Annual report pursuant to Section 13 and 15(d)

Note 18 - Related Party Transactions

v3.6.0.2
Note 18 - Related Party Transactions
12 Months Ended
Dec. 31, 2016
Related Party Transactions [Abstract]  
Note 17 - Related Party Transactions

Note 18. Related Party Transactions

 

Chief Executive Officer, President and Chairman Convertible Secured Promissory Note Agreements and Debt Guaranty

 

In November 2016, the Company entered into the 2016 Convertible Note with Mr. Ryan Drexler, pursuant to which Mr. Drexler loaned the Company $11.0 million. Proceeds from the note were used to fund the Settlement Agreement with Capstone. The 2016 Convertible Note is secured by all assets and properties of the Company and its subsidiaries, whether tangible or intangible. See Note 6 and Note 9 for additional information.

 

In December 2015, the Company entered into the 2015 Convertible Note with Mr. Drexler, pursuant to which he loaned the Company $6.0 million. Proceeds from the note were used to fund working capital requirements. The convertible note is secured by all assets and properties of the Company and its subsidiaries whether tangible or intangible. In connection with the Company entering into the 2015 Convertible Note with Mr. Drexler, the Company granted Mr. Drexler the right to designate two directors to the Board. The Company agreed to take all actions necessary to permit such designation. See additional information in Note 9.

 

For the years ended December 31, 2016 and 2015, interest expense related to the related party convertible secured promissory notes was $0.7 million and $33,000, respectively. During the year ended December 31, 2016, $0.5 million in interest was paid in cash to Mr. Drexler. No interest was paid during the year ended December 31, 2015.

 

In October 2015, the Company entered into loan modification agreements with ANB Bank under the line of credit and term loan to: (i) change the maturity date of the loans to January 15, 2016, (ii) prohibit the loans to be declared in default prior to December 10, 2015, except for defaults resulting from failure to make timely payments, and (iii) delete certain financial covenants from the line of credit. In consideration for these modifications, Ryan Drexler, Chairman of the Board, Chief Executive Officer and President, and a family member provided their individual guaranty for the remaining balance of the term loan and line of credit of $6.2 million. In consideration for executing his guaranty, the Company issued to Mr. Drexler 28,571 shares of the Company’s common stock with a grant date fair value of $80,000 (based upon the closing price of the Company’s common stock on the date of issuance). See additional information in Note 9.

 

 

Sports Tickets

 

The Company maintains a luxury box at the Sports Authority Field in Denver, Colorado. Employees are able to attend Denver Bronco football games and utilize the luxury box. During 2015, the Company’s former CEO donated tickets to a game to a youth football team in which his family member is a participant. Additionally, other family members also attended the game. The total cost for the event was approximately $15,000.

 

Key Executive Life Insurance

 

The Company had purchased split dollar life insurance policies on certain key executives. These policies provide a split of 50% of the death benefit proceeds to the Company and 50% to the officer’s designated beneficiaries. All policies were terminated or transferred to the former employees as of December 31, 2016.

 

Lease Agreement with Significant Shareholder

 

In October 2013, the Company entered into an Office Lease Agreement with Frost Real Estate Holdings, LLC, a Florida limited liability company owned by Dr. Phillip Frost, a significant shareholder. Pursuant to the lease, the Company rented 1,437 square feet of office space for an initial term of three years, with an option to renew the lease for an additional three-year term. This facility was closed in September 2015 and included in the Company’s restructuring plan. The remaining lease obligation from September 2015 through April 2017 for $77,000 was included in the restructuring expense for the year ended December 31, 2015. Prior to the closure of this facility, the Company recorded rent expense of $39,000 for the year ended December 31, 2015.

 

Lease Agreement with Former Employee

 

The Company leased office and warehouse facility in Hamilton, Ontario, Canada from 2017275 Ontario Inc., which is a company owned by Renzo Passaretti, former VP and General Manager of MusclePharm Canada Enterprises Corp, the Company’s wholly-owned Canadian subsidiary. Mr. Passaretti separated from the Company in September 2015. For the year ended December 31, 2015, the Company paid rent of $83,000. The lease was terminated in November 2015. The Company paid no such rent in 2016.

 

Business Relationship with Former Employee

 

Ryan DeLuca, the former Chief Executive Officer of Bodybuilding.com, is the brother of Jeremy DeLuca, the Company’s former EVP, MusclePharm Brand and Global Business Development. The Company maintained a business relationship with Bodybuilding.com prior to hiring Mr. DeLuca. The Company does not offer preferential pricing of our products to Bodybuilding.com based on these relationships. Mr. DeLuca separated from the Company in September 2015, and there is no ongoing relationship. Net revenue from products sales to Bodybuilding.com was $16.9 million for the year ended December 31, 2015. The Company had $1.5 million in trade receivables with Bodybuilding.com as of December 31, 2015. The Company purchased marketing services from Bodybuilding.com of $0.4 million for the year ended December 31, 2015.