Debt

The Company’s outstanding debt consisted of the following:



(in thousands)	As of December 31,
Description of Debt	2018			2017
Short-Term Debt:
Wells Fargo Revolving Credit Facility	$	54,613		$	37,055

Long-Term Debt:
Unsecured Senior Notes	$	55,000		$	55,000
Less Unamortized Debt Issuance Costs ^*	(288		)	(561		)
Total Long-Term Debt	$	54,712		$	54,439


*	Unamortized financing costs and deferred fees on the Wells Fargo Revolving Credit Facility are not presented in the above table as they are classified in Prepaid expenses and other current assets on the Consolidated Balance Sheets. Debt issuance costs incurred, including gross waiver fees (primarily paid to the lenders), were $1.0 million and $0.9 million in 2018 and 2017, respectively.

The Company paid $6.1 million and $7.8 million in cash for interest in 2018 and 2017, respectively.

The Company’s debt includes restrictive covenants that, if not met, could lead to renegotiation of its revolving credit facility, notes and indentures, a requirement to repay the Company’s borrowings and/or a significant increase in the cost of financing. These restrictive covenants may include, among other items, financial covenants pertaining to availability, permitted indebtedness, restrictions on dividends and various events of default.

Certain events of default (including delinquent filing of annual and periodic reports with the Securities and Exchange Commission (“SEC”), failure to maintain EBITDA requirements, material weaknesses in the control environment and failure to disclose litigation) occurred with respect to the Company’s credit agreements. While waivers were obtained or debt was renegotiated with the respective lenders, in particular after March 31, 2017, absent such waivers, the debt would have been in breach of covenants. The Company and its subsidiaries pledged substantially all of their tangible and intangible assets, including inventory, receivables and fixed assets, as collateral under the Wells Fargo Credit Agreement.

The schedule of remaining principal maturities of long-term debt is as follows:



(in thousands)
Year Ending December 31,	Maturities of Long-Term Debt
2019	$	—
2020	55,000
Total	$	55,000

Wells Fargo Credit Agreement

In June 2013, the Company entered into the Wells Fargo Credit Agreement. The Wells Fargo Credit Agreement enabled the Company to borrow under a revolving credit facility secured by substantially all of the Company’s tangible and intangible assets, including inventory, receivables and fixed assets. The Wells Fargo Credit Agreement has been amended several times since June 28, 2013, including in June 2016 when the agreement was amended and restated. Below are some of the current key terms of the Wells Fargo Credit Agreement:


•	Matures on the earlier of March 31, 2021 or 60 days prior to the final maturity of the Unsecured Senior Notes (which currently mature on June 30, 2020 resulting in a current maturity date of May 1, 2020 for the Wells Fargo Credit Agreement);


•	Includes a maximum $75.0 million revolving line of credit to the Company less a reserve of $9.0 million;


•	Bears interest at Wells Fargo’s prime rate plus a margin ranging from 1.25% to 1.75% per annum or at the London Interbank Offered Rate (“LIBOR”) plus a margin ranging from 2.75% to 3.25% per annum at the Company’s option;


•	Interest rate margin will decrease by 1% per annum upon the Company completing all filings required to be made with the SEC;


•	Has an unused line fee of 0.25%;


•	Contains restrictive covenants that, among other things, limit the ability of the Company and its subsidiaries to incur additional debt, prepay subordinated indebtedness, or make certain distributions on capital stock;


•	Limits borrowings to the lesser of the maximum revolving line of credit and the borrowing base, which is defined as a percentage of the Company’s eligible accounts receivable and inventory.

Information regarding amounts borrowed under the Wells Fargo Credit Agreement includes the following:



(in thousands, except interest rate)	Year ended December 31,
Description	2018			2017
Average borrowings under Wells Fargo Revolving Credit Facility	$	47,031		$	26,662
Average Interest Cost on Wells Fargo Revolving Credit Facility	6.51		%	6.85		%



(in thousands, except interest rate)	As of December 31,
Description	2018			2017
Accrued and unpaid interest	$	174		$	90
LIBOR loan interest rate	5.97		%	4.51		%
Wells Fargo Prime Rate (Base Rate) loan interest rate	7.25		%	6.00		%

As of December 31, 2018 and 2017, the Company had adjusted available borrowing capacity under the revolving line of credit of approximately $8.9 million and $13.0 million, respectively.

