11. Debt and Redeemable Preferred Stock

Debt and redeemable preferred stock consisted of the following (in thousands):

	December 31,
	2014				2013
	Short-Term		Long-Term		Short-Term		Long-Term
$2.5 million redeemable preferred stock, Series A	$	3,450	$	—	$	—	$	2,949
$0.5 million redeemable preferred stock, Series B		—		620		—		514
$0.5 million redeemable preferred stock, Series C		—		581		—		509
$20.0 million revolving credit facility		13,484		—		11,774		—
$20.0 million term loan facility		19,620		—		1,200		18,774
$2.1 million promissory note		1,056		98		—		—
$0.4 million promissory note		204		47		—		—
	$	37,814	$	1,346	$	12,974	$	22,746

$2.5 Million Redeemable Preferred Stock

On December 14, 2012, the Company issued 25,000 shares of Series A Preferred Stock to our Sponsor at a purchase price of $100 per share or $2.5 million. The holders of the Series A Preferred Stock do not have the right to vote on matters submitted to our stockholders. The Series A Preferred Stock is not convertible into common stock and accrues cumulative dividends at a rate of 16% per year. The dividends are payable in additional shares of Series A Preferred Stock. The shares have a liquidation preference equal to the purchase price of the Series A Preferred Stock plus all accrued and unpaid dividends at the date of liquidation. The Series A Preferred Stock is redeemable at our option at any time on 15 days' notice, at any time after the first anniversary of the date on which all indebtedness for borrowed money is repaid in full. The optional redemption price is equal to the purchase price, plus all accrued and unpaid dividends to the date of redemption, subject to compliance with any restrictions in our then-outstanding indebtedness. The Series A Preferred Stock will be subject to mandatory redemption on the date which is 181 days following the latest maturity date of our indebtedness outstanding on December 14, 2012.

$0.5 Million Redeemable Preferred Stock

On November 14, 2013, the Company issued 5,000 shares of Series B Preferred Stock to our Sponsor at a purchase price of $100 per share or $0.5 million. The holders of the Series B Preferred Stock do not have the right to vote on matters submitted to our stockholders. The Series B Preferred Stock is not convertible into common stock and accrues cumulative dividends at a rate of 20% for the first year and 25% per year thereafter. The dividends are payable in additional shares of Series B Preferred Stock. The shares have a liquidation preference equal to the purchase price of the Series B Preferred Stock plus all accrued and unpaid dividends at the date of liquidation. The Series B Preferred Stock is redeemable at our option at any time on 15 days' notice, at any time after the first anniversary of the date on which all indebtedness for borrowed money is repaid in full. The optional redemption price is equal to the purchase price, plus all accrued and unpaid dividends to the date of redemption, subject to compliance with any restrictions in our then-outstanding indebtedness. The Series B Preferred Stock will be subject to mandatory redemption on the date which is 181 days following the latest maturity date of our indebtedness outstanding on November 14, 2013.

$0.5 Million Redeemable Preferred Stock

On November 14, 2013, the Company issued 5,000 shares of Series C Preferred Stock to Stephen D. Cope at a purchase price of $100 per share or $0.5 million. Subsequently, Mr. Cope sold these shares to our Sponsor. The holders of the Series C Preferred Stock do not have the right to vote on matters submitted to our stockholders. The Series C Preferred Stock is not convertible into common stock and accrues cumulative dividends at a rate of 14% per year. The dividends are payable in additional shares of Series C Preferred Stock. The shares have a liquidation preference equal to the purchase price of the Series C Preferred Stock plus all accrued and unpaid dividends at the date of liquidation. The Series C Preferred Stock is redeemable at our option at any time on 15 days' notice, at any time after the first anniversary of the date on which all indebtedness for borrowed money is repaid in full. The optional redemption price is equal to the purchase price, plus all accrued and unpaid dividends to the date of redemption, subject to compliance with any restrictions in our then-outstanding indebtedness. The Series C Preferred Stock will be subject to mandatory redemption on the date which is 181 days following the latest maturity date of our indebtedness outstanding on November 14, 2013.

$20.0 Million Revolving Credit Facility

In October 2011, we entered into a $20.0 million revolving credit facility with PNC Bank (the “Revolving Facility”). On December 14, 2012, this revolving credit facility was amended and restated. Borrowings under the line of credit bear interest at a rate determined by the lending institution, with a minimum rate of 1.5%. This revolving credit and security agreement was amended on April 9, 2013.

