Note 7. Notes Payable and Line of Credit

Notes payable consist of the following (in thousands):

	December 31, 2015			June 30, 2016
Senior secured notes due July 1, 2018, net of discount of $1,390 as of December 31, 2015 and $1,113 as of June 30, 2016 respectively, with stated interest of 12.125%	$	223,610		$	223,887
Senior secured notes due July 1, 2018, including a premium of $2,553 and $2,037 as of December 31, 2015 and June 30, 2016 respectively, with stated interest of 12.125%		102,553			102,037
		326,163			325,924
Less: deferred financing costs		(10,415	)		(8,373	)
Notes payable, net of deferred financing costs	$	315,748		$	317,551

The table below presents the outstanding balance on the previous Credit Facility (in thousands):

		December 31, 2015				June 30, 2016
Revolving credit facility		$	—			$	12,825

On June 23, 2011 the Company issued $225.0 million of its 12.125% senior secured notes due July 1, 2018 (the “Notes”) at a discount of $3.9 million. The Notes issued on June 23, 2011 carry a stated interest rate of 12.125%, with an effective rate of 12.50%. On June 13, 2013, the Company issued an additional $100.0 million of Notes through a subsidiary (the “Tack-On Notes”) as a “tack-on” under and pursuant to the indenture under which the Company issued the Notes. The Tack-On Notes were offered at 105% of their principal amount for an effective interest rate of 10.81%. Interest is payable semi-annually each January 1 and July 1 on the Notes. The Notes are secured by: (i) a first-priority lien on substantially all of the Company’s existing and future domestic plant, property, assets and equipment including tangible and intangible assets, other than the assets that secure the Company’s credit facility (the “New Credit Facility”) with Midcap Financial Trust, on a first-priority basis, (ii) a first-priority lien on 100% of the capital stock of the Company’s existing and future material U.S. subsidiaries and non-voting stock of the Company’s existing and future material non-U.S. subsidiaries and 66% of all voting stock of the Company’s existing and future material non-U.S. subsidiaries and (iii) a second-priority lien on the Company’s accounts receivable, unbilled revenue on completed contracts and inventory that secured the New Credit Facility on a first-priority basis, subject, in each case, to certain exceptions and permitted liens.

The Notes: (i) are general senior secured obligations; (ii) are guaranteed by the Company’s existing and future wholly owned material domestic subsidiaries; (iii) rank pari passu in right of payment with all of the Company’s existing and future indebtedness that is not subordinated; (iv) are senior in right of payment to any of the Company’s existing and future subordinated indebtedness; (v) are structurally subordinated to any existing and future indebtedness and other liabilities of the Company’s non-guarantor subsidiaries; and (vi) are effectively junior to all obligations under the New Credit Facility to the extent of the value of the collateral securing the Credit Facility on a first priority basis.

The Company may currently redeem some or all of the Notes at a premium that will decrease over time plus accrued and unpaid interest.

Pursuant to the terms of the indenture governing the Notes, or the Indenture, and subject to certain limitations, the Company is permitted to use the net proceeds from sales of certain assets for limited purposes including, among other things, (i) acquiring all or substantially all of the assets of, or any capital stock of, a business reasonably related to the business the Company conducted when the Notes were originally issued; or (ii) making an investment in replacement assets or making a capital expenditure in or that is used or useful in a business reasonably related to the business the Company conducted when the Notes were originally issued. The Company is permitted to use the net proceeds from sales of other assets for limited purposes including, among other things, (i) making an investment in other secured assets or property or another business reasonably related to the business the Company conducted when the Notes were originally issued if, after giving effect to such investment, such business becomes a guarantor or is merged into or consolidated with the Company or any of its guarantors; (ii) making a capital expenditure with respect to certain assets; or (iii) repaying, repurchasing or redeeming principal and interest on parity lien indebtedness, including the Notes.

