8.

Debt

On November 30, 2012, the Company entered into a credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), as Administrative Agent, and Wells Fargo and funds managed by PennantPark Investment Advisers, LLC (“PennantPark”) as Lenders (the “WF Credit Agreement”). The WF Credit Agreement consisted of a $12.0 million Term Loan A (provided by Wells Fargo), a $14.5 million Term Loan B (provided by PennantPark) and a $10.0 million revolving credit facility, all of which were scheduled to mature on November 30, 2016 (collectively the “WF Credit Facility”). Interest on the term loan was payable at the Company’s choice of LIBOR plus 7.25% (with a LIBOR floor of 2.0%) or the Wells Fargo prime rate plus 6.25% (with a prime rate floor of 3.0%). Proceeds from Term Loan A and Term Loan B of the WF Credit Agreement were used for general corporate purposes as well as to repay the outstanding balance of the Company’s prior Bank of America credit agreement.

On April 18, 2014, the Company entered into the First Amendment to the WF Credit Agreement with Wells Fargo and PennantPark. This amendment amended the definition of Eligible Inventory by specifically allowing for the inventory located at the Company’s Kansas location to not be excluded from Eligible Inventory solely due to the lack of a collateral access agreement signed by the landlord so long as a reserve is implemented against the Company’s revolver availability to provide for the payment of rent to the landlord in the event of default.

 

On May 19, 2014, the Company entered into the Second Amendment to the WF Credit Agreement with Wells Fargo and PennantPark. This amendment lowered both the effective floating rate and the effective fixed rate by 150 basis points each. As of December 31, 2014, interest on the WF Credit Facility was payable at the Company’s choice of (i) LIBOR plus 6.75% (with a LIBOR floor of 1.0%, for an effective fixed rate of 7.75%) or (ii) the Wells Fargo prime rate plus 4.75% (with a prime rate floor of 3.0%, for an effective floating rate of 8.0%). As of December 31, 2014, the effective interest rate on all outstanding borrowings was 7.9%.

On January 23, 2015, the Company entered into the Third Amendment to the WF Credit Agreement with Wells Fargo and PennantPark. This amendment increased the maximum Leverage Covenant ratio for the period ending December 31, 2014 and all subsequent periods to 2.00:1.00. Prior to this amendment, the maximum Leverage Covenant ratio for the periods ending (a) December 31, 2014 through March 31, 2015 was 1.50:1.00, (b) June 30, 2015 through September 30, 2015 was 1.25:1.00, (c) December 31, 2015 through September 30, 2016 was 1.00:1.00.

On March 23, 2015, the Company and its direct and indirect subsidiaries entered into a credit agreement (the “Chase Credit Agreement”) with JPMorgan Chase Bank, N.A., as lender (the “Lender”). The borrowers under the Chase Credit Agreement are the Company, InfuSystem Holdings USA, Inc. (“Holdings”), ISI, First Biomedical and IFC LLC (collectively, the “Borrowers”). The Chase Credit Agreement consists of a $27.0 million Term Loan A, up to $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 “Chase Credit Facility”).

On March 23, 2015, the Borrowers drew $27.0 million under the Term Loan A to repay and terminate the previously existing WF Credit Facility. Term Loan B was unfunded at closing and beginning on April 20, 2015, the Closing Date of the acquisition of the assets of Ciscura, the Borrowers drew on Term Loan B in several installments in accordance with the requirements of the asset purchase agreement governing the acquisition to fund the acquisition and associated expenses. As of December 31, 2015, a total of approximately $6.3 million had been drawn on Term Loan B, with an additional $1.7 million available to be drawn under certain conditions for acquisitions. The Company recorded a $1.6 million as loss on extinguishment of long-term debt in its consolidated statement of operations as of December 31, 2015 for the write-off of deferred financing costs associated with the previous WF Credit Facility.