On October 17, 2013, the Borrowers entered into the Second Amendment to the Revolving Facility to, among other things, (1) reduce the Revolving Facility to $15.0 million (from $20.0 million), (2) amend the maturity date of the Revolving Facility from June 30, 2016 to March 31, 2014, (3) delete (a) the net worth financial covenant, (b) the fixed charge coverage ratio, (c) the minimum liquidity test and (d) the total leverage ratio and (4) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant.

In connection with the Second Amendment described above, the Borrowers were required to (1) implement and comply with a cost reduction plan and (2) obtain (a) purchase orders or contracts with a value of not less than $28.0 million for the design, manufacture or servicing of one or more drilling rigs by October 31, 2013 or (b) at least $1.0 million in proceeds from the issuance of preferred stock by November 14, 2013. An event of default would have occurred under both the Term Facility and Revolving Facility if the Borrowers were unable to satisfy one of these requirements. As of October 1, 2013, the Company had implemented and was in compliance with the cost reduction plan and as of November 14, 2014, the Company had received net cash proceeds from a preferred stock investment in an aggregate amount of $1.0 million. As a result of the foregoing events, the Company was in compliance with the terms of its credit agreements.

On March 31, 2014, the Borrowers entered into the Third Amendment to the Revolving Facility to, among other things, (1) amend the maturity date of Revolving Facility from March 31, 2014 to December 31, 2014, (2) insert a covenant regarding the fixed charge coverage ratio, (3) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant and (4) amend the calculation of the amount of revolving advances lenders are required to make under the Revolving Facility.

On December 31, 2014, the Borrowers entered into the Fourth Amendment to Amended and Restated Revolving Credit and Security Agreement and Forbearance Agreement (the “Fourth Revolving Facility Amendment”) to, among other things, (1) amend the maturity date of the Revolving Facility from December 31, 2014 to March 31, 2015; (2) amend the capital expenditures covenant to limit capital expenditures to not greater than (a) $2,000,000 for the twelve months ended December 31, 2014 and (b) $300,000 for the three months ended March 31, 2014; (3) increase the Applicable Margin for revolving advances to 5.50% (from 4.50%); (4) reduce the Letter of Credit Sublimit to $500,000 (from $2,000,000); and (5) decrease the fee applicable to the average daily face amount of each outstanding letter of credit to 3.50% (from 4.50%).

In addition, the Fourth Revolving Facility Amendment provides that during the period beginning December 31, 2014 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fourth Revolving Facility Amendment) or (b) 5:00 pm Houston time on March 31, 2015, the lenders under the Revolving Facility agree to forbear from commencing any Enforcement Action (as defined in the Fourth Revolving Facility Amendment) as a result of certain Existing Defaults (as defined in the Fourth Revolving Facility Amendment) or Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Revolving Facility for the quarters ended December 31, 2014 or March 31, 2015, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120 previously made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120 previously made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably satisfactory to the agent and lenders, within thirty days after the end of each month; (4) diligently pursue a financing commitment from a third party financing source, the proceeds of which will be used to repay all obligations under the Revolving Facility; and (5) deliver a weekly status report to the agent regarding the status of all actions taken to seek such financing commitment.

On April 6, 2015, the Borrowers entered into the Fifth Amendment to Amended and Restated Revolving Credit and Security Agreement and Forbearance Agreement (the “Fifth Revolving Facility Amendment”) to, among other things, (1) amend the maturity date of the Revolving Facility from March 31, 2015 to May 31, 2015; (2) amend the capital expenditures covenant to limit capital expenditures to $350,000 for the period January 1, 2015 through May 31, 2015; (3) increase the Applicable Margin for revolving advances to 6.50% (from 5.50%); and (4) reduce the maximum amount for revolving advances to $13,500,000 (from $15,000,000).

In addition, the Fifth Revolving Facility Amendment provides that during the period beginning March 31, 2015 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fifth Revolving Facility Amendment) or (b) 5:00 pm Houston time on May 31, 2015, the lenders under the Revolving Facility agree to forbear from commencing any Enforcement Action (as defined in the Fifth Revolving Facility Amendment) as a result of certain Existing Defaults (as defined in the Fifth Revolving Facility Amendment) or Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Revolving Credit Agreement for the quarter ended March 31, 2105, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, previously made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, previously made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably acceptable to the agent and lenders, within thirty days after the end of each month; and (4) diligently pursue options that would cause or enable the repayment in full of all obligations under the Revolving Facility, including by pursuing a financing commitment from a third party financing source.

