Loan Agreement and Use of Proceeds Bioniche filed two pdf documents on www.sedar.com in March. One is called "Term Loan Agreement" dated March 16, 2012. The other is called "Revenue Interest Agreement" (the royalty agreement). I recall they are called "other documents" and they are big files.
Cat, they are not going to use the $20m to buy back shares. Per TLA section 8.11, proceeds must be used only as provided in Section 2.05. One of the items is redacted. I suspect that item is money to pay severance to the excess staff when they shrink from running two parallel plants to manufacture Econiche. Remember also they have said they need to spend about $15m to expand the Quebec Urocidin plant to support Endo selling commercial quantities when approved. Otherwise BNC loses the rights to Urocidin. They need to start that project soon, since they learned it is hard to start up a plant. (Not a criticism. I have been through that experience.)
I suspect they got the $20m loan partly because they are running behind schedule to start-up the new plant for animal products. This meant they have to carry the duplicate staff costs for an uncertain time. Given the Europe situation and the possibility that we will have another credit freeze, their financial markets advisors probably said get money now while you still can. Do not wait for next year. I hate to say it, but I would agree with that strategy, although I hate the terms of the loan.
When you read the Term Loan Agreement (TLA) and Revenue Interest Agreement (RIA) be sure to read the appendices. They list all the leased cars with Lexus/Toyota, among many other interesting things. However, before it all puts you to sleep, look for the following key clauses:
- [TLA Section 10(d) and Section 8.15] $20m loan is in default if BNC falls behind a revenue growth curve that increases $3m (CDN) per year each year for 5 years.
- [TLA Section 8.15b-ii] Base year is fiscal 2012 actuals, but these must be no less than $26m.
- [TLA end of Section 10] Upon event of default, the full $20m is immediately repayable
- [RIA Section 7] If TLA terminates because of default, "Make-Whole Payment" is due and payable.
- [RIA Section 2.05 and RIA Schedule B] Make-Whole Payment is defined as sum of royalty rate x future revenue projection provided by BNC at time of signing of TLA.
- [TLA Section 6(x)] BNC has assigned to the lenders all receivables owing to BNC under the Endo agreement (i.e., the $100m milestones)
- [RIA Section 7.02] Upon default, lender gets a right to all patents royalty-free to sublicense as the lender sees fit.
You will also see in the document that the lender gets to approve many things BNC management does, and puts limits on loans to employees. Finally we get some parental supervision. Now if the lender would just ask McRae to send out some margin calls on the employee loans, since the value of the collateral has collapsed. ;)