7.

Debt

On January 23, 2015, the Company entered into the third amendment (“Third Amendment”) to the 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”). This Third 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 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 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 eight 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 Chase Credit Facility.

During the year ended December 31, 2015, the Company made optional pre-payments of $4.8 million on our Term Loan A, which was 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 and prepayments of $2.9 million were applied to the March 31, 2016, June 30, 2016 and September 30, 2016 Term Loan A required principal payments.

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 under its credit facility as of March 31, 2016, however, as of June 30, 2016, the Company would have been in compliance with this ratio covenant. As a result of the Company’s restatement of prior consolidated financial statements described herein, the following Events of Default occurred under the Chase Credit Agreement:

 

(i)

an Event of Default resulting from our 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 resulting 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.

The Company also experienced an Event of Default due to the delay in filing its Form 10-Q for the quarter ended September 30, 2016 because of its financial restatement.

In order to cure these violations, the Company entered into the first amendment to credit agreement and waiver (“First Amendment”) on December 5, 2016. This First Amendment amends the Chase Credit Agreement in the following material respects:

 

(i)

a waiver of the Event of Default that resulted 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 resulted 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 resulted 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 effectively consolidated 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; and

 

(xi)

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

As of December 31, 2016, 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, 2016 was 3.27% (LIBOR of 0.77% 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):

 

		2016				2015
Gross availability		$	10,000			$	10,000
Outstanding draws			—				—
Letter of credit			—				(81	)
Landlord Reserves			(45	)			(37	)
Availability on Revolver		$	9,955			$	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 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.

As of December 31, 2016, the Company was in compliance with all such covenants.

The Company had approximate future maturities of loans and capital leases as of December 31, 2016 as follows (in thousands):

 

		2017				2018				2019				2020				2021				Total
Term Loan A		$	5,336			$	5,336			$	5,336			$	5,336			$	10,656			$	32,000
Unamortized value of the debt issuance costs (a)			(22	)			(22	)			(22	)			(22	)			(21	)			(109	)
Total		$	5,314			$	5,314			$	5,314			$	5,314			$	10,635			$	31,891

 

(a)	Includes the reclassification of the debt issuance costs as a result of the Company adopting ASU 2015-03 (see Note 2)

 

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

 

December 31, 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		$	5,336			$	26,664			$	32,000				Term Loans			$	1,873			$	26,651			$	28,524
Unamortized value of the debt issuance costs (a)			(22	)			(87	)			(109	)			Unamortized value of the debt issuance costs (a)				(31	)			(103	)			(134	)
Total		$	5,314			$	26,577			$	31,891				Total			$	1,842			$	26,548			$	28,390

 

(a)	Includes the reclassification of the debt issuance costs as a result of the Company adopting ASU 2015-03 (see Note 2)