| Notes Payable | Notes Payable Senior Unsecured Notes On April 26, 2017, Atlas issued $25 million of five-year 6.625% senior unsecured notes (the “Notes”) and received net proceeds of approximately $23.9 million after deducting underwriting discounts and commissions and other estimated offering expenses. The Notes were issued under an indenture and supplemental indenture that contained covenants that, among other things, limited: (i) the ability of Atlas to merge or consolidate, or lease, sell, assign or transfer all or substantially all of its assets; (ii) the ability of Atlas to sell or otherwise dispose of the equity securities of certain of its subsidiaries; (iii) the ability of certain of Atlas’ subsidiaries to issue equity securities; (iv) the ability of Atlas to permit certain of its subsidiaries to merge or consolidate, or lease, sell, assign or transfer all or substantially all of their respective assets; and (v) the ability of Atlas and its subsidiaries to incur debt secured by equity securities of certain of its subsidiaries. Interest on the Notes was payable quarterly on each January 26, April 26, July 26 and October 26. Pursuant to the supplemental indenture, Atlas could have, at its option, beginning with the interest payment date of April 26, 2020, and on any scheduled interest payment date thereafter, redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to, but excluding, the date of redemption. The Notes ranked senior in right of payment to any of Atlas’ existing and future indebtedness that is by its terms expressly subordinated or junior in right of payment to the senior unsecured notes. The Notes ranked equally in right of payment to all of Atlas’ existing and future senior indebtedness, but were effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. In addition, the Notes were structurally subordinated to the indebtedness and other obligations of Atlas’ subsidiaries. On August 31, 2021, the Company entered into a Restructuring Support Agreement (the “RSA”) with holders of approximately 48% of the aggregate principal amount of the Notes, and subsequently holders of approximately an additional 9.0% of the aggregate principal amount of the Notes acceded to the RSA for a total of approximately 57% (collectively, the “Supporting Noteholders”). Effective as of February 22, 2022, the Company entered into an amendment of the RSA with the requisite majority of Supporting Noteholders to extend the date by which the Note Restructuring must be completed to April 15, 2022. The RSA memorialized the agreed-upon terms for a restructuring of the Notes (the “Note Restructuring”). The RSA contemplated that the Note Restructuring would be effectuated through (i) the Scheme and (ii) a recognition proceeding with respect to the Scheme pursuant to chapter 15 of title 11 of the United States Code (the Recognition Proceeding”). On January 4, 2022, the Company filed a petition and summons for direction (the “Cayman Proceeding”) in the Grand Court of the Cayman Islands (the “Cayman Court”) regarding a scheme of arrangement pursuant to section 86 of Part IV of the Companies Act (2021 Revision) of the Cayman Islands (the “Scheme”) proposed by the Company related to the restructuring of the Company’s indebtedness under the Notes (the “Note Restructuring”). Pursuant to the summons for directions, the Company sought an order (the “Convening Order”) for the convening of a single meeting of a class of creditors affected by the Scheme (the “Scheme Meeting”). At the Scheme Meeting, the resolution was put forward that “... the Scheme of Arrangement, a copy of which has been tabled at this Scheme Meeting, be approved subject to any modification, addition or condition which the Grand Court of the Cayman Islands may this to fit or impose which would not directly or indirectly have a material adverse effect on the rights of the Scheme Creditors.” The aforementioned resolution was passed with an overwhelming majority: holders of 91.83% of the Notes in number and 99.34% par amount of those voting voted in favor of the Scheme and, on February 25, 2022, the Cayman Court sanctioned and approved the Scheme by entry of a sanction order (the “Sanction Order”). The Sanction Order was filed with and accepted by the Registrar of Companies, as required by the Cayman Court. On March 4, 2022, the Company filed a petition under chapter 15 of the United States Bankruptcy Code (the “Recognition Petition”), seeking that the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) enter an order recognizing the Cayman Proceeding as the foreign main or foreign nonmain proceeding and enforcing the Scheme within the territorial jurisdiction of the United States (the “Recognition and Enforcement Order”). On March 4, 2022, the Bankruptcy Court entered an order, which, among other things, scheduled a hearing before the Bankruptcy Court for March 30, 2022 (the “Recognition Hearing”), and, on the same day, the Bankruptcy Court entered the final and non-appealable Recognition and Enforcement Order, recognizing the Cayman Proceeding as the foreign main proceeding and enforcing the Scheme within the territorial jurisdiction of the United States, among other relief. Among other things, the Recognition and Enforcement Order provides that, pursuant to section 1145 of the Bankruptcy Code, once issued, the New Notes will be exempt from registration under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), and any applicable state and local securities laws and freely transferable, subject to certain limitations under section 1145(b) of the Bankruptcy Code with respect to any