Pending the final application of the net proceeds, we may temporarily reduce revolving credit borrowings or otherwise invest such net proceeds in any manner that is not prohibited by the Indenture. If the Company does not use the net proceeds from asset sales as permitted by the Indenture within 360 days after their receipt, the Company will be required to make an offer to repurchase the Notes with any remaining net proceeds on a pro rata portion of the Notes at 100% of their principal amount, plus accrued and unpaid interest and additional interest, if any, to the date of repurchase. For any transactions entered into during such 360 day period that would constitute a permitted use of funds in the New Credit Facility Account or the Notes Account under the Indenture, the Company has up to 180 days after the end of the 360 day period to close the transaction.

The terms of the Indenture require the Company to meet certain ratio tests giving effect to anticipated transactions, including borrowing debt and making restricted payments prior to entering these transactions. These ratio tests are, as defined per the Indenture, a Fixed Charge Coverage Ratio of at least 2.00 to 1.00 and a Total Leverage Ratio not greater than 2.50 to 1.00. The holders of the Notes granted a waiver to these covenants in conjunction with the issuance of the Tack-On Notes, and the Company has not entered into any other transaction that requires it to meet these tests as of June 30, 2016. Had the Company been required to meet these ratio tests as of June 30, 2016, the Company would not have met the Fixed Charge Coverage Ratio or the Total Leverage Ratio.

On July 29, 2016, the Company, entered into a Revolving Loan Note (the “Revolving Loan Note”) and a Credit and Security Agreement with Midcap Financial Trust, as administrative agent and lender, and the additional lenders parties thereto from time to time (the “New Credit Agreement”), which provides for a revolving credit facility with a maximum commitment of $25 million (the “New Credit Facility”).

The New Credit Facility is secured by a first lien on the Company’s accounts receivable, inventory, related contracts and other rights and other assets related to the foregoing and proceeds thereof. The New Credit Facility is subject to an intercreditor agreement dated as of June 23, 2011, by and among the Creditor, as the replacement ABL lender thereunder, and U.S. Bank, National Association, as the collateral trustee for benefit of the holders of the Notes.

Availability for borrowings under the New Credit Facility is subject to a borrowing base that is calculated as a function of the value of the Company’s eligible accounts receivable and inventory. Borrowings under the New Credit Facility bear interest at a floating rate equal to the sum of the current LIBOR rate plus an applicable margin of 4.85%. The New Credit Facility terminates, and all outstanding principal and interest thereunder is due and payable, on April 1, 2018.

In addition, the Company is required to pay a monthly collateral management fee and, if the average end-of-day principal balance of revolving loans during the immediately preceding month is less than $6,250,000, a monthly minimum balance fee.

The New Credit Agreement contains customary covenants that place restrictions on, among other things, the incurrence of debt, granting of liens and sale of assets. At all times at which amounts are outstanding under the New Credit Facility, the New Credit Agreement also requires that the Company maintain at least $5,000,000 in minimum liquidity, which includes amounts available for borrowing under the New Credit Facility and unencumbered cash and cash equivalents of the Company. Further, the New Credit Agreement contains customary events of default, subject to certain materiality thresholds and grace periods for certain of those events of default. Upon an event of default, the New Credit Agreement provides that, among other things, the commitments may be terminated and the loans then outstanding may be declared due and payable.

Proceeds from borrowings under the New Credit Facility were used by the Company, together with cash on hand, to repay existing indebtedness outstanding under the Credit Facility in full. On July 29, 2016, in connection with the effectiveness of the New Credit Agreement described previously, the Company terminated the commitments under the previous Credit Facility and repaid all outstanding loans thereunder.

The New Credit Facility limits the Company’s ability to make certain distributions or dividends.

Under the terms of the Company’s previous Credit Facility, the Company was required to meet certain covenants if a Triggering Event occurred. No Triggering Event was in existence as of June 30, 2016 or prior to payoff of the termination of the previous Credit Facility. As of June 30, 2016 the Company had $12.8 million outstanding on the previous Credit Facility; however upon execution of the New Credit Facility the outstanding balance was paid in full.