Secured Promissory Notes and Other Obligations
|12 Months Ended|
Dec. 31, 2015
|Debt Disclosure [Abstract]|
|Secured Promissory Notes and Other Obligations||
NOTE 5 SECURED PROMISSORY NOTES AND OTHER OBLIGATIONS
Secured Promissory Notes
On December 11, 2015, we executed two Subscription Agreements with Investors providing for the purchase of the Notes in the aggregate principal amount of up to $3.0 million and Warrants. The Warrants grant the Investors the right to purchase 17,000 shares of common stock for every $500,000 of principal amount of Notes purchased by the Investors.
Notes in the amount of $1,500,000 and 51,000 Warrants, at an exercise price of $1.35 per share, which is equal to the closing price of our Common Stock on the date of investment, were issued by the Company and its wholly-owned subsidiaries Pharmaloz Manufacturing Inc. and Quigley Pharma Inc. (collectively, the Obligors) and funded on December 11, 2015. We incurred loan origination costs of $22,000 which was recorded as a reduction of the Notes and the origination costs are charged to interest expense over the term of the loan. The Warrants have an exercise term equal to three years and are exercisable commencing on the date of issuance. The fair value of the Warrants at the date of grant was $14,000 which is recorded as a reduction of the Notes and is charged to interest expense over the term of the loan (see Note 6). At December 31, 2015, the $1.5 million Notes are reported net of $34,000 of the unamortized interest for the loan origination costs and unamortized interest for the Warrants. At December 31, 2015, other current liabilities include $10,000 for accrued interest under the terms of the Notes.
The Notes are secured by all of our tangible and intangible assets. The Notes bear interest at the rate of 12% per annum, payable semi-annually and the principal is due and payable on June 15, 2017. The Notes may be pre-paid at any time prior to maturity without penalty. The effective interest, inclusive of the Warrant and loan origination costs, is 14.3% per annum. We charged to interest expense $11,000 for the period December 11, 2015 to December 31, 2015 in connection with the Notes.
The offers and sales of the Notes and Warrants were made without registration under the Securities Act, or the securities laws of certain states, in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and Regulation D under the Securities Act and in reliance on similar exemptions under applicable state laws.
In connection with the issuance of the Notes, we entered into a security agreement with John E. Ligums, Jr. (an Investor and a shareholder in the Company), as collateral agent for the Investors (the Security Agreement) to secure the timely payment and performance in full of the Obligors obligations pursuant to the Notes. Under the Security Agreement, the Obligors grant to the Collateral Agent, for the benefit of the Investors a lien upon and security interest in the property and assets listed as collateral in the Security Agreement, including without limitation, all of the Obligors personal property, inventory, equipment, general intangibles, cash and cash equivalents, and proceeds.
Godfrey Settlement Agreement
In November 2004 we commenced an action against John C. Godfrey, Nancy Jane Godfrey, and Godfrey Science and Design, Inc. (together the Godfreys) for injunctive relief regarding the ownership of the Cold-EEZE® trademark. The Godfreys subsequently asserted against us counterclaims and sought monetary damages and injunctive and declaratory relief relative to the Cold-EEZE® trademark and other intellectual property.
On December 20, 2012, we and the Godfreys, including the Estate of Nancy Jane Godfrey, entered into a Settlement Agreement and Mutual General Release (the Godfrey Settlement Agreement), pursuant to which we resolved all disputes, including claims asserted by us and counterclaims asserted against us in the action. Pursuant to the terms of the Godfrey Settlement Agreement, we paid the Godfreys $2.1 million in December 2012 and we agreed to make four additional annual payments of $100,000 due in December of each of the next four years. Each annual payment in the amount of $100,000 accrues interest at the per annum rate of 3.25%. The annual installment of $107,000, $110,000 and $113,000, inclusive of accrued interest, were paid in December 2015, 2014 and 2013, respectively. Under the Godfrey Settlement Agreement, the Godfreys assigned, transferred and conveyed to us all of their right, title, and interest in U.S. Trademark Registration No. 1,838,542 for the trademark Cold-EEZE®, among other intellectual property associated with such trademark. At December 31, 2015, other current liabilities include $100,000, for the remaining annual installment payment due in Fiscal 2016.
The future obligations of our Notes and Settlement Agreement over the next five years are as follows: