6.

Debt

On March 23, 2015, the Company and its direct and indirect subsidiaries (the “Borrowers”) entered into a credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as lender (the “Lender”). The Credit Agreement consists of a $27.0 million Term Loan A, up to an $8.0 million Term Loan B and a $10.0 million revolving credit facility (the “Revolver”), all of which mature on March 23, 2020 (collectively, the “Credit Facility”).

On March 23, 2015, the Borrowers drew $27.0 million under the Term Loan A to repay and terminate the previously existing credit facility under the credit agreement dated November 30, 2012, as amended, by and among the Company, its direct and indirect subsidiaries, Wells Fargo Bank, National Association, as administrative agent, and certain lenders party thereto (the “WF Facility”). As of June 30, 2016, Term Loan B had a balance of $5.9 million. As of June 30, 2016, interest on the Credit Facility is payable at the Borrower’s choice as a (i) Eurodollar Loan, which bears interest at a per annum rate equal to LIBOR plus a margin ranging from 2.00% to 2.50% or (ii) CBFR Loan, which bears interest at a per annum rate equal to (a) the Lender’s prime rate or (b) LIBOR for a 30-day interest period plus 2.50%, in each case, plus a margin ranging from -0.75% to -0.25%. The actual rate at June 30, 2016 was 2.95% (LIBOR of 0.45% plus 2.50%) on both Term Loan A and B and 3.25% (JPM Chase Prime Rate of 3.5% less 0.25%) on the Revolver.

The availability under the Revolver is based upon the Borrowers’ eligible accounts receivable and eligible inventory and is comprised as follows (in thousands):

 

		June 30,				December 31,
		2016				2015
Revolver:
Gross Availability		$	10,000			$	10,000
Outstanding Draws			(6,618	)			—
Letter of Credit			—				(81	)
Landlord Reserves			(45	)			(37	)
Availability on Revolver		$	3,337			$	9,882

To secure repayment of the obligations of the Borrowers, each Borrower has granted to the Lender, for the benefit of various secured parties, a first priority security interest in substantially all of the personal property assets of each of the Borrowers. In addition, the Company has pledged the shares of InfuSystem Holdings USA, Inc. (“Holdings USA”) and Holdings USA has pledged the shares of each of InfuSystem, Inc. and First Biomedical, Inc. and the equity interests of IFC, LLC to the Lender, for the benefit of the secured parties, to further secure the obligations under the Credit Agreement.

In addition, the Credit Agreement requires the Borrowers to maintain the following financial covenant obligations:

 

(i)

a minimum fixed charge coverage ratio of 1.25:1.00;

 

(ii)

a maximum total leverage ratio ranging from 3.00:1.00 to 2.25:1.00 during specified periods; and

 

(iii)

a minimum net worth of $37.5 million.

The restatement error and the Company’s decision to prepay debt, would have resulted in the Company being non-compliant with its fixed charge coverage ratio covenant as of March 31, 2016, however, as of June 30, 2016, the Company would have been in compliance. As a result of the Company’s restatement of prior consolidated financial statements described herein, the following Events of Default occurred:

 

(i)

an Event of Default that results from breach of the Fixed Charge Coverage covenant as of March 31, 2016 as required under Section 6.12(b); and

 

(ii)

an Event of Default that results from the unintentional misrepresentations made prior to the date of the First Amendment in connection with the certification as to the accuracy of the financial statements and compliance certificate delivered pursuant to Section 5.01 as they relate solely to the source of the error that has necessitated the restatement discussed herein.