New Notes issued to “underwriters” as defined in section 2(a)(11) of the Securities Act. The procurement of the Recognition and Enforcement Order was the last in-court step in the Note Restructuring. The Recognition and Enforcement Order was effective immediately and enforceable upon entry, authorizing the Company to take any action to implement and effectuate the Note Restructuring, including finalization of ancillary documents, among other things, in an effort to proceed toward closing the Note Restructuring in accordance with the Scheme and the RSA. The notice of presentment to close the Recognition Proceeding was filed on June 13, 2022. On June 22, 2022, the Bankruptcy Court entered the order closing the Recognition Proceeding. Pursuant to the terms of the Note Restructuring, on April 14, 2022, the Restructuring Effective Date (as defined in the RSA) occurred, and the Company canceled the Notes and exchanged the Notes for the Company’s 6.625%/7.25% Senior Unsecured PIK Toggle Notes due 2027 (the “New Notes”). The New Notes have an interest rate of 6.625% per annum, if paid in cash, and 7.25% per annum, if paid in kind (“PIK”). As a result of the PIK feature, the New Notes were issued in denominations of $1, and each holder of a Note received, for each Note exchanged, New Notes in an aggregate principal amount equal to $25 plus the accrued but unpaid interest related to the exchanged Note. The terms of the New Notes are governed by an indenture, dated as of April 26, 2017 (the “Base Indenture”), between the Company and Wilmington Trust, National Association, as trustee, as supplemented by a First Supplemental Indenture thereto, dated as of April 26, 2017 (the “First Supplemental Indenture”), and a Second Supplemental Indenture thereto, dated as of April 14, 2022 (the “Second Supplemental Indenture”), between the Company and the Trustee. The Company intends to utilize the extended maturity of the New Notes to execute on its technology and analytics driven MGA strategy, with the objective of creating value for all stakeholders. The New Notes were issued in reliance on the exemption to registration provided by section 1145 of the Bankruptcy Code, except with respect to those New Notes issued to an “underwriter” as defined in section 2(a)(11) of the Securities Act under section 1145(b) of the Bankruptcy Code that will be subject to certain restrictions upon resale, and the authorization of the Bankruptcy Court pursuant to the Recognition and Enforcement Order; however, the Company intends to use its best efforts to seek registration of the New Notes following the Note Restructuring subject to any applicable rules or restrictions that may apply. Interest on the New Notes is payable quarterly on each January 27, April 27, July 27 and October 27. Pursuant to the Base Indenture, the First Supplemental Indenture and the Second Supplemental Indenture, Atlas may, beginning on April 14, 2025, or at any time thereafter, redeem the New Notes, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest thereon to, but excluding, the date of redemption. Additionally, pursuant to the Base Indenture, the First Supplemental Indenture and the Second Supplemental Indenture, Atlas may, on any interest payment date, redeem the New Notes, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed in an amount not to exceed the excess of the outstanding principal amount of the New Notes as of such interest payment date (including, if applicable, any PIK interest accrued as of such interest payment date) over the original par amount of the New Notes outstanding on such interest payment date. For the avoidance of doubt, the amount which may be redeemed pursuant to the foregoing sentence shall not exceed the amount attributable to PIK Interest added to the principal amount of the then-outstanding New Notes. The New Notes will rank senior in right of payment to any of Atlas’ existing and future indebtedness that is by its terms expressly subordinated or junior in right of payment to the senior unsecured notes. The New Notes rank equally in right of payment to all of Atlas’ existing and future senior indebtedness, but are effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. In addition, the New Notes are structurally subordinated to the indebtedness and other obligations of Atlas’ subsidiaries. The Company assessed the modifications to the New Notes under ASC 470 (Debt) and determined that the guidance under troubled debt restructuring should apply. Per ASC 470-60-35-5, a debtor in a troubled debt restructuring involving only modification of terms of a payable that is not involving a transfer of assets or grant of an equity interest shall account for the effects of the restructuring prospectively from the time of restructuring, and shall not change the carrying amount of the payable at the time of the restructuring unless the carrying amount exceeds the total future cash payments specified by the new terms. As the future undiscounted cash flows were greater than or equal to the net carrying value of the original debt, the carrying amount of the New Notes at the time of the restructuring was not changed (that is, no gain recognized). Interest expense on the New Notes will be computed using a new effective rate that equates the present value of the future cash payments specified by the new terms with the carrying value of the debt. Mortgage On November 10, 2016, American Acquisition entered into a ten-year 5.0% fixed rate mortgage agreement with the Insurance Subsidiaries totaling $10.7 million with principal and interest payments due monthly. The mortgage