NOTE 5 - NOTES PAYABLE AND CONVERTIBLE NOTES

The Company had the following long-term debt:

	December 31, 2016			December 31, 2015

Goldman Sachs - Tranche A Term Loan - LIBOR Interest	$	40,000,000		$	40,000,000
Goldman Sachs – Revolver		3,195,000			-
Convertible Notes Payable		1,250,000			1,250,000
Capitalized lease - financing company, secured by equipment		12,566			37,096
Equipment loans		270,225			395,119
Notes payable to seller of Meridian, subordinated debt		1,475,000			1,475,000
Less: debt issuance cost/fees		(1,195,797	)		(1,416,697	)
Less: debt discount		(1,810,881	)		(2,152,603	)
Total debt		43,196,113			39,587,915
Less: current portion		(1,385,380	)		(417,119	)
Long term debt less current portion	$	41,810,733		$	39,170,796

Goldman Sachs Credit Agreement

On December 22, 2015, in connection with the closing of acquisitions of Christian Disposal, LLC and certain assets of Eagle Ridge Landfill, LLC, the Company was extended certain credit facilities by certain lenders under a credit agreement among the Company, certain of its affiliates, the lenders party thereto and Goldman Sachs Specialty Lending Group, L.P., as administrative agent, collateral agent and lead arranger, consisting of $40,000,000 aggregate principal amount of Tranche A Term Loans, $10,000,000 aggregate principal amount of commitments to make Multi-Draw Term Loans and up to $5,000,000 aggregate principal amount of Revolving Commitments. During the year ended December 31, 2016, the Company borrowed $3,195,000 in relation to the Revolving Commitments.

The proceeds of the loans were used to partially fund the acquisitions referenced above and refinance existing debt with Praesidian in the year ended December 31, 2015, among other things. The funds to pay off the Praesidian notes were distributed as follows:

Aggregate outstanding principal balance of the Notes	$	10,845,043
Aggregate accrued but unpaid interest on the Notes		82,844
Prepayment Premium1		325,351
Accrued PIK		9,941
Tax Liability		150,000
Accrued but unpaid fees and expenses		4,000
Payoff Amount	$	11,417,179

In 2015 the Company repaid in full and terminated its agreements with Praesidian which effected the cancellation of certain warrants that the Company issued to Fund III for the purchase of 931,826 shares of the Company’s common stock and to Fund III-A for the purchase of 361,196 shares of the Company’s common stock. In consideration for the cancellation of the Praesidian Warrants, the Company issued to Praesidian Capital Opportunity Fund III, LP, 1,153,052 shares of common stock and issued to Praesidian Capital Opportunity Fund III-A, LP, 446,948 shares of common stock. Due to the early termination of the notes and cancellation of the warrants, the Company recorded a loss on extinguishment of debt of $1,899,161 in the year ended December 31, 2015.

At December 31, 2016, the Company had a total outstanding balance of $43,196,000 consisting of the Tranche A Term Loan and draw of the Revolving Commitments. The loans are secured by liens on substantially all of the assets of the Company and its subsidiaries. The debt has a maturity date of December 22, 2020 with interest paid monthly at an annual rate of approximately 9% (subject to variation based on changes in LIBOR or another underlying reference rate). In addition, there is a commitment fee paid monthly on the Multi-Draw Term Loans and Revolving Commitments at an annual rate of 0.5%. The Company has adopted ASU 2015-03 and is showing loan fees net of long-term debt on the balance sheet. As of December 31, 2016 and at certain times thereafter, the Company was in violation of covenants within its credit agreement with Goldman, Sachs & Co. The lenders and agents and the Company and its affiliates entered into a waiver and amendment letter on April 11, 2017, as of December 31, 2016 whereby the covenant violations as of December 31, 2016 were waived. The next measurement date of all covenants is as of March 31, 2017, we are in the process of preparing our submission to our lender.

In addition, in connection with the credit agreement, the Company issued warrants to Goldman, Sachs & Co. for the purchase of shares of the Company equal to 6.5% of the total common stock outstanding and common stock equivalents at a purchase price equal to $449,553, exercisable on or before December 22, 2023. The warrants grant the holder certain other rights, including registration rights, preemptive rights for certain capital raises, board observation rights and indemnification. See note 15 “subsequent events”. Due to the put feature contained in the agreement, the warrant is recorded as a derivative liability.

The Company’s derivative warrant instrument related to Goldman, Sachs & Co. has been measured at fair value at December 31, 2016, using the Black-Scholes model. The liability is revalued at each reporting period and changes in fair value are recognized currently in the consolidated statement of operations. Upon the initial recording of the derivative warrant at fair value the instrument was bifurcated and the Company recorded a debt discount of $2,160,000. This debt discount is being amortized as interest expense using the effective interest rate method over the life of the note, which is 5 years. At December 31, 2016 the balance of the debt discount is $1,810,881. The Company incurred $1,446,515 of issuance cost related to obtaining the notes. These costs are being amortized over the life of the notes using the effective interest rate method. At December 31, 2016, the unamortized balance of the costs was $1,195,797.