The Fifth Revolving Facility Amendment also provides that the agent under the Revolving Facility may take action to preserve its rights in the collateral securing the Revolving Facility, decrease or increase any advance rates from time to time in agent’s credit judgment, or increase, modify the amount, timing or purpose of any reserves as agent deems proper from time to time in agent’s credit judgment.

In connection with the Fourth and Fifth Revolving Facility Amendments described above, the Borrowers (1) are required to continue to comply with the 2015 cost reduction plan approved by the Company’s Board of Directors and (2) were required to affirm and acknowledge the imposition of a $500,000 reserve against availability under the Revolving Facility (as of November 13, 2014) and the imposition of an additional reserve in the amount of $50,000 on November 17 and each week thereafter until such time as the agent may determine in its sole Credit Judgment (as defined in the Revolving Facility).

As of December 31, 2014, the outstanding borrowings and amount available under the revolving credit facility was $13.5 million and $1.4 million, respectively. The interest rate at December 31, 2014 was 7.75%.

Additionally, the lender assesses a “Lenders fee” of 0.375% on the unused portion of the revolving credit facility.

The Company is permitted to make voluntary prepayments with respect to the Revolving Facility at any time and may terminate or reduce the commitments under the Revolving Facility after meeting certain notice requirements. However, in connection with any voluntary reduction or termination of the commitments the Company are required to pay a fee in an amount equal to 3.0% of any reduction during the first year of the Revolving Facility, 2.0% of any reduction during the second year of the Revolving Facility and 1.0% of any reduction during the third year of the Revolving Facility.

The Company is required to use insurance proceeds and the net cash proceeds from any asset sale to prepay revolving loans made under the Revolving Facility. In addition, if a default exists under the Revolving Facility, the Company is required to use the net cash proceeds of certain equity and debt issuances and certain receipts received outside of the ordinary course of business to prepay revolving loans made under the Revolving Facility. Such prepayments do not result in a mandatory reduction of the commitments and can be reborrowed to the extent that borrowings are then permitted under the Revolving Facility.

The Company is jointly and severally liable for the obligations owing under the Revolving Facility and any future subsidiaries of the Company shall be required to guarantee the payment and performance of the obligations of the Company under the Revolving Facility. The Revolving Facility is secured, subject to certain permitted liens, on a first priority basis by a security interest in substantially all of the Company’s tangible and intangible assets.

The Revolving Facility contains representations and warranties and affirmative and negative covenants, including restrictions on indebtedness, investments, sales of assets, mergers and consolidations, liens and dividends and other distributions. In addition, the Revolving Facility includes certain financial covenants, including minimum net worth, minimum fixed charge coverage ratio, minimum liquidity test, minimum EBITDA, maximum total leverage ratio and a limitation on capital expenditures. The Revolving Facility also includes customary events of default, including upon a change of control.

$20.0 Million Term Loan Facility

On December 14, 2012, we entered into a four year term loan and security agreement with Elm Park Credit Opportunities Fund, L.P. and Elm Park Credit Opportunities Fund (Canada), L.P., as lenders, and Elm Park Capital Management, LLC, as administrative agent, which provides for a $20.0 million four year senior secured second-lien term loan facility (the “Term Facility”). This term loan and security agreement was amended on April 9, 2013.

On October 17, 2013, the Borrowers entered into the Second Amendment to the Term Facility to, among other things, (1) amend the maturity date of the Term Facility from December 14, 2016 to September 30, 2014, (2) delete (a) the net worth financial covenant, (b) the fixed charge coverage ratio, (c) the minimum liquidity test and (d) the total leverage ratio and (3) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant.

In connection with the Second Amendments described above, the Borrowers were required to (1) implement and comply with a cost reduction plan and (2) obtain (a) purchase orders or contracts with a value of not less than $28.0 million for the design, manufacture or servicing of one or more drilling rigs by October 31, 2013 or (b) at least $1.0 million in proceeds from the issuance of preferred stock by November 14, 2013. An event of default would have occurred under both the Term Facility and Revolving Facility if the Borrowers were unable to satisfy one of these requirements. As of October 1, 2013, the Company had implemented and was in compliance with the cost reduction plan and as of November 14, 2014, the Company had received net cash proceeds from a preferred stock investment in an aggregate amount of $1.0 million. As a result of the foregoing events, the Company was in compliance with the terms of its credit agreements.