Under the terms of the Chase Credit Agreement, principal payments equal to $1.0 million are due on Term Loan A on the last business day of each quarter beginning with the last business day of September 2015 and are due until the maturity date of the Chase Credit Facility. Principal payments on Term Loan B are due on the last business day of each fiscal quarter beginning with the last business day of March 2016. The value of each principal payment due on Term Loan B shall be equal to 3.575% of the principal balance of Term Loan B as of the Term Loan B Draw Expiration Date for the first eight quarterly payments. Thereafter, the next 8 principal payments shall be equal to 4.475% of the principal balance of Term Loan B as of the Term Loan B Draw Expiration Date. The entire outstanding balance of the revolver shall be due at the maturity of the Credit Facility.

During the year end December 31, 2015, the Company made optional pre-payments of $4.8 million on its Term Loan A, which can be applied against a future mandatory payment. Prepayments of $1.9 million were applied to the September 30, 2015 and December 31, 2015 Term Loan A required principal payments. Remaining prepayments of $2.9 million are available towards 2016 future mandatory payments.

As of December 31, 2015, interest on the Chase Credit Facility was 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 December 31, 2015 was 2.73% (LIBOR of 0.23% plus 2.50%).

The availability under the Revolver is based upon the Borrower’s eligible accounts receivable and eligible inventory and is computed as of December 31 as follows (in thousands):

 

		2015				2014
Gross availability		$	10,000			$	7,432
Outstanding draws			—				(566	)
Letter of credit			(81	)			(282	)
Landlord Reserves			(37	)			—
Availability on Revolver		$	9,882			$	6,584

 

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 Holdings and Holdings has pledged the shares of each of ISI and First Biomedical and the equity interests of IFC LLC to the Lender, for the benefit of the secured parties, to further secure the obligations under the Chase Credit Agreement.

The Chase Credit Agreement contains certain affirmative and negative covenants typical for credit facilities of this type. These covenants (subject to certain agreed and customary exceptions set forth in the Chase Credit Agreement) restrict or limit subject to the Lender’s prior consent, and in some cases prohibit, the Borrowers from engaging in certain actions, including its ability to, among other things: (i) incur indebtedness; (ii) create liens; (iii) engage in mergers, consolidations, liquidations or dissolutions; (iv) engage in acquisitions; (v) dispose of assets; (vi) pay dividends and distributions or repurchase capital stock or make other restricted payments; (vii) make investments, loans, guarantees or advances; (viii) engage in certain transactions with affiliates; (ix) enter into sale and leaseback transactions; (x) enter into hedging agreements; (xi) enter into agreements that restrict distributions from subsidiaries; and (xii) change their fiscal year.

In addition, the Chase 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 December 31, 2015, the Company was in compliance with all such covenants.

 

The Company had approximate future maturities of loans and capital leases as of December 31, 2015 as follows (in thousands):

 

		2016				2017				2018				2019				2020				Total
Term Loan A (a)		$	965			$	3,860			$	3,860			$	3,860			$	9,630			$	22,175
Term Loan B			908				908				1,136				1,136				2,260				6,348
Revolver			—				—				—				—				—				—
Capital Leases			3,187				2,204				991				39				—				6,421
Total		$	5,060			$	6,972			$	5,987			$	5,035			$	11,890			$	34,944

 

(a)	The Company has prepaid its Term Loan A principal payments due on March 31, 2016, June 30, 2016 and September 30, 2016. Each of these payments is $965, representing a total prepayment of $2,895

The following is a breakdown of the Company’s current and long-term debt (including capital leases) as of December 31, 2015 and December 31, 2014 (in thousands):

 

December 31, 2015														December 31, 2014
		Current Portion of Long-Term Debt				Long-Term Debt				Total						Current Portion of Long-Term Debt				Long-Term Debt				Total
Term Loans		$	1,873			$	26,651			$	28,524			Term Loans		$	4,238			$	15,849			$	20,087
Revolver			—				—				—			Revolver			—				566				566
Capital Leases			3,187				3,233				6,420			Capital Leases			2,214				2,617				4,831
Total		$	5,060			$	29,884			$	34,944			Total		$	6,452			$	19,032			$	25,484