On October 31, 2014, the Company and Interpace, entered into an agreement to acquire RedPath (the Transaction). In connection with the Transaction, the Company entered into a note with former RedPath Equityholders, dated October 31, 2014 (the Note).

 

The Note is $11.0 million, interest-free and payable in eight equal consecutive quarterly installments beginning October 1, 2016. In the second quarter of 2015, the final working capital adjustment was made, reducing the balance of the Note to approximately $10.7 million. In December 2015, pursuant to the sale of substantially all of the CSO business, the Note was amended so that the CSO sales proceeds would not have to be applied against the Note payable balance.

 

The interest rate will be 5.0% in the event of a default under the Note. The obligations of the Company under the Note are guaranteed by the Company and its Subsidiaries pursuant to the Subordinated Guarantee in favor of the Equityholder Representative. Pursuant to the Subordinated Guarantee, the Company and its Subsidiaries also granted a security interest in substantially all of their assets, including intellectual property, to secure their obligations to the Equityholder Representative. Based on the Company's incremental borrowing rate under its Credit Agreement, the fair value of the Note at the date of issuance was $7.5 million. During the quarters ended June 30, 2016 and 2015, the Company accreted approximately $0.2 million into interest expense, respectively, for each period. During the six months ended June 30, 2016 and 2015, the Company accreted approximately $0.4 million into interest expense, respectively, for each period. As of June 30, 2016, the balance of the Note is approximately $8.8 million and the unamortized discount is $1.9 million.

 

Principal payments due related to the long-term debt over next three years are as follows:

 

 

 

The Company is currently in negotiations with the former RedPath equityholders to restructure the terms of the Note. No assurance can be given that such negotiations will be successful.

 

The Company currently has an indemnification asset and liability of $1.5 million relating to the DOJ settlement with the former owners of RedPath that was recorded with the acquisition of RedPath. As the Company makes payments to the DOJ, it may reduce the balance owed on the note by the same amount.

 

Upon the sale of substantially all of the CSO business on December 22, 2015, the Company was obligated to use a portion of the net proceeds from the transaction to pay the balance of the outstanding loan in the aggregate principal amount of $20.0 million, an exit fee and expenses of approximately $1.6 million. In connection with the termination of the Credit Agreement, the Guarantee and Collateral Agreement, dated October 31, 2014, by the Company and certain of its subsidiaries in favor of the Agent was also terminated on December 22, 2015.