8. Term Debt and Line of Credit

ABL Credit Facility

On November 18, 2015, the Company entered into a five-year revolving credit agreement with Wells Fargo Bank, National Association (“Wells Fargo”), as administrative agent, and the other lenders party thereto (with all related loan documents, and as amended from time to time, the “ABL Credit Facility”), replacing our Prior Credit Facility. All commitments under the Prior Credit Facility were terminated and all outstanding borrowings thereunder were repaid effective November 18, 2015. The remaining obligations of the Company and its subsidiaries under the Prior Credit Facility generally are limited to certain remaining contingent indemnification obligations.

The ABL Credit Facility provides for a five-year, $50.0 million senior secured revolving credit facility. The ABL Credit Facility also provides that, under certain conditions, we may increase the aggregate principal amount of loans outstanding thereunder by up to $10.0 million. On November 18, 2015, we borrowed $21.9 million under the ABL Credit Facility. We used the initial borrowing under that facility, together with the proceeds from the Term Loan Credit Facility (described below) to repay all outstanding borrowings under the Prior Credit Facility (consisting of $101.1 million), to pay accrued interest with respect to such loans, and to fund the payment of certain fees and costs relating to the Credit Facilities. The ABL Credit Facility will mature, and the commitments thereunder will terminate, on November 17, 2020.

The Company and all of its subsidiaries are borrowers under the ABL Credit Facility. Subject to certain exceptions, the obligations under the ABL Credit Facility are secured by a lien on substantially all of the assets of the Company including: (i) a perfected first priority pledge of all the equity interests of the Company, and (ii) a perfected first priority security interest in substantially all other tangible and intangible assets of the Company and its subsidiaries (including, but not limited, to accounts receivable, inventory, equipment, general intangibles, investment property, real property, intellectual property and the proceeds of the foregoing). The obligations under the ABL Credit Facility are also guaranteed by each of the Company’s subsidiaries.

Availability of borrowings under the ABL Credit Facility is subject to, among other things, a borrowing base calculation based upon a valuation of our eligible accounts and eligible inventory (including eligible finished goods, raw materials, and by-products inventory), each multiplied by an applicable advance rate or limit, and certain reserves and caps customary for financings of this type. If at any time the aggregate amounts outstanding under the ABL Credit Facility exceed the borrowing base then in effect, a prepayment of an amount sufficient to eliminate such excess is required to be made. Availability of borrowings under the ABL Credit Facility is also subject to a bring down of the representations and warranties in such Facility and the absence of any default thereunder (including any such default under our financial and other covenants in our Term Loan Credit Facility described below). Voluntary prepayments of revolving loans under the ABL Credit Facility are permitted at any time, in whole or in part, without premium or penalty.

Borrowings under the ABL Credit Facility bear interest, at the Company’s option, at a base rate or LIBOR plus, in each case, an applicable margin. LIBOR is reset at the beginning of each selected interest period based on the LIBOR rate then in effect; provided that, if LIBOR is below zero, then such rate will be equal to zero plus the applicable margin. The base rate is a fluctuating interest rate equal to the highest of (i) the federal funds effective rate from time to time plus 0.50%, (ii) LIBOR (after taking account of any applicable floor) applicable for an interest period of one month plus 1.00%, and (iii) the prime lending rate announced from time to time by Wells Fargo. The applicable margin is subject to adjustment based on the Company’s Average Excess Availability (as defined in the ABL Credit Facility). Additionally, to maintain availability of funds under the ABL Credit Facility, we pay a monthly commitment fee of 0.25–0.375% per annum, depending on the average ABL Credit Facility balance, on the unused portion of the ABL Credit Facility.

Ongoing extensions of credit under the ABL Credit Facility are subject to customary conditions, including sufficient availability under the borrowing base. The ABL Credit Facility also contains covenants that require the Company to, among other things, periodically furnish financial and other information to the various lenders. The ABL Credit Facility contains customary negative covenant and also requires the Company, together with its subsidiaries, to comply with a Fixed Charge Coverage Ratio (as defined in the ABL Credit Facility) upon exceeding certain minimum availability requirements.

