Aston Advances and Promissory Notes
Prior to the 2018 fiscal year, Aston had from time to time provided advances and loans to the Company. At January 1, 2018, the Company owed $12.7 million to Aston, including an $11.7 million outstanding promissory note and $1.0 million in outstanding advances.
On May 7, 2018, Aston lent the Company an additional $2.0 million. On May 15, 2018, Aston lent the Company an additional $1.5 million, and on June 15, 2018, Aston lent the Company an additional $2.0 million.
On June 30, 2018, the Company issued Aston a $17.7 million amended promissory note (the “June Note”), reflecting the increased aggregate borrowings at that time, as well as accrued and unpaid interest of $0.5 million. The June Note had a maturity date of July 1, 2020 and bore interest at a 9% annual rate.
On August 3, 2018, the Company agreed, pursuant to an Exchange Agreement dated as of such date (the “Exchange Agreement”), to issue to Aston 1.1 million shares of the Company’s common stock in exchange for cancellation of $3.3 million of outstanding principal and interest under the June Note. At Aston’s direction, the Company issued 1,000,000 of the shares to Mr. LaPenta and 100,000 shares to James DePalma, the Company’s former Chief Financial Officer and an affiliate of Aston.
In connection with the Exchange Agreement transaction, on August 3, 2018 the Company issued a $14.5 million amended and restated promissory to Aston (the “August Note”), reflecting the $3.3 million exchange of amounts owed under the June Note for shares. The August Note was issued with the same terms and conditions as the June Note, except that the maturity date was extended to July 20, 2020. After its issuance, the August Note was the only promissory note outstanding in favor of Aston.
On September 4, 2018, Aston advanced the Company an additional $0.4 million (the “September Advance”).
On November 21, 2018, the Company entered into a Forbearance Agreement and Fourteenth Amendment to its loan and security agreement (the “Loan Agreement”) with Bank of America, N.A. (“Bank of America”). Simultaneously with its entry into the amendment, the Company consolidated all of its outstanding promissory notes and advances due to Mr. LaPenta and Aston and issued a new promissory note, dated as of November 21, 2018, to Mr. LaPenta and Aston (the “Consolidated Note”). The Consolidated Note had an initial aggregate principal amount of $38.4 million, which reflected (i) an advance of $1.0 million from Aston in March 2017 (the “March Advance”), (ii) $14.5 million in principal owed to Aston under the August Note, (iii) the September Advance, (iv) $10.5 million in principal owed to Mr. LaPenta under two promissory notes issued to Mr. LaPenta in November 2018 (the “November Notes”), and (v) $12.0 million owed by the Company to Mr. LaPenta in respect of a guaranty exchange on November 21, 2018. In addition, approximately $0.1 million of accrued and unpaid interest on the March Advance, the August Note, the September Advance, and the November Notes was included in the Consolidated Note. The Consolidated Note incurs interest at the greater of (i) LIBOR plus 3.75% and (ii) 1% above the rate in effect at any time under the Loan Agreement. The Consolidated Note is scheduled to mature on July 20, 2020.
The Consolidated Note is secured by a lien on the Company’s and its subsidiaries’ assets in favor of Aston, as agent for Aston and Mr. LaPenta, pursuant to a Security Agreement (the “Security Agreement”) entered into by the Company and its subsidiaries on November 21, 2018. In connection with the issuance of the Consolidated Note, the Company’s guarantor subsidiaries under the Loan Agreement guaranteed the Company’s obligations under the Consolidated Note by issuing a Guaranty (the “Guaranty”) in favor of Mr. LaPenta and Aston.
Also, in connection with the issuance of the Consolidated Note, Mr. LaPenta and Aston entered into a Subordination and Intercreditor Agreement (the “Subordination Agreement”) with Bank of America, the Company and its direct and indirect subsidiaries. Pursuant to the Subordination Agreement, Aston’s liens securing the Company’s indebtedness under the Consolidated Note are subordinated in all material respects to the liens securing the Company’s indebtedness to Bank of America under the Loan Agreement.
During the three months ended March 31, 2019 and the fiscal year ended December 31, 2018, the Company recorded interest expense related to the forgoing financing arrangements with Aston of $0.9 million and $1.6 million, respectively. As of March 31, 2019, there was $46.8 million in aggregate principal and interest outstanding under the Consolidated Note.