is secured by the Company’s headquarters and was previously eliminated in consolidation. The mortgage balances payable at each of September 30, 2022 and December 31, 2021 were $8.0 million. The Company is evaluating alternatives to expedite the sale of the Company’s headquarters, which as disclosed in Note 8, as of the date of this report is currently held at the Company’s best estimate of fair value of $7.5 million, which may include a disposition without any financial benefit or incremental liability to the Company other than the elimination of ongoing building related operational expenses and real estate taxes, some of which have been deferred. For more information regarding this mortgage, See Part I, Item 2, “Management’s Discussion and Analysis of Results of Operations.” Paycheck Protection Program Loans On May 1, 2020, American Acquisition entered into a Paycheck Protection Program Promissory Note (a "PPP Note") with respect to a loan of $4,600,500 (the "First PPP Loan") from Fifth Third Bank, National Association (“Fifth Third”). The First PPP Loan was obtained pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The First PPP Loan had a maturity date of May 1, 2022 and interest at a rate of 1.0% per annum. On June 14, 2021, American Acquisition received notification from the SBA that the First PPP Loan principal and related interest has been forgiven. On February 7, 2021, American Acquisition entered into a PPP Note with respect to a loan of $2,000,000 (the “Second PPP Loan”) from Fifth Third. The Second PPP Loan was obtained pursuant to the SBA’s Paycheck Protection Program Second Draw Loans under the Small Business Act (“SB Act”) and is subject to the terms and conditions of the SB Act, the CARES Act and related legislation and regulations (collectively, the “PPP Rules”). The Company was eligible for the Second PPP Loan because our equity securities are not a National Markets System stock traded on a national securities exchange as defined by Section 6 of the Securities Exchange Act. The Second PPP Loan had a maturity date of February 7, 2026 and interest at a rate of 1.0% per annum. On December 10, 2021, American Acquisition received notification from the SBA that the Second PPP Loan Principal and related interest has been forgiven. Credit Agreement On September 1, 2021, the Company and certain of its subsidiaries, as borrowers (collectively, the “Borrowers”), entered into a Convertible Senior Secured Delayed-Draw Credit Agreement (as amended February 2, 2022, March 25, 2022 and from time to time as discussed below, the “Credit Agreement”), agented by Sheridan Road Partners, LLC (in such capacity, the “Agent”), with certain Supporting Noteholders named therein as lenders (the “Lenders”), pursuant to which the Lenders made available to the Borrowers an aggregate principal amount up to $3,000,000 (the “Term Loans”). The Credit Agreement provides for an initial advance of $2 million in Term Loans and up to $1 million of additional delayed draws (the “Delayed Draws”) within 18 months of closing, in each case, subject to the satisfaction or waiver of certain funding conditions and the other terms and conditions set forth in the Credit Agreement. The Borrowers may use the proceeds of the Term Loans for payments of certain agreed upon permitted expenditures, which include expenses expected to be incurred in connection with the Note Restructuring. Interest will accrue on the funded Term Loans at 12.0% per annum and may be paid, at the Borrowers’ option, in cash or in kind; provided, that upon the occurrence and during the continuance of an event of default, the interest rate will be increased to 14.0% per annum and will be payable only in cash. The term of the Term Loan facility is 24 months. In October 2021 and January 2022, the Lenders advanced an aggregate of $2 million of the Term Loans and, in March 2022, the Lenders advanced $1 million of Delayed Draws under the Term Loans, in each case despite the fact that not all of the funding conditions had been met. As a set-up fee for the Term Loan facility, 2,750,000 ordinary voting common shares of the Company were issued to the Lenders upon execution of the agreement, and an additional 2,500,000 ordinary voting common shares were issued to the Lenders in March 2022, in connection with the Delayed Draws. The outstanding principal balance of the Term Loans can be converted at any time into ordinary voting common shares, at the applicable Lender’s discretion, at a rate of $0.35 per share, except that paid-in-kind interest included in the amount presented by a Lender for conversion may, at the Borrowers’ discretion, be paid in cash or converted into ordinary shares at the same rate. On June 9, 2022, the Company entered into a third amendment of the Credit Agreement that increased the Term Loans to $6,200,000 and extended the maturity date to June 30, 2024. On June 29, 2022, the Company and Borrowers, entered into a Term Loan Commitment (the “Commitment Letter”) with certain lenders party thereto (the “Commitment Lenders”), whereby the Commitment Lenders agreed to make an additional $1 million in principal amount of additional Term Loans (the “Committed Loans”) to the Borrowers related to the Credit Agreement. In connection with this Commitment Letter, the Company issued 100,000 ordinary voting common shares to the Commitment Lenders. Pursuant to the Commitment Letter, the Committed Loans would be loaned within ten days after the Effective Date (as defined below), and such Committed Loans would be made pursuant to the terms of the Credit Agreement. The Committed Loans are subject