Quarterly report pursuant to sections 13 or 15(d)

Going Concern and Management's Plan

Going Concern and Management's Plan
9 Months Ended
Sep. 30, 2012
Going Concern and Management's Plan [Abstract]  
Going Concern and Management's Plan
2. Going Concern and Management’s Plan

The accompanying consolidated financial statements for the three month and nine month periods ended September 30, 2012 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business and the continuation of the Company as a going concern.

In February 2012, a concerned stockholder group (“Concerned Stockholder Group”) requested a special stockholders’ meeting (the “Special Meeting”) as described in the 2011 Form 10-K.

If the Special Meeting had resulted in a change in the majority of Infusystem’s Board of Directors (the “Board”) under the terms of the Company’s credit facility with Bank of America, N.A. and KeyBank National Association (the “Lenders”) (see Note 6), a change in the majority of the Board would have constituted a change in control and an event of default, which would have allowed the Lenders to cause the debt to be immediately due and payable. This possibility of a change in the majority representation of the Board and consequent event of default under the Credit Facility, which would have allowed the Lenders to cause the debt of $24.0 million as of December 31, 2011 to become immediately due and payable, raised substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements did not include any adjustments, if any, that would have resulted from the outcome of this uncertainty. See below for further information concerning a change in the board composition and the cancellation of the Special Meeting made during the second quarter of 2012. As further described herein, although a change in the board composition took place during the second quarter of 2012, the Company obtained a waiver from the Lenders regarding this event of default and the Special Meeting was cancelled.

On April 24, 2012 the Company reached an agreement (the “Settlement Agreement”) with the Concerned Stockholder Group, resulting in a series of changes to the Board and senior leadership. In accordance with Section 141(b) of the Delaware General Corporation Law (“DGCL”) and Section 2.2 of the Company’s amended and restated bylaws, the total number of authorized directors on the Board was increased from seven (7) to twelve (12). These newly created vacancies were filled by Mr. John Climaco, Mr. Charles Gillman, Mr. Ryan Morris, Mr. Dilip Singh and Mr. Joseph Whitters. Mr. Timothy Kopra, Mr. Pat LaVecchia, Mr. Sean McDevitt, Mr. Jean-Pierre Million and Mr. John Voris (“Old Board Members”) resigned as directors of the Company. As a result of the above, in accordance with Section 141(b) of the DGCL and Section 2.2 of the Bylaws, the total number of authorized directors on the Board was decreased from twelve (12) to seven (7) to be effective following the resignations of the Old Board Members. In addition, Mr. McDevitt, the Company’s then CEO (the “former CEO”) resigned to pursue other interests and was replaced with Mr. Singh on an interim basis.


Concurrent with and as a condition of the Settlement Agreement, on April 24, 2012, Mr. McDevitt entered into a consulting agreement with the Company under which he resigned as CEO of the Company and agreed to serve as a consultant until July 31, 2012. Under the consulting agreement, Mr. McDevitt received a consulting fee of $1.0 million, paid in installments on each of April 24, 2012, May 15, 2012 and June 15, 2012 of less than $0.1 million in shares of the Company’s common stock for each installment and a final installment in August 2012 of $0.8 million in shares of the Company’s common stock. Shares issued to Mr. McDevitt were issued from the Company’s 2007 Stock Incentive Plan, as amended (the “2007 Plan”), valued at the average closing price of a share on the NYSE Amex on the five trading days preceding the date of such issuance.

Per the terms of the consulting agreement, Mr. McDevitt’s Share Award Agreement entered into on April 6, 2010 with the Company has terminated, including the 2.0 million shares of common stock potentially issuable under such agreement. Approximately $6.0 million in unrecognized compensation expense associated with such shares will not be recognized by the Company in the future. As these shares were forfeited before the requisite service period for this award was rendered, previously recognized compensation expense of $1.3 million was reversed and recorded as a reduction of general and administrative expense during the three months ended June 30, 2012.

On April 25, 2012, the Company entered into the Fifth Amendment, which modified certain provisions within the Credit Facility. Such modifications included a change of the maturity date under the Credit Agreement to July 1, 2013 and the payment of a monthly ticking fee equal to 1% of the aggregate amount outstanding thereunder and revolving credit commitments. These provisions will have significant impact on the Company’s monthly cash flow and balance sheet. See Note 6 for additional details on the Fifth Amendment. As a result of this amendment, the Company intends to refinance its indebtedness prior to maturity in order for it to maintain sufficient funds for its operations and alleviate the burden of the additional fees. The Company’s ability to successfully refinance this debt will be impacted by a number of factors, including: our current financial performance, including revenue, cash flow and consolidated leverage ratio; the outlook for the Company, including our ability to continue to add additional facilities and further penetration into existing accounts; and the current state of the debt markets, the economics of the healthcare industry and the changes in our regulatory environment, including the Center for Medicare and Medicaid Services (“CMS”) Competitive Bidding Round 1 Recompete (“RD1RC”).

The Company cannot ensure that it will be able to refinance our existing Credit Facility or whether other financing options available to the Company, if any, will be on acceptable terms. If the Company is not able to refinance or secure alternative financing or the Company’s lenders will not amend the terms of our current debt, the Company may not be able to satisfy our financial obligations and would have significant financial constraints. This could have a substantial adverse impact on the Company and our ability to continue our operations.