Long-term Debt and Other Financing Arrangements

The Company’s long-term borrowings as of December 31, 2016 and December 31, 2015, consisted of the following (in thousands, except for interest rates):



Description	Interest rate		December 31, 2016			December 31, 2015
Convertible note—Dominion Capital	9.75	%	$	3,500		$	4,000
Convertible note loan premium—Dominion Capital			770			—
Unamortized debt discount, costs and fees of issuance—Dominion Capital			—			(1,016		)
Convertible notes—payable to former shareholders of Stanley House	2.00	%	3,058			5,502
Senior secured debt—HSBC Bank PLC	1.10	%	2,461			2,984
Promissory note—payable to former shareholder of TLC	6.00	%	2,750			3,003
Promissory note—Lega Enterprises, LLC (formerly Agel Enterprises, LLC)	5.00	%	778			1,043
Other miscellaneous notes	4.00	%	216			316
Total debt			13,533			15,832
Less current maturities			(11,703		)	(3,048		)
Long-term debt			$	1,830		$	12,784

The schedule of maturities of the Company’s long-term debt as of December 31, 2016 are as follows (in thousands):



2017	$	11,703
2018	1,830
Total long-term debt including current maturities	$	13,533

Convertible Note—Dominion Capital

On November 20, 2015, the Company entered into a Securities Purchase Agreement with Dominion Capital pursuant to which the Company issued a $4.0 million senior secured note. The note bears interest at 9.75% per annum, payable monthly. The note's principal is payable in monthly installments of $50,000 starting in March 2016, increasing to $325,000 in January 2017, with a final payment of $2.2 million due in May 2017. The note is convertible at the option of Dominion into shares of common stock at a conversion price of $3.00 per share and is secured by the assets of the Company and its subsidiaries, subject to existing senior security interests of other lenders. The Company has evaluated the conversion feature and determined that it does not need to be bifurcated from the note and accounted for separately. The Company also determined that there is no beneficial conversion feature since the effective conversion price is higher than the market price of the underlying common stock as of the commitment date.

On June 6, 2017, the Company entered into a Forbearance and Amendment Agreement (the “Forbearance Agreement”) with Dominion pursuant to which Dominion agreed, for a period of sixty (60) days (subject to extension as described below for an additional sixty (60) days), to forbear from exercising any of its rights or remedies with respect to Existing Defaults (as defined in the Forbearance Agreement), including the Company being unable to timely file, without unreasonable effort and expense, its Annual Report on Form 10-K for the year ended December 31, 2016 and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, under the senior secured convertible note.

A condition to the forbearance was the purchase by Rochon Capital Partners of $1.0 million in aggregate principal amount and $23,000 in accrued and unpaid interest of the Note from Dominion (the “Purchased Note”), the execution of a subordination agreement, and the Company agreeing to a payment restriction covenant and a revised payment schedule. The forbearance period is subject to extension for an additional 60 days by the purchase by Rochon Capital Partners of an additional $750,000 in principal amount of the Note from Dominion. The Note that the Company issued to Dominion now has an aggregate principal balance amount of $2.4 million with monthly payments of $50,000 principal and interest due by the 21st of each month through September 21, 2017 and a final principal payment of $2.2 million plus interest due on October 21, 2017.

In connection with this financing, 375,000 shares of common stock valued at $510,000 were issued and other costs and fees totaling $583,000 were paid. These amounts have been treated as reductions of the proceeds received or issuance costs, and are being amortized over the term of the note using the effective interest method.

The unamortized balance of the debt discount, fees and issuance costs have been offset against the principal amount of the related debt in the consolidated balance sheets.

The Dominion senior secured note contained certain covenants including the covenant requirement for the timely filing of the Company’s filings with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act"). The Company missed the timely filing requirement with the SEC of its 2015 Form 10-K and received a waiver (the “Form 10-K Waiver") from Dominion until April 25, 2016. After April 25, 2016, the Form 10-K waiver stayed active provided that the Company issued 50,000 shares for each ten (10) business days until it filed its 2015 Form 10-K in compliance with its requirements under the Exchange Act. The 2015 Form 10-K was filed with the SEC on June 28, 2016, which resulted in the Company issuing a total of 200,000 shares of common stock to Dominion in connection with the 2015 Form 10-K Waiver.

A second waiver from Dominion (the “March Form 10-Q Waiver") was received on May 17, 2016, for the Company’s failure to timely file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2016. The March Form 10-Q Waiver stayed active provided that the Company issued to Dominion 50,000 shares of the Company’s common stock for each such ten (10) business day period required beyond May 23, 2016, which was the due date of the March Form 10-Q (without regard to whether the Company requires the full ten (10) business day period for any given extension). As a result of the failure to timely file the March Form 10-Q, the Company issued a total of 500,000 shares of its common stock to Dominion in consideration of the March Form 10-Q Waiver.