On March 31, 2014, the Borrowers entered into the Third Amendment to the Term Facility to, among other things, (1) amend the maturity date of the Term Facility from September 30, 2014 to June 30, 2015, (2) insert a covenant regarding the fixed charge coverage ratio, (3) amend (a) the minimum EBITDA financial covenant and (b) the capital expenditures financial covenant, (4) amend the term loan repayment schedule in the Term Facility and (5) amend the PIK interest provision in the Term Facility to increase such interest from 2.00% to 4.00% (unless the Borrower’s total leverage ratio is less than 3:50:1:00, in which case such interest shall accrue at a rate of 2:00%).

On December 31, 2014, the Borrowers entered into the Fourth Amendment to Term Loan and Security Agreement and Forbearance Agreement (the “Fourth Term Loan Amendment”) to, among other things, (1) amend the maturity date of the Term Facility from June 30, 2015 to September 30, 2015; (2) amend the capital expenditures covenant to limit capital expenditures to not greater than (a) $2,000,000 for the twelve months ended December 31, 2014, (b) $300,000 for the three months ended March 31, 2014 and (c) $500,000 for the nine months ended September 30, 2015; and (3) add a new covenant requiring that with respect to the Borrowers’ rig yard division business, for the period of 90 consecutive days ending March 31, 2015, and for each period of 90 consecutive days ending on the last day of any month ending thereafter, the Borrowers not incur operating losses in an aggregate amount exceeding $400,000 in any such 90 consecutive day period.

In addition, the Fourth Term Loan Amendment provides that during the period beginning December 31, 2014 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fourth Term Loan Amendment) or (b) 5:00 pm Dallas time on March 31, 2015, the lenders under the Term Facility agree to forbear from commencing any Enforcement Action (as defined in the Fourth Term Loan Amendment) as a result of certain Existing Defaults (as defined in the Fourth Term Loan Amendment) or the Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Term Loan Agreement for the quarters ended December 31, 2014 or March 31, 2015, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120 previously made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120 previously made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably satisfactory to the agent and lenders, within thirty days after the end of each month; (4) diligently pursue a financing commitment from a third party financing source, the proceeds of which will be used to repay all obligations under the Revolving Facility; and (5) deliver a weekly status report to the agent regarding the status of all actions taken to seek such financing commitment.

On April 6, 2015, the Borrowers entered into the Fifth Amendment to Term Loan and Security Agreement and Forbearance Agreement (the “Fifth Term Loan Amendment”) to, among other things, (1) amend the maturity date of the Term Facility from September 30, 2015 to November 30, 2015; and (2) amend the capital expenditures covenant to limit capital expenditures to $350,000 for the period January 1, 2015 through May 31, 2015.

In addition, the Fifth Term Loan Amendment provides that during the period beginning March 31, 2015 and ending on the earlier of (a) the occurrence of a Termination Event (as defined in the Fifth Term Loan Amendment) or (b) 5:00 pm Houston time on May 31, 2015, the lenders under the Term Facility agree to forbear from commencing any Enforcement Action (as defined in the Fifth Term Loan Amendment) as a result of certain Existing Defaults (as defined in the Fifth Term Loan Amendment) or the Borrowers’ failure to comply with either the fixed charge coverage ratio covenant or minimum EBITDA covenant in the Term Loan Agreement for the quarter ended March 31, 2015, so long as the Borrowers (1) have at least $5,000,000 in EBITDA, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, previously made to Stephen Cope); (2) have a fixed charge coverage ratio of at least 1.0 to 1.0, measured monthly on a trailing twelve-month basis (with an add-back for a one-time severance payment of $2,520,120, less principal payments, previously made to Stephen Cope); (3) furnish the agent and lenders with a Forbearance Compliance Certificate, in form and substance reasonably acceptable to the agent and lenders, within thirty days after the end of each month; and (4) diligently pursue options that would cause or enable the repayment in full of all obligations under the Revolving Facility, including by pursuing a financing commitment from a third party financing source.

The Fifth Term Loan Amendment also provides that the agent under the Term Facility may take action to preserve its rights in the collateral securing the Term Facility.

