Credit Arrangements

9 Months Ended

Sep. 30, 2013

11.

Credit Arrangements

Credit Facility

The Company has a $9.0 million credit facility with SVB consisting of a $6.5 million term note and a $2.5 million line-of-credit. Under the Fifth Loan Modification and Waiver Agreement with SVB, entered into by the Company on May 13, 2013, the $6.5 million term loan is for 42 months and bears interest at prime rate (currently 3.25%) plus 4.5%. This interest rate can be adjusted downward based on certain EBITDA and leverage ratios. The term loan was interest only for the first three months followed by 39 equal principal payments which commenced on January 1, 2013. The outstanding balance of the term loan is $5.0 million, of which $2.0 million is classified as a current liability at September 30, 2013.

The $2.5 million line-of-credit matures on March 14, 2014 and no borrowings have been made under the line-of-credit to date. Advances under the line-of-credit are subject to availability against certain eligible accounts receivable and eligible retail backlog. The credit facility bears interest at a floating rate per annum based on the prime rate plus 1.25% on advances made against eligible accounts receivable and prime rate plus 2.00% on advances made against eligible retail backlog. These interest rates are subject to change based on the Company’s maintenance of an adjusted quick ratio of one-to-one. The facility contains minimum cash and availability and minimum fixed charge coverage ratio covenants and financial reporting requirements. The Company was in compliance with its covenants as of September 30, 2013.

Subordinated Notes

On October 3, 2012, the Company entered into a Note Purchase Agreement with Massachusetts Capital Resource Company (“MCRC”), in which the Company entered into an 8-year, $4 million Subordinated Note due 2020 with MCRC (the “MCRC Note”). The MCRC Note bears interest at 10.5% and is interest only for the first four years followed by 48 equal principal payments commencing October 31, 2016. The Company must pay a premium of 3% if it prepays the MCRC Note before October 1, 2014, and a 1% premium if it prepays the MCRC Note before October 1, 2015. The MCRC Note is subordinated to the Company’s credit facility with SVB and contains a consolidated net earnings available for interest charges to interest charges covenant, as adjusted, of not less than one-to-one and financial reporting requirements that the Company was in compliance with as of September 30, 2013.

- 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.

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