Debt Recapitalization and Debt

Current debt consisted of the following (in thousands):



	June 30, 2017		December 31, 2016
Main Street Term Loan, net of unamortized debt discount based on an imputed interest rate of 12%; $89 at June 30, 2017 and $123 at December 31, 2016, respectively.	$	8,911	$	8,877
SRS Note, net of unamortized debt discount based on an imputed interest rate of 15%; $0 at June 30, 2017 and $2 at December 31, 2016, respectively.	1,785		1,783
Total current debt	$	10,696	$	10,660

On July 31, 2017, the Company completed a recapitalization of its existing debt obligations as summarized in the table below and as described further below (the “Debt Recapitalization”). Therefore, as of July 31, 2017, there were no remaining obligations related to the Main Street Term Loan or SRS Note. The Company eliminated $9,362,000 of debt and accrued interest obligations as of July 31, 2017 in the Debt Recapitalization and lowered outstanding shares of common stock by 385,517, as summarized in the following two tables.



	Former Debt Obligations as of July 31, 2017		Debt Obligations Extinguished on July 31, 2017			New Outstanding Debt Obligations as of July 31, 2017
Main Street Term Loan: principal	$	9,000,000	$	(9,000,000	)	—
SRS Note: principal	1,784,692		(1,784,692		)	—
SRS Note: accrued interest	777,568		(777,568		)	—
Western Alliance Bank: principal						$	1,100,000
Super G Capital: principal						1,100,000
Total	$	11,562,260	$	(11,562,260	)	$	2,200,000



Outstanding Shares of Common Stock on July 31, 2017 prior to the Debt Recapitalization	36,534,840
Shares of common stock redeemed in connection with the Main Street Payoff	(7,711,517	)
Shares of common stock issued in connection with the SRS Note Exchange	7,326,000
Outstanding Shares of Common Stock on July 31, 2017 after the Debt Recapitalization	36,149,323

Main Street Payoff Letter and Redemption Agreement

As of June 30, 2017, the Company had outstanding borrowings of $9,000,000 with Main Street Capital Corporation (“Main Street”) under a senior secured term loan facility (the “Main Street Term Loan”). Borrowings under the Main Street Term Loan were to mature on October 17, 2018 unless sooner terminated as provided in the Main Street Loan Agreement. As of June 30, 2017, the Company was in default of certain covenants in the Main Street Term Loan. The interest rate on the Main Street Term Loan borrowings was 12% per annum and interest payments were due monthly. During the six months ended June 30, 2017, the Company made no principal payments on the Main Street Term Loan. As of June 30, 2017, Main Street owned 7,711,517 shares, or 21%, of the Company’s outstanding common stock.

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On July 31, 2017, the Company and Main Street entered into (i) a payoff letter (the “Main Street Payoff Letter”) that terminated the $9,000,000 Main Street Term Loan and (ii) a Redemption Agreement (“the Main Street Redemption Agreement”) whereby the Company redeemed 7,711,517 shares of the Company’s common stock held by Main Street, in exchange for total cash payments from the Company of $2,550,000 (together the “Main Street Payoff”). On July 31, 2017, the Company funded the Main Street Payoff using $350,000 of the Company’s existing cash plus cash proceeds of $2,200,000 borrowed under loan agreements with Western Alliance Bank and Super G (each defined below).

SRS Note Exchange Agreement

As of June 30, 2017, the Company had outstanding total obligations of $2,530,000 (consisting of $1,785,000 of principal and $745,000 of accrued interest) under a promissory note (the “SRS Note”) to Shareholder Representative Services LLC (“SRS”) the Company issued in connection with the 2012 acquisition of Affinity Videonet, Inc. (“Affinity”), which was amended in February 2015. The maturity date of the SRS Note was July 6, 2017 and the interest rate on the SRS Note was 15% per annum. Payment of all interest earned after March 1, 2015 was due on July 6, 2017, unless certain trailing Adjusted EBITDA targets were met as defined in the SRS Note. During the six months ended June 30, 2017, the Company made no principal or interest payments on the SRS Note. In June 2017, SRS granted the Company a waiver of the final installment for 60 days. The SRS Note was subordinate to borrowings under the Main Street Loan Agreement, and was only permitted to be repaid if permitted by the terms of the Main Street Loan Agreement.

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On July 31, 2017, the Company and SRS entered into a Note Exchange Agreement (the “SRS Note Exchange Agreement’) to extinguish the $2,562,000 of obligations on the SRS Note (including accrued interest for July 2017 of $32,000) in exchange for 7,326,000 shares of the Company’s common stock (the “SRS Note Exchange”). Our President, Chief Executive Officer, and Director, Peter Holst, held a 27.3% interest in the SRS Note (or $699,528 as of July 31, 2017 including accrued interest) and received 1,825,157 shares of the Company’s common stock in connection with the SRS Note Exchange (representing an effective exchange price into common stock of $0.383 per share). The SRS Note Exchange was negotiated and approved on behalf of the Company by a special committee of the board of directors consisting exclusively of independent, disinterested directors.