In connection with the Fourth and Fifth Term Loan Amendments described above, the Borrowers are required to continue to comply with the 2015 cost reduction plan approved by the Company’s Board of Directors.

Loans under the Term Facility bear interest, at the Borrowers' option, at a rate equal to the adjusted LIBOR rate or an alternate base rate, in each case, subject to a floor and a spread. This interest is paid in cash and the cash interest rate at December 31, 2014 was 12%. In addition to the cash interest rate, all loans bear additional pay-in-kind (PIK) interest, which was 4% and 2% per annum, at December 31, 2014 and 2013, respectively.

The Company is permitted to make voluntary principal prepayments with respect to the Term Facility at any time. However, in connection with any voluntary prepayment (and in certain instances, mandatory prepayments) during the first year of the Term Facility, the Company will be required to pay a make whole premium in an amount equal to the present value of all interest that but for such prepayment would have accrued through the first anniversary of the Term Facility, plus an amount equal to 3.0% of the amount being prepaid. Any principal prepayment made thereafter will be subject to a prepayment penalty in an amount equal to 3.0% in the second year of the Term Facility, 1.0% in the third year of the Term Facility and 0.0% thereafter.

The Company is required to make quarterly principal payments with respect to the Term Facility of $300,000 for each of the first two quarters of 2015 with a final balloon payment (inclusive of PIK interest) of $19.3 million on November 30, 2015. In addition, the Company is required to make mandatory prepayments in connection with specified events, including certain asset sales, debt issuances, equity issuances, casualty and condemnation events and the receipt of extraordinary proceeds, as well as an annual mandatory prepayment in an amount equal to 50% of certain excess cash flow for the previous year.

The Company is jointly and severally liable for the obligations under the Term Facility and any future subsidiaries of the Company will be required to guarantee the payment and performance of the obligations of the Company under the Term Facility. The Term Facility is secured, subject to certain permitted liens, on a second priority basis by a security interest in substantially all of the Company's tangible and intangible assets.

The Term Facility contains representations and warranties and affirmative and negative covenants, including restrictions on indebtedness, investments, sales of assets, mergers and consolidations, liens and dividends and other distributions. In addition, the Term Facility includes financial covenants, including minimum net worth, minimum fixed charge coverage ratio, minimum liquidity test, minimum EBITDA, maximum total leverage ratio and a limitation on capital expenditures. The Term Facility has cross-default provisions with the $20.0 million Revolving Credit Facility and also includes customary events of default, including upon a change of control.

$2.1 Million Promissory Note

On April 7, 2014, we issued a $2.1 million promissory note to Stephen Cope, our former CEO, which provided for bi-weekly installment payments of $40,614 until the note is paid in full. Interest accrues on the note at the rate of 9% per annum and interest on all past due amounts at the rate of 18% per annum. All interest shall accrue and be paid at maturity. Notwithstanding the foregoing, upon the earlier of (i) April 7, 2016 or (ii) the later to occur of (x) the date the Company determines that it would have had, after paying the note in full, liquidity of at least $5 million on each of two consecutive months’ end and (y) the date the Company has contracted backlog for drilling rigs and related equipment (1) of at least $75 million or (2) of $60 million (excluding the electrical segment’s contracted backlog), then the entire amount of such note shall become due and payable. In addition, a mandatory prepayment on the note in the amount of $250,000 was due on the date, after March 31, 2014, when the Company has received deposits of at least $5.0 million for contracted backlog for drilling related equipment. During the third quarter of 2014, the Company met the criteria requiring the mandatory prepayment in the amount of $250,000 and such payment was made on August 21, 2014. This note is prepayable at any time without payment of any premium or fee.

$0.4 Million Promissory Note

On April 7, 2014, we issued a $0.4 million promissory note to Stephen Cope, our former CEO, which provides for bi-weekly installment payments of $7,849 until the note is paid in full. Notwithstanding the foregoing, on April 8, 2016, all unpaid principal shall be due and payable. The note does not accrue interest and is prepayable at any time without payment of any premium or fee.

Compliance with Debt Covenants

At December 31, 2014 we were in compliance with all of our debt covenants related to our long term debt and financing arrangements.

As of December 31, 2014, future principal payments of debt are as follows (in thousands):

Years Ending December 31,	Debt
2015	$	37,814
2016		1,346
2017		—
	$	39,160

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details

Integrated Drilling Equipment Holdings Corp 10-K