to certain conditions, including (i) the delivery of the closing documents required pursuant to the Credit Agreement, and (ii) that no material adverse changes with respect to the Borrowers shall have occurred following the date of the Commitment Letter, (iii) that the Settlement Agreement (as defined below) be fully executed within 21 days from the date of the Commitment Letter (the “Execution Condition”), and (iv) that the Effective Date occur within 45 days from the date of the Commitment Letter (the “Effective Date Condition” and, with the Execution Condition, the “Settlement Agreement Conditions”). On July 19, 2022, the Commitment Lenders agreed to extend the Settlement Agreement Conditions by fifteen (15) days, and the Settlement Agreement was fully executed on August 2, 2022. On September 6, 2022, the Company entered into a fourth amendment of the Credit Agreement that increased the Term Loans to $7,200,000, as contemplated by the Commitment Letter. On October 31, 2022, the Company entered into a fifth amendment of the Credit Agreement that increased the Term Loans to $7,950,000. The Credit Agreement requires the satisfaction or waiver of certain funding conditions and that the Borrower comply with customary affirmative and negative covenants, including covenants governing and restricting indebtedness, liens, investments, sales of assets, distributions, and fundamental changes in the Borrowers’ organizational structure and line of business and maintaining certain levels of liquidity. The obligation of the Lenders to make any of the Term Loans is conditioned upon the grant to the Agent, on behalf of the Lenders, of a first priority perfected security interest in collateral consisting of substantially all of the assets of the Borrowers to secure the payment in full of the Term Loans and all other obligations under the Credit Agreement and related loan documentation. The collateral will include pledges of the equity of the Company’s direct and indirect subsidiaries American Acquisition, AGMI, Anchor Holdings Group, Inc., and UBI. Upon payment in full of the Term Loans, the Company will have no further obligations to the Agent and the Lenders under the Credit Agreement and other related loan documentation other than the obligation to register the ordinary shares issued pursuant to the Credit Agreement, and the security interests granted by the Borrowers in favor of the Agent, on behalf of the Lenders, will terminate. After the Delayed Draws in March 2022, Management engaged an independent third-party valuation firm which determined the fair value of the Credit Agreement conversion option using Black-Scholes modeling. The fair value of the liability portion following the Delayed Draws in September 2022 was determined to be $1.2 million and was deducted from the $7.2 million draw amount. The equity component of the Credit Agreement will not be remeasured as long as it continues to meet the conditions for equity classification. The Company recorded a fee related to the Credit Agreement which totaled $2.0 million, which was the fair value of the shares issued portion in connection with the Credit Agreement. This non-cash fee had been recorded as an asset in the Company’s condensed consolidated statements of financial position until the full amount of the draws were received by the Company. The unamortized potion of the fee was transferred to a liability and is the unamortized debt discount. The amortization is being expensed on a straight-line basis over the contractual term of the Credit Agreement. During the three and nine months ended September 30, 2022, the Company recorded amortization totaling $145,000 and $530,000, respectively. Liability and Equity Components of Credit Agreement ($ in ‘000s) September 30, 2022 Liability component: Principal amount $ 1,168 Unamortized debt discount (212) Net carrying amount $ 956 Carrying amount of equity component $ 4,939 The Company assessed the modifications to the Credit Agreement under ASC 470 and determined that the guidance under troubled debt restructuring should apply. Per ASC 470-60-35-5, a debtor in a troubled debt restructuring involving only modification of terms of a payable that is not involving a transfer of assets or grant of an equity interest shall account for the effects of the restructuring prospectively from the time of restructuring, and shall not change the carrying amount of the payable at the time of the restructuring unless the carrying amount exceeds the total future cash payments specified by the new terms. As the future undiscounted cash flows were greater than or equal to the net carrying value of the original debt, the carrying amount of the Credit Agreement at the time of the restructuring was not changed (that is, no gain recognized). Interest expense on the Credit Agreement will be computed using a new effective rate that equates the present value of the future cash payments specified by the new terms with the carrying value of the debt. Interest expense on notes payable was $801,000 and $556,000 for the three months ended September 30, 2022 and 2021, respectively, and $2.2 million and $1.6 million for the nine months ended September 30, 2022 and 2021, respectively. Notes Payable Outstanding ($ in ‘000s) September 30, 2022 December 31, 2021 6.625%/7.25% Senior Unsecured PIK Toggle Notes due April 27, 2027 $ 27,192 $ 25,000 12.0% Credit Agreement, net of discount, due June 30, 2024 956 224 5.0% Mortgage due November 10, 2026 7,950 7,950 Total outstanding borrowings 36,098 33,174 Unamortized issuance costs — (72) Total notes payable $ 36,098 $ 33,102 |