The most significant changes to the Wells Fargo Credit Agreement since January 1, 2017 are summarized in the table below:



Amendment Date and Title	Reason for Amendment	Significant Changes to the Wells Fargo Credit Agreement
February 10, 2017, effective as of February 6, 2017. Limited Waiver Agreement to the June 28, 2016 Agreement (“Limited Waiver”)	To consider implications of various events of default	• Provided waiver for various events of default including identified material weaknesses in internal control through February 28, 2017; • Wells Fargo reserved the right to increase the interest rate by 200 basis points (2%) effective January 27, 2017, though the interest rate was not increased; • Provided Wells Fargo with access to additional financial information including cash flow forecasts and budgets.
February 28, 2017, effective as of February 6, 2017. First Amendment to Limited Waiver	To refine provisions of Limited Waiver to June 28, 2016 Agreement	• Established minimum financial metrics related to liquidity and cash which were required to be maintained through March 3, 2017; • Extended the Limited Waiver to March 3, 2017.
March 9, 2017, effective as of February 6, 2017. Second Amendment to Limited Waiver	To refine provisions of Limited Waiver to June 28, 2016 Agreement	• Extended the Limited Waiver to March 10, 2017.
March 31, 2017, effective as of February 7, 2017. Third Amendment to Limited Waiver	To facilitate changes necessary due to Weichai SPA	• Modified certain changes in control and other definitions to permit issuance of securities to Weichai and pay off TPG Term Loan; • Increased the interest rate by 200 basis points (2%) effective April 1, 2017 until the Company’s restated 2016 audited financial statements are filed; • Reduced available borrowing under the revolving credit facility to $40.0 million (maximum borrowing amount of $65.0 million less a reserve of $25.0 million); • Deferred loan maturity date to March 31, 2018 (or February 15, 2018 if Series B Convertible Preferred Stock issued to Weichai has not converted into Common Stock); • Made certain adjustments to the borrowing base provisions to the assets against which borrowings may be made; • Permanently waived certain representations, required information and other defaults; • Extended the deadline for the Company to file delinquent SEC periodic and annual reports; • Required the Company to retain third-party adviser to assist with developing and providing certain financial data; • The Company paid an amendment fee of $0.7 million.
July 17, 2017. Fourth Amendment to the June 28, 2016 Agreement	To facilitate changes to availability, commitment fee and interest rate terms	• Increases available borrowing under the revolving credit facility to $52.5 million (maximum borrowing amount of $65.0 million less a reserve of $12.5 million); • Reduced the incremental interest rate by 100 basis points (1%) from 200 basis points (2%) until the Company’s 2016 audited financial statements have been provided.
October 3, 2017. Consent and Fifth Amendment to the June 28, 2016 Agreement	To facilitate an acquisition	• Increased available borrowing under the revolving credit facility to $58.75 million (maximum borrowing amount of $65.0 million less a reserve of $6.25 million).
March 29, 2018. Sixth Amendment and Waiver to the June 28, 2016 Agreement	To consider implications of various events of default	• Increased the maximum borrowing under the revolving credit facility to $75.0 million from $65.0 million; • Modified the reserve against the maximum borrowing under the revolving credit facility to the greater of $6.5 million and 10% of borrowing base, but no more than $7.5 million on or prior to September 30, 2018 and thereafter equal to $9.0 million; • Extended the maturity date of the facility to the earlier of March 31, 2021 or 60 days prior to the final maturity of the Unsecured Senior Notes, which were extended to January 1, 2020, resulting in a maturity date of November 2, 2019 on the Wells Fargo revolving credit facility. • The revolving credit facility will continue to bear interest at a per annum rate equal to 100 basis points (1%) above the per annum rate otherwise applicable under the credit agreement until the Company has completed all filings required to be made with the SEC; • The Company paid an amendment fee of $0.8 million.
May 16, 2019. Waiver to the June 28, 2016 Agreement	To consider implications of various events of default	• Waived any defaults that would arise from the failure to timely deliver annual audited financial statements for the fiscal year ended December 31, 2018 and the associated compliance certificate and the information required with it; provided that the financial statements and compliance certificate are delivered on or before December 31, 2019.

The aforementioned amendments, consents and waivers related to the Wells Fargo Credit Agreement in 2017 and 2018 were accounted for as debt modifications. As a result of the debt modifications, the Company accelerated the recognition of previously deferred debt issuance costs and third-party fees totaling $0.1 million in 2017. There was no accelerated recognition of deferred debt issuance costs and no third-party costs incurred in 2018. In addition, the Company incurred fees of $0.8 million and $0.7 million in 2018 and 2017, respectively, to Wells Fargo which were deferred and amortized through the anticipated maturity date of the Wells Fargo Credit Agreement.

The Wells Fargo revolving credit facility is presented as a “current liability” on the Consolidated Balance Sheets as of December 31, 2018 and 2017 because of a subjective acceleration clause and a “lockbox” arrangement that sweeps cash receipts to pay down the revolver balance, without requiring the Company’s specific consent, and provides advances up to current limits to cover outlays.

Unsecured Senior Notes

In April 2015, the Company entered into an agreement with certain institutional investors for a private sale of its Unsecured Senior Notes for the aggregate amount of $55.0 million with an interest rate of 5.50% per annum. Concurrently, in connection with the issuance of the Unsecured Senior Notes, the Company entered into an indenture agreement (“Indenture”), by and among the Company and its subsidiaries as guarantors and the Bank of New York Mellon, as Trustee. The Company received net proceeds of $53.5 million after financing costs of $1.5 million. As discussed previously in Note 1. Summary of Significant Accounting Policies and Other Information, the Company has presented issuance costs associated with its Unsecured Senior Notes as a direct deduction from the carrying value of the obligation on its Consolidated Balance Sheets.