Events of default under the ABL Credit Facility include customary events such as a cross-default provision with respect to other material debt. As of December 31, 2016, the Company is in compliance with all covenants of the ABL Credit Facility, except for the requirement to deliver audited financial statements without a going concern opinion. We have obtained a temporary waiver of the going concern qualification until May 15, 2017 from the lenders under the ABL Credit Facility.

We use the ABL Credit Facility, in part, to fund our seasonal working capital needs, which are affected by, among other things, the growing cycles of the fruits and vegetables we process, for capital expenditures and for other general corporate purposes. The vast majority of our fruit and vegetable inventories are produced during the harvesting and packing months of June through September and depleted through the remaining eight months. Accordingly, our need to draw funds under the ABL Credit Facility fluctuates significantly during the year.

As of December 31, 2016, there was $32.8 million outstanding under the ABL Credit Facility and the net availability thereunder was $10.3 million.

Term debt consisted of the following as of December 31, 2016 and December 26, 2015 (in thousands):


	December 31,		December 26,
	2016		2015
Term loan credit facility through November 2020	$	84,150		85,000
Equipment term loan, Goodyear, Arizona, due monthly through April 2021		2,759		2,055
Equipment term loan, Rader Farms, due monthly through August 2019		1,420		1,972
Equipment term loan, Willamette Valley Fruit Company, due monthly through August 2019		1,054		1,464
Capital lease obligations, primarily due September 2017		44		48
Long-term debt		89,427		90,539
Less: deferred financing fees, net		(7,047)		(5,413)
Less: current portion of long-term debt		(82,380)		(1,826)
Long-term debt, less current portion	$	—	$	83,300

Annual maturities of long-term debt as of December 31, 2016 are as follows (in thousands):


	Capital Lease
Year	Obligations		Debt
2017	$	21	$	2,364
2018		16		2,405
2019		7		2,126
2020		5		82,263
2021		—		225
Thereafter		—		—
Subtotal		49		89,383
Less: Amount representing interest		(5)		—
Total	$	44	$	89,383

Term Loan Credit Facility

Also on November 18, 2015 and concurrent with the execution of the ABL Credit Facility, Inventure Foods and certain of its subsidiaries entered into a five-year term loan credit agreement (the “Term Loan Credit Facility”), with BSP Agency, LLC, a Delaware limited liability company (“BSP”), as administrative agent, and the other lenders party thereto. The Term Loan Credit Facility provides for a $85.0 million senior secured term loan that matures on November 17, 2020. The Term Loan Credit Facility also provides that, under certain conditions, we may increase the aggregate principal amount of term loans outstanding thereunder by up to $25.0 million. As noted above, we used the proceeds of the Term Loan Credit Facility, together with certain proceeds of the ABL Credit Facility, to refinance the indebtedness under the Prior Credit Facility and to fund payment of certain fees and costs related to the Credit Facilities. Unlike amounts repaid under the ABL Credit Facility, any amounts we repay under the Term Loan Credit Facility may not be reborrowed. The Term Loan Credit Facility also matures on November 17, 2020.

The Company and all of its subsidiaries are borrowers under the Term Loan Credit Facility. Subject to certain exceptions, the obligations under the Term Loan Credit Facility are secured by substantially all of the assets of the Company including: (i) a perfected first priority pledge of all the equity interests of the Company, and (ii) a perfected first priority security interest in substantially all other tangible and intangible assets of the Company (including, but not limited, to accounts receivable, inventory, equipment, general intangibles, investment property, real property, intellectual property and the proceeds of the foregoing).

Borrowings under the Term Loan Credit Facility bear interest, at the Company’s option, at a base rate or LIBOR plus, in each case, an applicable margin. LIBOR is reset at the beginning of each selected interest period based on the LIBOR rate then in effect; provided that, if LIBOR is below zero, then such rate will be equal to zero plus the applicable margin. The base rate is a fluctuating interest rate equal to the highest of (i) the federal funds effective rate from time to time plus 0.50%, (ii) LIBOR (after taking account of any applicable floor) applicable for an interest period of one month plus 1.00%, and (iii) the prime lending rate announced by Wells Fargo. The applicable margin is subject to adjustment based on the Company’s Total Leverage Ratio (as defined in the Term Loan Credit Facility).

