Note Eight — Debt

On June 29, 2017, the company entered into a loan agreement with CIBC Bank USA f/k/a The PrivateBank and Trust Company (CIBC). The loan agreement provides for a revolving line of credit to the company with a maximum credit limit of $20.0 million, which matures on June 29, 2020 (the credit facility). The credit facility is secured by a security interest in the company’s assets. The company, subject to certain limits and restrictions, may from time to time request the issuance of letters of credit under the loan agreement.

The principal amount outstanding under the credit facility will accrue interest at a floating annual rate equal to 1 month, 2 month or 3 month LIBOR (as selected by the company) plus 5.50%, payable monthly. In addition, the company will pay a non-use fee on the credit facility of 25 basis points (0.25%) per annum of the average unused portion of the credit facility. The amount the company may borrow under the credit facility is limited to five times the company’s monthly recurring revenue (as determined in accordance with the terms and conditions set forth in the loan agreement), multiplied by a dynamic churn factor that is based upon the ratio of recurring revenue retained in the prior twelve month period relative to the total amount of recurring revenue at the beginning of the period.

The loan agreement imposes various restrictions on the company, including usual and customary limitations on the ability of the company to incur debt and to grant liens upon its assets, increasing restrictions based on thresholds, prohibits certain consolidations, mergers, and sales and transfers of assets by the company and requires the company to comply with a trailing twelve months of total revenue and quarterly EBITDA (as adjusted in accordance with the loan agreement) targets. The loan agreement includes usual and customary events of default (with customary grace periods, as applicable) and provides that, upon the occurrence of an event of default, payment of all amounts payable under the loan agreement may be accelerated and/or the lender’s commitments may be terminated. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the loan agreement will automatically become immediately due and payable, and the lender’s commitments will automatically terminate.

On March 29, 2018, the company amended the loan agreement with CIBC. The amendment changes the quarterly EBITDA targets and increases the applicable margin for loans bearing interest at LIBOR from 4.50% to 5.50% and for loans bearing interest at the base rate from 1.75% to 2.75%. The amendment increases the company’s minimum total revenue thresholds for the first and second quarters of 2018 by an average of approximately 3% each quarter and reduces the applicable total revenue thresholds for each of the third and fourth quarters of 2018 by an average of approximately 6% each quarter. The amendment also provides CIBC with the ability to impose discretionary reserves against the borrowing base. The company paid CIBC a non-refundable amendment fee of $0.1 million.

The average outstanding balance on the revolving line of credit during the first six months of 2018 was $8.9 million. In March 2018, CIBC established a reserve of $5.0 million against the revolving loan agreement, effectively reducing total availability to $15 million. CIBC has the ability to increase the reserves against the revolving loan availability at their discretion. As of June 30, 2018, $8.4 million remains outstanding on the revolving line of credit with the ability to draw an additional $4.5 million. The company has classified a portion of the CIBC debt as long term and does not expect CIBC to demand repayment within the next 12 months. There are also $1.2 million in outstanding letters of credit issued by CIBC against the line of credit. If the transactions contemplated under the Merger Agreement do not occur or are delayed, the company would need to raise capital and negotiate modifications to the loan agreement and there is no assurance that the company would have access to additional external capital resources on acceptable terms.

On April 25, 2018, the company entered into a second amendment to the loan agreement with CIBC. The amendment excludes certain expenses incurred in connection with the merger from the calculation of adjusted EBITDA, and changed the adjusted EBITDA target for the second quarter of 2018. The amendment also requires the company to have liquidity as of the last day of each calendar month of at least $2.0 million. The company paid CIBC a non-refundable amendment fee of $0.1 million. (See Note Fourteen — Merger Agreement and Related Matters).

Debt consisted of the following:

(In millions)	June 30, 2018		December 31, 2017
CIBC loan due June 29, 2020, effective borrowing rate of 6.55% and 5.93% at June 30, 2018 and December 31, 2017	$	8.4	$	16.9
Furniture loan due May 2021, effective borrowing rate of 9.10%		0.1		0.1
Furniture loan due May 2021, effective borrowing rate of 9.55%		0.1		0.1
Furniture loan due July 2019, effective borrowing rate of 13.98%⁽¹⁾	—			0.1
Total debt⁽²⁾	$	8.6	$	17.2

(1)	Less than $0.1 million.

(2)

Total debt of $8.6 million at June 30, 2018 includes the current portion of the CIBC loan of $1.6 million and furniture loans of $0.1 million and the long term portion of the CIBC loan of $6.8 million and furniture loans of $0.1 million. Total debt of $17.2 million at December 31, 2017, includes the current portion of the furniture loans of $0.1 million and the long term portion of the CIBC loan of $16.9 million and furniture loans of $0.2 million.