Business Context and Reporting Period
This Form 8-K, dated March 16, 2020, reports material events for BioRestorative Therapies, Inc. (the "Company"). The primary event is the voluntary filing of a Chapter 11 bankruptcy petition on March 20, 2020, in the United States Bankruptcy Court for the Eastern District of New York. Concurrently, the Company entered into a stalking horse asset purchase agreement to sell substantially all of its assets.
Key Financial Metrics and Agreements
- Asset Sale Price: $500,000 in cash (subject to adjustment), plus a Credit Bid Amount, Expense Reimbursement, and aggregate Cure Amounts.
- Breakup Fee: 2% of the sum of the Cash Component, Credit Bid (excluding specific 2016/2017 loans), and Cure Amounts.
- Expense Reimbursement: Up to $250,000 for the Purchaser's expenses.
- Debtor-in-Possession (DIP) Financing: A senior secured superpriority credit facility of $2,775,628 (including a rollup of approximately $1,351,355 in existing loans). $750,000 is available immediately upon interim court approval.
- DIP Interest Rate: 8% per annum, with an option to capitalize up to 4% of interest; increases by 2% upon default.
- Outstanding Debt at Risk: Promissory notes with an aggregate principal amount of approximately $7,669,020 may be accelerated due to the bankruptcy filing, though enforcement is stayed.
- Stock Structure: A court-ordered 1,000-to-1 reverse stock split is pending shareholder approval.
Material Changes and Events
The Company has transitioned from a standard operating entity to a "debtor-in-possession" under Chapter 11 jurisdiction. This filing triggers an automatic stay on creditor enforcement actions regarding outstanding notes. The Company has secured a stalking horse bid from Phoenix Cell Group Holdings LLC, an affiliate of John M. Desmarais, to acquire its assets. Additionally, the Company's CEO, Mark Weinreb, has extended his employment agreement until September 30, 2020, or the effective date of a liquidation plan, whichever is earlier.
Outlook, Risks, and Management Commentary
Outlook and Recovery: Management expects that existing stockholders will receive no recovery at the end of the Chapter 11 case, consistent with legal priorities. The Company anticipates the sale closing on the second business day following the satisfaction of closing conditions.
Risks and Contingencies:
- Bankruptcy Approval: The asset sale and DIP financing are subject to Bankruptcy Court approval and may be subject to higher or better offers.
- Trading Risk: The Company warns that trading in its securities during the Chapter 11 case is highly speculative and poses substantial risks.
- Liquidity: The Company relies on the DIP financing for working capital, professional fees, and transaction costs. Failure to obtain final court approval for the DIP loan could impact operations.
- Reverse Split: Implementation of the 1,000-to-1 reverse split is contingent on the Company having available funds to effectuate the change.
Investor Verification Checklist
- Verify the status of the Bankruptcy Court's approval of the Asset Purchase Agreement and the DIP Loan Agreement.
- Confirm the final terms of the 1,000-to-1 reverse stock split and the date of the special shareholder meeting.
- Monitor for any "higher or better offers" that could supersede the stalking horse agreement with Phoenix Cell Group Holdings LLC.
- Review the specific "Cure Amounts" and "Credit Bid Amount" definitions in the Asset Purchase Agreement to understand the total consideration.
- Check for updates on the acceleration of the $7.67 million in promissory notes and any creditor objections.