Note

Term Loan

and Line of Credit Agreements

2016

Term Loan Agreement

December 20, 2016,

Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the

“2016

Term Loan Agreement”) with Laurel Capital Corporation which provided for a

$12.0

million term loan. At closing,

$9.1

million of the proceeds were used to pay off amounts outstanding under the then existing line of credit agreement and associated accrued interest with Home Savings Bank, dated

May 21, 2015,

as amended, and pay related transaction costs associated with the

2016

Term Loan Agreement. The line of credit agreement with Home Savings Bank was terminated in conjunction with the repayment. Remaining proceeds of

$2.9

million under the

2016

Term Loan Agreement were deposited in a project fund account to fund costs of renovating and expanding The Avalon Inn. At

March 31, 2019

the project fund proceeds related to the

2016

Term Loan Agreement were fully utilized. At

December 31, 2018,

the remaining project fund proceeds of approximately

$0.5

million are presented in the Condensed Consolidated Balance Sheets as “Restricted cash.” On

December 4, 2017

the

2016

Term Loan Agreement was amended to restate the definition of “Total Fixed Charges” utilized in the calculation of the “Fixed Charge Coverage Ratio.”

The

$12.0

million term loan amount is payable in

119

equal monthly installments of principal and interest

based on a

fifteen

(

) year maturity schedule which commenced on

January 20, 2017.

The

2016

Term Loan Agreement matures on

December 20, 2026

at which time the final balloon payment equal to the remaining outstanding principal, interest and fees are due. Borrowings under the

2016

Term Loan Agreement bear interest at a fixed rate of

5.35%

until the

fifth

anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a)

5.35%

per annum or (b) the sum of the Index Rate on the date

two

(

) business days prior to the reset date plus

3.95%,

provided that the applicable rate shall in

event exceed

7.50%

per annum.

Avalon has the right to prepay the amount outstanding under the

2016

Term Loan Agreement, in whole or in part, at any time upon payment of the principal amount of the loan to be prepaid plus accrued unpaid interest thereon to the prepayment date, plus an applicable prepayment penalty. The prepayment penalty, expressed as a percentage of the principal of the loan being prepaid, is

five

percent (

) on any prepayment in the

first

five

years;

four

percent (

) on any prepayment in the

sixth

and

seventh

year;

three

percent (

) on any prepayment in the

eighth

and

ninth

year; and

two

percent (

) on any prepayment in the

tenth

year.

Borrowings under the

2016

Term Loan Agreement are secured by certain real property and related business assets as defined in the agreement. The

2016

Term Loan Agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Avalon was in compliance with the

2016

Term Loan Agreement covenants at

March 31, 2019

and

December 31, 2018.

The Company incurred approximately

$191,000

of debt issuance costs in connection with the

2016

Term Loan Agreement. These debt issuance costs were capitalized and will be amortized over the life of the

2016

Term Loan Agreement. In accordance with ASU

2015

03,

Simplifying the Presentation of Debt Issuance Costs

(“ASU

2015

03”

), these costs are presented in the Condensed Consolidated Balance Sheets as a direct reduction from the carrying amount of the term loan liability.

2019

Term Loan Agreement

March 29, 2019,

Avalon and certain direct and indirect wholly owned subsidiaries entered into a loan and security agreement (the

“2019

Term Loan Agreement”) with Laurel Capital Corporation which provides for a

$3.0

million term loan. At closing, a portion of the proceeds were used to pay related transaction costs associated with the

2019

Term Loan Agreement with the remaining proceeds deposited into a project fund account to fund costs of renovating and expanding The Avalon Inn. At

March 31, 2019,

the project fund proceeds of approximately

$3.0

million are presented in the Condensed Consolidated Balance Sheets as “Restricted cash.”

The

$3.0

million outstanding under the

2019

Term Loan Agreement is payable in

equal monthly installments of principal and interest

based on a

fifteen

(

) year maturity schedule commencing

April 20, 2019

followed by

one

final balloon payment of all remaining principal, interest and fees due on the maturity date of

December 20, 2026.

Borrowings under the

2019

Term Loan Agreement bear interest at a fixed rate of

6.25%

until the

fifth

anniversary date of the closing at which time the interest rate will be reset to a fixed rate equal to the greater of (a)

6.25%

per annum or (b) the sum of the Index Rate on the date

two

(

) business days prior to the reset date plus

3.60%,

provided that the applicable rate shall in

event exceed

8.50%

per annum.

Avalon has the right to prepay the amount outstanding under the

2019

five

percent (

) on any prepayment in the

first

five

years and

two

percent (

) on any prepayment in the sixth,

seventh

eighth

year.

Borrowings are under the

2019

Term Loan Agreement are secured by a

second

priority mortgage lien on the land, building and improvements on the property owned by The Avalon Inn as defined in the agreement. The

2019

Term Loan Agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Avalon was in compliance with the

2019

Term Loan Agreement covenants at

March 31, 2019.

The Company incurred approximately

$42,000

of debt issuance costs in connection with the

2019

Term Loan Agreement. These debt issuance costs were capitalized and will be amortized over the life of the

2019

Term Loan Agreement. In accordance with ASU

2015

03,

these costs are presented in the Condensed Consolidated Balance Sheets as a direct reduction from the carrying amount of the term loan liability.

Line of Credit Agreement

May 31, 2018,

Avalon entered into a new business loan agreement with Home Savings Bank, (the “Line of Credit Agreement”) which provides for a line of credit of up to

$5.0

million maturing on

May 31, 2020.

Under the Line of Credit Agreement, borrowings in excess of

$1.0

million are subject to a borrowing base which is calculated based off a specific level of eligible accounts receivable of the waste management business as defined in the agreement. The existing line of credit agreement with Home Savings Bank, dated

December 20, 2016,

as amended, which was entered into concurrently with the Term Loan Agreement, was terminated in conjunction with the new Line of Credit Agreement.

amounts were outstanding under the existing line of credit agreement at termination.

amounts were drawn under the Line of Credit Agreement at

March 31, 2019

and

December 31, 2018.

Outstanding borrowings under the Line of Credit Agreement bear interest at Prime Rate plus

.25%.

March 31, 2019,

the interest rate on the Line of Credit Agreement was

5.75%.

Borrowings under the Line of Credit Agreement are secured by certain business assets of the Company including accounts receivable, inventory and equipment. The Line of Credit Agreement also contains certain financial and other covenants, customary representations, warranties and events of default. Avalon was in compliance with the line of credit agreements covenants at

March 31, 2019

and

December 31, 2018.

During the

three

month periods ended

March 31, 2019

and

2018,

the weighted average interest rate on outstanding borrowings was

5.36%

and

5.35%,

respectively.

Obligations under the Company’s debt agreements at

March 31, 2019

and

December 31, 2018

consist of the following (in thousands):

	March 31, 2019
	Gross Amount		Debt Issuance Costs			Net Amount
2016 Term loan agreement	$	10,752	$	(148	)	$	10,604
2019 Term loan agreement		3,000		(42	)		2,958
Total		13,752		(190	)		13,562
Less current portion		733		(24	)		709
Long-term debt	$	13,019	$	(166	)	$	12,853

	December 31, 2018
	Gross Amount		Debt Issuance Costs			Net Amount
2016 Term loan agreement	$	10,898	$	(153	)	$	10,745
Less current portion		597		(19	)		578
Long-term debt	$	10,301	$	(134	)	$	10,167

Future maturities of long-term debt are as follows (in thousands):

For the Twelve Month Period Ending March 31,
2020	$	733
2021		770
2022		814
2023		860
2024		908
Thereafter		9,667
Total	$	13,752