In connection with the delay in the filing of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 with the SEC, the Company obtained from Dominion an irrevocable waiver dated August 22, 2016 (the “Third Waiver,") that the Company’s failure to timely file the June Form 10-Q, as well any failure to timely file the Form 10-Q for the quarter ended September 30, 2016 would not constitute an event of default under the Note, and that any further notice to Dominion under the Note in respect of the same would not be required, provided that the Company issues to Dominion 50,000 shares of its common stock for each extension period required beyond August 22, 2016 with respect to the June Form 10-Q and beyond November 21, 2016 with respect to the September Form 10-Q (without regard to whether the Company requires the full ten (10) business day period for any given extension). As a result of the failure to timely file the June Form 10-Q, the Company has issued 350,000 of shares of its common stock to Dominion in consideration of the August 22, 2016 waiver. The Company issued 100,000 of its common stock for its failure to timely file the September Form 10-Q.

In addition, the Third Waiver also provides that the Company’s failure to comply with any other covenant set forth in Section 14 of the Note would not constitute an event of default under the Note, and that any further notice to Dominion under the Note in respect of the same would not be required; provided that the Company issues to Dominion 100,000 shares of its common stock; provided that such Waiver shall not apply to any compliance failures that occur after January 1, 2017.

In connection with the failure to timely file the 2015 Form 10-K, the 2016 March Form 10-Q, 2016 June Form 10-Q, and the 2016 September Form 10-Q, the Company has issued an aggregate of 1,250,000 shares of its common stock in 2016 to Dominion.

In addition, the Third Waiver amended the amortization of debt. The amended amortization resulted in $550,000 of principal previously scheduled to be paid in 2016, to now be paid in 2017. The Company qualified for an extinguishment of debt modification assessment as a result of the late filings and the amended amortization schedule of the loan. This debt modification resulted in a loss on extinguishment of debt of approximately $1.9 million. Included in this loss on the extinguishment of debt are expenses related to the share issuance penalties for the untimely filing of the 2015 Form 10-K, the 2016 March Form 10-Q, 2016 June Form 10-Q, and the 2016 September Form 10-Q. During the fiscal year ended December 31, 2016, the Company recorded approximately $1.3 million of share issuance penalties to Dominion Capital.These share issuance penalties contain an accrual for an additional 150,000 shares that were not yet issued as of the filing of this annual report, in connection to the waivers associated to the failure to timely file the 2015 Annual Report and the 2016 Quarterly Reports.

Convertible Notes—Payable to Former Shareholders of Stanley House

On October 15, 2015, the Company issued two unsecured convertible notes totaling £3.7 million ($5.8 million at the time of purchase) in connection with the acquisition of Betterware, scheduled to mature on October 15, 2018. The notes are denominated in British Pounds Sterling ("GBP") and bear interest at 2% per annum, payable at the time of principal payments. The notes' principal is payable in monthly installments totaling £10,222 ($16,000 at the time of purchase) for the first six months, followed by monthly installments totaling £20,444 ($32,000 at the time of purchase) for the next 30 months, with additional payments of £1.0 million ($1.6 million at the time of purchase) due at the end of each annual period following the notes' issuance. The notes may be converted into common stock at the Company's election based on the value of the shares at the time of payment. The valuation of the notes was considered in connection with the Betterware acquisition, and were determined to have been issued at fair value on the acquisition date. Refer to Note (3), Acquisitions and Other Transactions, to the consolidated financial statements included in this report, for further discussion on the Betterware acquisition.

Senior Secured Debt—HSBC Bank PLC

On March 24, 2015, the Company secured $3.0 million in senior secured debt from HSBC Bank PLC, with a term of two (2) years maturing on March 24, 2017, and an annual interest rate of 0.60% over the Bank of England Base Rate as published from time to time. The loan is cash-secured by approximately $2.9 million in cash. There are no other covenants related to the debt. The loan is now current and is included in 'Current portion of long-term debt' on the consolidated balance sheets. Previously, the collateral for the loan was shown as 'Restricted cash' on the consolidated balance sheets and now is included in 'Other current assets.' The loan and cash collateral are denominated in British Pounds Sterling.

Promissory Note—Payable to Former Shareholder of TLC

On March 14, 2013, the Company issued a $4.0 million unsecured promissory note in connection with the Purchase Agreement with TLC. The Promissory Note bears interest at 2.63% per annum, has a ten-year maturity, and is payable in equal monthly installments of outstanding principal and interest. Due to the current financial condition of the Company, the Company was in arrears of $182,000 in unpaid principal and interest payments, as required by the agreement, as of December 31, 2016. The last principal payment made was the August 2016 payment. The Company received a default notice which is discussed in Note (12), Commitments and Contingencies, to the consolidated financial statements included in this report.

Promissory Note—Lega Enterprises, LLC

On October 22, 2013, Agel issued a $1.7 million Promissory Note to Lega Enterprises, LLC (formerly Agel Enterprises, LLC) in connection with the acquisition of assets from Agel Enterprises, LLC. The promissory note bears interest at 5% per annum, is payable in equal monthly installments of outstanding principal and interest and matures on October 22, 2018. The note is secured by a lien on the assets of Agel and the Company. The loan is subordinate to the lien from the Dominion debt. As of December 31, 2016, the Company was in arrears of approximately $128,000 in unpaid principal and interest payments, as required by the agreement. The last principal payment made was the August 2016 payment.

Promissory Note—Other Miscellaneous

On December 4, 2014, the Company issued a $500,000 unsecured promissory note, maturing in May 2017, in connection with a settlement agreement. The promissory note bears interest at 4.0% per annum, and is payable in equal monthly installments of outstanding principal and interest.