The Unsecured Senior Notes are unsecured debt of the Company and are effectively subordinated to its existing and future secured debt, including the debt in connection with the Wells Fargo Credit Agreement. The following are some of the current key provisions of the Unsecured Senior Notes:


•	Matures on June 30, 2020;


•	Accrues interest at 8.50% per annum, payable semiannually in arrears on May 1 and November 1 of each year with a reduction in the annual interest rate to 7.50% per annum upon filing the 2017 Form 10-K (which occurred in May 2019);


•	Redeemable at the Company’s option, in whole or in part, at any time on or after May 1, 2016, together with accrued and unpaid interest to the date of redemption (expressed as percentages of the principal amount), at 101% plus a “make whole” premium as further defined in the Unsecured Senior Notes;


•	Redeemable by the holders in whole or in part upon a change in control at a purchase price of 101% of the principal amount, plus accrued and unpaid interest;


•	Contains restrictive covenants that, among other things, limit the ability of the Company and its subsidiaries to incur additional debt, prepay subordinated indebtedness, pay dividends or make other distributions on capital stock; and


•	Provides for customary events of default (subject in certain cases to customary grace and cure periods).

The most significant amendments to the Unsecured Senior Notes since January 1, 2017 are included in the table below:



Amendment Date and Title	Reason for Amendment	Significant Changes to the Unsecured Senior Notes
March 31, 2017. Third Supplemental Indenture	To facilitate the changes necessary due to the Weichai SPA	• Extended maturity date to January 1, 2019; • Amended certain provisions to permit the issuance of the securities to Weichai under the SPA, and provisions to permit ongoing transactions with an affiliate of Weichai under the Collaboration Arrangement; • Waived any defaults occurring prior to March 31, 2017 with respect to the failure to file periodic and annual reports; • Extended the deadline for the Company to file its delinquent SEC periodic and annual reports; • The Company paid a consent fee of $0.2 million and legal fees of $0.1 million.
April 19, 2018. Fourth Supplemental Indenture	To amend certain covenants and waive certain events of default	• Extended the maturity date to January 1, 2020; • Waived defaults with respect to the failure to file with the Trustee and the SEC for 2015 through 2019; • Increased the interest rate from 6.50% to 8.50% per annum effective October 1, 2018. The interest rate decreased to 7.50% per annum upon filing the 2017 Form 10-K with the SEC; • The Company paid a consent fee of $0.3 million.
October 30, 2019. Fifth Supplemental Indenture	To extend the maturity date	• Extended maturity date to June 30, 2020; • The Company paid a fee of $0.3 million.

As a result of the supplemental indenture amendments, charges of $0.1 million were incurred in 2017 related to legal fees and other third-party costs, which were expensed to Loss on debt extinguishment and modifications in the Consolidated Statement of Operations. Additional debt issuance costs of $0.3 million and $0.2 million incurred in 2018 and 2017, respectively, were deferred and amortized to interest expense through the anticipated maturity date of the Unsecured Senior Notes.

The interest rate on the Unsecured Senior Notes decreased to 7.50% per annum upon filing the 2017 Form 10-K with the SEC in May 2019. In addition, on October 30, 2019, the maturity date of the Unsecured Senior Notes was extended to June 30, 2020. By extending the maturity date of the Unsecured Senior Notes, the maturity date of the Wells Fargo Credit Agreement is extended to May 1, 2020.

The Unsecured Senior Notes are presented as a non-current liability on the Consolidated Balance Sheets. As of December 31, 2018 and 2017, the accrued, but unpaid, interest on the Unsecured Senior Notes was $0.8 million and $0.6 million, respectively.

TPG Term Loan

In June 2016, the Company entered into a $135.0 million senior secured credit facility, which consisted of a $60.0 million TPG Term Loan and a $75.0 million revolving credit facility with Wells Fargo, as discussed in the Wells Fargo Credit Agreement section above. A related “Side Letter” was also executed at the time, in which the Company agreed to meet certain borrowing limit calculations.

In February 2017, the TPG Term Loan was amended to facilitate the waiver of various events of default triggered by the resignation of the Company’s auditor and removal of the audit opinion on the Company’s 2015 and 2014 consolidated financial statements. In addition, the amendment provided TPG with the right to charge additional interest of 2.00% per annum even though the events of default had been waived and the parties agreed that the outstanding principal of the TPG Term Loan was $71.4 million which was comprised of the original principal amount of $60.0 million and $11.4 million in fees associated with amendments to the loan made in 2016. Third-party fees of $0.4 million were incurred in 2017. These costs were expensed to Loss on debt extinguishment and modifications in the Consolidated Statement of Operations.

In March 2017, the Company repaid the TPG Term Loan using the proceeds of the Weichai investment as discussed in Note 3. Weichai Transactions. In conjunction with this repayment, the Company recorded an $11.9 million (including third-party fees of $0.4 million mentioned above) loss on debt extinguishment based on the difference between the amount repaid to the lender and the net carrying value of the TPG Term Loan immediately preceding repayment, including accrued and unpaid interest. This item is reflected within Loss on debt extinguishment and modifications in the Company’s 2017 Consolidated Statement of Operations.