4. DEBT

Credit Agreement

The Company’s existing amended and restated credit agreement (the “Credit Agreement”) with Veritex Bank (formerly Sovereign Bank, who merged with and into Veritex Bank effective September 11, 2017) includes term loan and revolving loan features, and also allows for the issuance of letters of credit and other promissory notes. The Company can borrow up to a maximum of $20.0 million pursuant to the Credit Agreement, subject to the terms and limitations discussed below.

The Credit Agreement provides for a revolving loan feature (the “Line of Credit”) that permits the Company to borrow, repay and re-borrow, from time to time until June 30, 2018, up to the lesser of (i) $20.0 million or (ii) a sum equal to (a) 80% of the Company’s eligible accounts receivable (less the outstanding principal balance of term loans and letters of credit under the Credit Agreement) and (b) the lesser of (i) 50% of the value of certain of the Company’s core equipment or (ii) $12,500,000. The Company has not utilized the Line of Credit since its inception. Because the Company’s ability to borrow funds under the Line of Credit is tied to the amount of the Company’s eligible accounts receivable and value of certain of its core equipment, if the Company’s accounts receivable decrease materially for any reason, including delays, reductions or cancellations by clients, or decreased demand for the Company’s services, or the value of the Company’s pledged core equipment decreases materially, the Company’s borrowing ability to fund operations or other obligations may be reduced.

The Credit Agreement also provides for a term loan feature. The Company has no outstanding notes payable under the term loan feature of the Credit Agreement, and any notes outstanding under this feature would count toward the maximum amounts the Company may borrow under the Credit Agreement.

The Company paid off the final remaining equipment note payable during the third quarter of 2017. The Company does not currently have any notes payable under the Credit Agreement.

The Company’s obligations under the Line of Credit are secured by a security interest in the Company’s accounts receivable and certain of the Company’s core equipment, and the term loans are also secured by certain of the Company’s core equipment. Interest on amounts outstanding under the Credit Agreement accrues at the lesser of 4.5% or the prime rate (as quoted in the Wall Street Journal), subject to an interest rate floor of 2.5%. The Credit Agreement contains customary covenants for credit facilities of this type, including limitations on disposition of assets, mergers and other fundamental changes. The Company is also obligated to meet certain financial covenants, including (i) a ratio of (x) total liabilities minus subordinated debt to (y) tangible net worth plus subordinated debt not to exceed 1.00:1.00, (ii) a ratio of current assets to current liabilities of at least 1.50:1.00 and (iii) required tangible net worth of not less than $125,000,000. The Company was in compliance with all covenants under the Credit Agreement, including specified ratios, as of September 30, 2017.

Veritex Bank has also issued two letters of credit as of September 30, 2017. The first letter of credit is in the amount of $1,767,000 in favor of AIG Assurance Company to support payment of certain insurance obligations of the Company. The principal amount of this letter of credit is collateralized by certain of the Company’s core equipment. The second letter of credit is unsecured and in the amount of $75,000 in favor of the City of Midland, Texas, to support certain performance obligations of the Company. Neither letter of credit counts as funds borrowed under the Company’s Line of Credit.

Other Indebtedness

The Company has one outstanding note, in the remaining principal amount of $56,000 at September 30, 2017 payable to a finance company for insurance.

In addition, the Company enters into capital lease obligations for certain vehicles and recording equipment. The Company’s Condensed Consolidated Balance Sheets as of September 30, 2017 include capital lease obligations of $8,561,000, which includes $8,001,000 for the acquisition of recording equipment during the quarter ended September 30, 2017.

Maturities and Interest Rates of Debt

The following tables set forth the aggregate principal amount (in thousands) under the Company’s outstanding notes payable and the interest rates as of September 30, 2017 and December 31, 2016.


	September 30, 2017		December 31, 2016
Notes payable to commercial banks
Aggregate principal amount outstanding	$	—	$	1,938
Interest rates		—		3.50% - 4.50%

The aggregate maturities of the notes payable at September 30, 2017 are as follows (in thousands):


October 2017 - September 2018					$	56

The aggregate maturities of obligations under capital leases at September 30, 2017 are as follows (in thousands):

Interest rates on these leases range from 3.16% to 6.88%.

September 30, 2017

December 31, 2016

Notes payable to finance company for insurance

Aggregate principal amount outstanding

Interest rates