The key inputs used in the December 31, 2016 and December 31, 2015 fair value calculations were as follows:

	December 31,			December 31,
	2016			2015
Purchase Price	$	450,000		$	450,000
Time to expiration		12/22/2023			12/22/2023
Risk-free interest rate		1.42	%		2.15	%
Estimated volatility		60	%		45	%
Dividend		0	%		0	%
Stock price	$	10.34		$	38.00
Expected forfeiture rate		0	%		0	%

The change in the market value for the period ending December 31, 2016 is as follows:

Fair value of warrants @ December 31, 2015	$	2,820,000

Unrealized gain on derivative liability		1,570,000

Fair value of warrants @ December 31, 2016	$	1,250,000

The change in the market value for the period ending December 31, 2015 is as follows:

Fair value of warrants @ December 31, 2014	$	-

Issuance of Praesdian warrants @ August 6, 2015		904,427

Unrealized loss on derivative liability		1,004,213

Cancellation of Praesidian warrants @ December 22, 2015		(1,908,640	)

Issuance of Goldman warrants @ December 22, 2015		2,160,000

Unrealized loss on derivative liability		660,000

Fair value of warrants @ December 31, 2015	$	2,820,000

Derivative Liability – Interest Rate Swap

The Company sometimes borrows at variable rates and uses interest rate swaps as cash flow hedges of future interest payments, which have the economic effect of converting borrowings from floating rates to fixed rates. The interest rate swaps allow the Company to raise long-term borrowings at floating rates and swap them into fixed rates that are lower than those available if it borrowed at fixed rates directly. Under the interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed contract rates and floating rate interest amounts calculated by reference to the agreed notional principal amounts.

In order to hedge interest rate risk, the Company entered into an interest rate swap for a notional amount of $5,414,634 at fixed rate of 4.75%. Under the swap agreement, the Company pays the fixed rate on the $5,414,634 notional amount on a monthly basis, and receives the 1-month LIBOR plus 4.25% on a monthly basis. Payments are settled on a net basis, and the Company has effectively converted its variable-rate debt into fixed-rate debt with an effective interest rate of 4.75%. As discussed above, the debts to Comerica were paid off from the funding received from Praesidian. The net settlement amount of the interest rate swap as of December 31, 2015 and December 31, 2014 was $0 and $40,958, respectively.

Convertible Notes Payable

In 2015, as part of the purchase price consideration of the Christian Disposal acquisition, the Company issued a convertible promissory note to the seller in the amount of $1,250,000. The note bears interest at 8% and matures on December 31, 2020. The seller may convert all or any part of the outstanding and unpaid amount of this note into fully paid and non-assessable common stock in accordance with the agreement. The conversion price shall equal the volume weighted average prices of the Company’s common stock in the 10 trading days immediately prior to the date upon which the note is converted. See note 15 “subsequent events.”

Subordinated Debt

In connection with the acquisition with Meridian Waste Services, LLC on May 15, 2014, notes payable to the sellers of Meridian issued five-year term subordinated debt loans paying interest at 8%. At December 31, 2016 and December 31, 2015, the balance on these loans was $1,475,000 and $1,475,000, respectively. In 2016 these notes were extended an additional 5 years.

The debt payable to Comerica at December 31, 2015 and the Equipment loans at December 31, 2015 were the debt of Here to Serve- Missouri Waste Division, LLC, a subsidiary of the Company.

Equipment Loans

During the year ended December 31, 2015, the Company entered into four long-term loan agreements in connection with the purchase of equipment with rates between 4% and 5%. In May of 2016 one of these equipment loans was paid in full. At December 31, 2016, the balance of the remaining three loans was $270,225.

Other Debts

Convertible notes due related parties

In 2015, approximately $225,000 of the issued promissory notes were converted into approximately 23,042 shares at the contractual conversion price. In November of 2016 the Company paid the $11,850 remaining in convertible notes to related parties, which included $1,850 in accrued interest.

Notes Payable, related parties

At December 31, 2014 the Company had a short term, non-interest bearing note payable of $150,000 which was incurred in connection with the Membership Interest Purchase Agreement. The Company also had a loan from Here to Serve Holding Corp. due to expenses paid by Here to Serve on behalf of the Company prior to the recapitalization. This loan totaled $376,585 bringing total notes payable to $526,585. In 2015, the short term, non-interest bearing note was paid off, and at December 31, 2016, the Company’s loan from Here to Serve Holding Corp. was $359,891, and is included in current liabilities on the consolidated balance sheet. Also included in current liabilities on the consolidated balance sheet is a short-term loan received from an officer of the Company in December 2016 of $250,000. This loan was paid back, by the Company, in full, including interest of $20,000 on January 30, 2017.

Future minimum payments on notes, excluding related party notes at December 31, 2016 are as follows:

2017	$	1,423,000
2018		2,587,000
2019		3,010,000
2020		37,706,000
2021		1,000
Thereafter		1,475,000
Total	$	46,202,000

Total interest expense for the years ended December 31, 2016 and 2015 was approximately $4,700,000 and $1,400,000, respectively. Amortization of debt discount was approximately $300,000 and $0, respectively. Amortization of capitalized loan fees was approximately $200,000 and $0, respectively. Interest expense on debt was approximately $4,200,000 and $1,400,000, respectively.