In order to cure these violations, the Company entered into the First Amendment to Credit Agreement and Waiver on December 5, 2016. This First Amendment amends the Credit Agreement in the following material respects:

 

(i)

a waiver of the Event of Default that results from the failure to timely deliver the unaudited financial statements for the fiscal quarter ended September 30, 2016 as required under Section 5.01(b) and (c);

 

(ii)

a waiver of the Event of Default that results from breach of the Fixed Charge Coverage covenant as of March 31, 2016 as required under Section 6.12(b);

 

(iii)

a waiver of the Event of Default that results from the unintentional misrepresentations made prior to the date of the First Amendment in connection with the certification as to the accuracy of the financial statements and compliance certificate delivered pursuant to Section 5.01 as they relate solely to the source of the error that has necessitated the restatement discussed herein;

 

(iv)

a restructuring of the credit facility that will effectively consolidate Term Loan A and Term Loan B into a single Term Loan resulting in a new total drawn amount of $32 million under the Term Loan with the approximately $5 million excess over the current aggregate drawn amounts under Term Loan A and Term Loan B to be available to reduce the Company’s drawings under the revolving credit line;

 

(v)

set the maturity of the new Term Loan described in item (iv) and the revolving credit line to five years from the effective date of the First Amendment;

 

(vi)

set the quarterly mandatory principal payment due on the Term Loan to $1.3 million due on the last business day of each fiscal quarter with any remaining unpaid and outstanding amount due at maturity;

 

(vii)

amend the deadline for delivery of consolidated financial statements to allow for the delivery of such statements for the quarter ended September 30, 2016 by December 16, 2016;

 

(viii)

amend the deadline for delivery of the Company’s annual financial plan and forecast to 30 days after the end of each fiscal year;

 

(ix)

amend the Leverage Ratio covenant to provide for the following schedule of maximum permitted ratios: (i) 3.0 to 1.0 at any time on or after the effective date but prior to December 31, 2015, (ii) 2.75 to 1.0 at any time on or after December 31, 2015 but prior to March 31, 2017, (iii) 2.50 to 1.0 at any time on or after March 31, 2017 but prior to March 31, 2018 or (iv) 2.25 to 1.00 at any time on or after March 31, 2018;

 

(x)

amend the definition of EBITDA to provide for the exclusion of certain one-time expenses directly related to the financial restatement described herein;

 

(xi)

amend Section 8.01(a) to replace references to “Jonathan Foster” with “Christopher Downs”.

As a result of the waivers of Events of Default contained within the First Amendment to Credit and Waiver Agreement described herein, as of June 30, 2016, the Company was in compliance with all such covenants.

 

The Company had approximate future maturities of loans and capital leases as of June 30, 2016 as follows (in thousands):

 

		2016				2017				2018				2019				2020				Total
Term Loan A (a)		$	—			$	3,860			$	3,860			$	3,860			$	9,630			$	21,210
Term Loan B			454				908				1,136				1,136				2,261				5,895
Unamortized value of the debt issuance costs (b)			(17	)			(31	)			(31	)			(31	)			(8	)			(118	)
Revolver			—				—				—				—				6,618				6,618
Capital Leases			1,650				2,591				1,393				166				16				5,816
Total		$	2,087			$	7,328			$	6,358			$	5,131			$	18,517			$	39,421

 

(a)	The Company has prepaid its Term Loan A principal payments due on September 30, 2016 and December 31, 2016. Each of these payments is $965, representing a total prepayment of $1,930

(b)	Includes the reclassification of the debt issuance costs as a result of the Company adopting ASU 2015-03 (see Note 11)

The following is a breakdown of the Company’s current and long-term debt (including capital leases) as of June 30, 2016 and December 31, 2015 (in thousands):

 

June 30, 2016														December 31, 2015
		Current Portion of Long-Term Debt				Long-Term Debt				Total						Current Portion of Long-Term Debt				Long-Term Debt				Total
Term Loans		$	2,838			$	24,267			$	27,105			Term Loans		$	1,873			$	26,651			$	28,524
Unamortized value of the debt issuance costs (a)		$	—			$	(118	)			(118	)		Unamortized value of the debt issuance costs (a)		$	—			$	(134	)			(134	)
Revolver			—				6,618				6,618			Revolver			—				—				—
Capital Leases			3,101				2,715				5,816			Capital Leases			3,187				3,233				6,420
Total		$	5,939			$	33,482			$	39,421			Total		$	5,060			$	29,750			$	34,810

 

(a)	Includes the reclassification of the debt issuance costs as a result of the Company adopting ASU 2015-03 (see Note 11)