The Term Loan Credit Facility requires amortization in the form of quarterly scheduled principal payments of $212,500 per fiscal quarter from March 2016 to September 2020, with the remaining balance due on the maturity date of November 17, 2020. In addition to the scheduled quarterly principal payments, the Company is required to make mandatory principal payments out of Excess Cash Flow (as defined in the Term Loan Credit Facility)

The Term Loan Credit Facility also contains affirmative and negative covenants that require the Company to, among other things, periodically furnish financial and other information to the various lenders. The Term Loan Credit Facility contains customary negative covenants and also requires the Company, together with its subsidiaries, to comply with a Fixed Charge Coverage Ratio (as defined in the Term Loan Credit Facility) and a Total Leverage Ratio (as defined in the Term Loan Credit Facility). On September 27, 2016, the Company entered into that certain Second Amendment to Credit Agreement with BSP, as the administrative agent, and the other lenders party thereto (the “Second Amendment”). The Second Amendment defers compliance with the Company’s Total Leverage Ratio and Fixed Charge Coverage Ratio covenants until the second quarter of fiscal 2017, requires the Company to comply with a minimum EBITDA covenant commencing with the fiscal month ending April 30, 2017, and increases the Base Rate Margin and the Libor Rate Margin thereunder by 100 basis points. The Second Amendment also amends the fees payable to the lenders in the event of prepayment and restricts the Company’s ability to raise Curative Equity (as defined in the Second Amendment) until the fourth quarter of fiscal 2017.

Events of default under the Term Loan Credit Agreement include customary events such as a cross-default provision with respect to other material debt. As of December 31, 2016 the Company is in compliance with all covenants of the Term Loan Credit Agreement, except for the requirement to deliver audited financial statements without a going concern opinion. We have obtained a temporary waiver of the going concern qualification until May 15, 2017 from the lenders under the Term Loan Credit Facility.

As of December 31, 2016, the amount outstanding under the Term Loan Credit Facility was $84.0 million and the interest rate payable was 9.0%. Voluntary prepayments of amounts outstanding under the term loan are subject to a 2% prepayment penalty.

Equipment Loans

In August 2015, we entered into an equipment term loan with Banc of America Leasing & Capital LLC for $3.1 million to finance new kettles and related equipment for our Goodyear, Arizona facility. The equipment term loan accrues interest at a rate of 3.07% and will be repaid over 60 recurring monthly payments commencing May 2016.

In August 2014, we entered into two separate equipment term loans with Banc of America Leasing & Capital LLC; one for $2.6 million to finance equipment to be used at the Company’s Rader Farms facility, and the other for $1.9 million to finance equipment to be used at Willamette Valley Fruit Company. Both of these equipment term loans accrue interest at a rate of 2.35% and will be repaid over 60 recurring monthly payments commencing September 15, 2014.

Debt Classification

In accordance with FASB Accounting Standard Codification (“ASC”) 470-10-45 on Debt Presentation, all of the Company’s outstanding debt has been reclassified in the accompanying condensed consolidated balance sheet as a current liability as of December 31, 2016. Absent the Second Amendment, the Company would not have been in compliance with the Total Leverage Ratio covenant as of December 31, 2016. Unless we engage in a strategic transaction that enables us to pay down or refinance our debt, or we secure a waiver from our lenders or a further loan amendment to the Term Loan Credit Facility, we will not be in compliance with our financial covenants at the end of the second quarter of fiscal 2017. As previously announced, the Company commenced a comprehensive strategic and financial review of the Company’s operations and engaged Rothschild Inc. to serve as its financial advisor to assist the Company in this process, including the pursuit of value-enhancing initiatives including, a sale of the Company, a sale of assets of the Company or other strategic business combination, or other capital structure optimization opportunities. This comprehensive strategic and financial review remains ongoing as of the date of this Annual Report on Form 10-K. There can be no assurances that these efforts will result in a completion of a transaction or, if one is completed, that it will be on favorable terms. A default under the Term Loan Credit Facility would trigger a default under the ABL Credit Facility and certain of our equipment lease financing arrangements, as these facilities each contain cross-default provisions. As such, we reclassified all of our outstanding debt as a current liability.