Western Alliance Bank Business Financing Agreement

On July 31, 2017, the Company and its subsidiary entered into a Business Financing Agreement with Western Alliance Bank, as lender (the “Western Alliance Bank Loan Agreement”). The Western Alliance Bank Loan Agreement provides the Company with up to a total of $1,500,000 of revolving loans (the “A/R Revolver”). The maximum amount available under the A/R Revolver is limited to the lesser of (x) $1,500,000 and (y) an amount equal to the borrowing base. The borrowing base includes 85% of the Company’s eligible accounts receivable plus a non-formula amount (which was $600,000 at closing, and which steps down to $400,000 on October 1, 2017, to $200,000 on January 1, 2018, and to $0 on April 1, 2018) (“the Non-Formula Amount”). On July 31, 2017, the Company received a loan in an amount equal to $1,100,000 under the Western Alliance Bank Loan Agreement, consisting of $500,000 based on 85% of eligible accounts receivable and $600,000 of Non-Formula Amount, the proceeds of which were used to fund the Main Street Payoff.

All loans under the A/R Revolver mature on July 31, 2019 (unless such loans are not supported by the borrowing base, in which case any loans exceeding the borrowing base must be immediately repaid). Given the step-down of the Non-Formula Amount as described above, the Company will be required to make a mandatory prepayment of the loans on October 1, 2017, January 1, 2018 and April 1, 2018 in an amount equal to $200,000. The Western Alliance Bank Loan Agreement provides that all borrowings bear interest at the prime rate (4.25% as of July 31, 2017) plus 1.75% (or a total of 6.00% as of July 31, 2017) per year. The prime rate is subject to a floor of 4.00%. Interest payments on the outstanding borrowings are due monthly. The Company may receive new borrowings on the A/R Revolver if supported by the borrowing base and may prepay borrowings under the Western Alliance Bank Loan Agreement at any time without premium or penalty, subject to certain notice requirements. The obligations of the Company under the Western Alliance Bank Loan Agreement are secured by substantially all of the assets of the Company and its subsidiary, including accounts receivable, intellectual property, equipment and other personal property. The Western Alliance Bank Loan Agreement contains certain restrictions and covenants, which, among other things, subject to certain exceptions, restrict the Company’s ability to incur additional debt or make guarantees, sell assets, make investments or loans, make distributions or create liens or other encumbrances. The Western Alliance Bank Loan Agreement also requires that we comply with certain financial covenants, including maintaining a specified asset coverage ratio, minimum levels of adjusted EBITDA, minimum revenues vs. plan and minimum amounts of cash held with Western Alliance Bank.

The Western Alliance Bank Loan Agreement contains customary events of default, including failure to pay any principal or interest when due, failure to perform or observe covenants, breaches of representations and warranties, certain cross defaults, certain bankruptcy related events, monetary judgments defaults and a change in control. Upon the occurrence of an event of default, the outstanding obligations may be accelerated and become immediately due and payable.

Super G Loan Agreement and Warrant

On July 31, 2017, the Company and its subsidiary entered into a Business Loan and Security Agreement with Super G Capital, LLC (“Super G”), as lender (the “Super G Loan Agreement”) and received a term loan from Super G in an amount equal to $1,100,000, the proceeds of which were used to fund the Main Street Payoff.

Borrowings under the Super G Loan Agreement are to be repaid in installments (including interest) of $33,000 per month in the first 3 months following closing and approximately $68,600 per month in months four through twenty-four following closing, for total payments of $1,540,000. Interest payments for fiscal years 2017, 2018 and 2019 on the Super G Loan are expected to total $148,000, $246,000 and $46,000, respectively. The obligations of the Company under the Super G Loan Agreement are secured by a second lien on substantially all of the assets of the Company and its subsidiary, including accounts receivable, intellectual property, equipment and other personal property. The security interest granted and loans made under the Super G Loan Agreement are subordinated to the security interest and loans made under the Western Alliance Bank Loan Agreement pursuant to a subordination and intercreditor agreement. The Super G Loan Agreement contains certain restrictions and covenants similar to the Western Alliance Bank Loan Agreement, and requires the Company to comply with certain financial covenants, including maintaining unrestricted cash with Western Alliance and maintaining minimum levels of adjusted EBITDA.

On July 31, 2017, the Company also issued a warrant that entitles Super G to subscribe to 550,000 shares of the Company’s common stock at an exercise price of $0.30 per share (“the Super G Warrant”). The Super G Warrant has a 3 year term and if the profit on such warrants is not equal to $165,000 over the term of the warrants, Super G is entitled to a cash exit fee for any difference at the end of the 3 year term.

The Super G Loan Agreement contains customary events of default, including failure to pay any principal or interest when due, failure to perform or observe covenants, breaches of representations and warranties, certain cross defaults, certain bankruptcy related events, monetary judgments defaults and failure to own 100% of the Company’s subsidiary. Upon the occurrence of an event of default, subject to the terms of the above-mentioned subordination and intercreditor agreement, the outstanding obligations may be accelerated and become immediately due and payable.

Deferred financing costs related to the Main Street and SRS debt agreements of $89,000 and $125,000 are included as a direct deduction of the carrying amount of our debt as of June 30, 2017 and December 31, 2016, respectively. The financing costs were amortized using the effective interest method over the term of each loan through each maturity date. During the three and six months ended June 30, 2017 and 2016, amortization of deferred financing costs was $18,000 and $36,000, respectively, which is recorded in “Interest and Other Expense, Net” on our Condensed Consolidated Statements of Operations.