed to be a separate term loan (the “Term Loan B”). The additional proceeds of $2,530,072 that were provided by the First Amendment were principally used to acquire new production equipment.

 

The Term Loans A and B bear interest at the New York Prime Rate plus 0.5% but not less than 4.0%, 4.5% at May 31, 2017. The Borrowers are required to make equal monthly payments of principal and interest in such amounts sufficient to amortize the principal balance of (i) the Term Loan A over a seven year period beginning January 31, 2016 (currently $74,455 per month) and (ii) the Term Loan B over the three-year life of the loan (currently $89,226 per month).

 

The Revolving Loan bears interest at the New York Prime Rate plus 0.5% but not less than 4.0%, 4.5% at May 31, 2017. The Third Amendment extended the maturity date of the Revolving Loan to January 31, 2019. The Borrowers are required to pay all interest accrued on the outstanding principal balance of the Revolving Loan on a monthly basis. Any principal on the Revolving Loan that is prepaid by the Borrowers does not reduce the original amount available to the Borrowers. The proceeds from the Revolving Loan are used for general working capital purposes.

 

The IBC Loan Agreement includes customary representations and warranties and affirmative and negative covenants which include (i) requiring the Borrowers to maintain a debt service coverage ratio of 1:25 to 1:00 and a funded debt to EBIDA ratio not exceeding 3:00 to 1:00, (ii) subject to certain exceptions, limiting the Borrowers’ combined capital expenditures on fixed assets to $1,000,000 per year, (iii) prohibiting Greystone, without IBC’s prior written consent, from declaring or paying any dividends, redemptions of stock or membership interests, distributions and withdrawals (as applicable) in respect of its capital stock or any other equity interest, other than additional payments to holders of its preferred stock in an amount not to exceed $500,000 in any fiscal year, (iv) subject to certain exceptions, prohibiting the incurrence of additional indebtedness by the Borrowers, and (v) requiring the Borrowers to prevent (A) any change in capital ownership such that there is a material change in the direct or indirect ownership of (1) Greystone’s outstanding preferred stock, and (2) any equity interest in GSM, or (B) Warren Kruger from ceasing to be actively involved in the management of Greystone as President and/or Chief Executive Officer. The foregoing list of covenants is not exhaustive and there are several other covenants contained in the IBC Loan Agreement.

 

Greystone’s debt service coverage ratio at May 31, 2017 was 0.95 which is not in compliance with the IBC Loan Agreement’s minimum debt service coverage ratio of 1.25. The Third Amendment to the IBC Loan Agreement waived this instance of non-compliance to maintain a minimum debt service coverage ratio until February 28, 2018.

 

Section 8.5 of the IBC Loan Agreement specifies that Greystone will not spend or incur obligations to acquire fixed assets, other than certain specified fixed asset acquisitions, for more than $1,000,000 in any single year. During fiscal year 2017, Greystone incurred $1,541,865 for such fixed assets. The Fourth Amendment to the IBC Loan Agreement waived any default or event of default arising from the excess fixed asset procurements by Greystone.

 

The IBC Loan Agreement includes customary events of default, including events of default relating to non-payment of principal and other amounts owing under the IBC Loan Agreement from time to time, inaccuracy of representations, violation of covenants, defaults under other agreements, bankruptcy and similar events, the death of a guarantor, certain material adverse changes relating to a Borrower or guarantor, certain judgments or awards against a Borrower, or government action affecting a Borrower’s or guarantor’s ability to perform under the IBC Loan Agreement or the related loan documents. Among other things, a default under the IBC Loan Agreement would permit IBC to cease lending funds under the IBC Loan Agreement, and require immediate repayment of any outstanding loans with interest and any unpaid accrued fees.

 

The IBC Loan Agreement is secured by a lien on substantially all of the assets of the Borrowers. In addition, the IBC Loan Agreement is secured by a mortgage granted by GRE on the real property owned by GRE in Bettendorf, Iowa (the “Mortgage”). GRE is owned by Warren F. Kruger, Greystone’s President and CEO, and Robert B. Rosene, Jr., a director of Greystone. Messrs. Kruger and Rosene have provided a combined limited guaranty of the Borrowers’ obligations under the IBC Loan Agreement, with such guaranty being limited to a combined amount of $6,500,000 (the “Guaranty”). The Mortgage and the Guaranty also secure or guaranty, as applicable, the obligations of GRE under the Loan Agreement between GRE and IBC dated January 31, 2014 as discussed in the following paragraph.

 

Loan Agreement between GRE and IBC

 

On January 31, 2014, GRE and IBC entered into a Loan Agreement which provided for a mortgage loan to GRE of $3,412,500. The loan provides for a 4.5% interest rate and a maturity of January 31, 2019 and is secured by a mortgage on the two buildings in Bettendorf, Iowa which are leased to Greystone.

 

Note Payable between Greystone and Robert B. Rosene, Jr.

 

Effective December 15, 2005, Greystone entered into an agreement with Robert B. Rosene, Jr., a member of Greystone’s Board of Directors, to convert $2,066,000 of advances into a note payable at 7.5% interest.

 

Effective June 1, 2016, the note payable to Mr. Rosene was restated (the “Restated Note”) whereby accrued interest of $2,475,690 was combined with the outstanding principal of $2,066,000 resulting in a note payable in the principal amount of $4,541,690 with an interest rate of 7.5% and a maturity of January 15, 2018, subsequently amended to January 15, 2019. The Restated Note requires the payment of accrued interest to Mr. Rosene. In addition, the Restated Note allows Greystone to make additional payments, at Greystone’s discretion, up to an amount allowed by the IBC Loan Agreement.

 

Note Payable between Greystone and First Bank

 

In connection with the acquisition of certain equipment from Yorktown Management & Financial Services, LLC (“Yorktown”) effective February 1, 2017, Greystone assumed a note payable in the amount of $1,469,713 between Yorktown to First Bank. The note bears interest at the prime rate of interest plus 1.45% but not less than 4.95%, 5.45% at May 31, 2017. The First Bank note is secured by certain production equipment.

 

Note Payable between Greystone and Yorktown Management & Financial Services, LLC (“Yorktown”)

 

On February 29, 2016, Greystone entered into an unsecured note payable to Yorktown in the amount of $688,296 in connection with the acquisition of equipment from Yorktown as discussed in Note 6, Related Party Transactions. The note payable bears interest at the rate of 5% and is payable over three years with monthly principal and interest payments of $20,629.

 

Maturities

 

Maturities of Greystone’s long-term debt for the five years after May 31, 2017 are $2,493,236, $14,530,243, $368,656, $382,586 and $257,695.

 

See Note 14, Commitments, for the future minimum payments under the non-cancellable capital lease.