Note 6. Current Liabilities and Debt Obligations

Accounts Payable and Other Accrued Payables

As of December 31, 2014 and 2013, the accounts payable and other accrued payables consisted of $13.6 million and $17.3 million, respectively, in trade account payables and $4.2 million and $6.0 million, respectively, in accrued payables.

Senior Revolving Credit Facility

On July 31, 2013, we amended our $30 million revolving credit facility (the "Facility") with Wells Fargo Capital Finance, LLC ("Wells Fargo") to extend the maturity date to November 13, 2014 from May 17, 2014. On March 27, 2014, we amended the Facility to extend the maturity date to November 13, 2015. In addition, Wells Fargo issued a waiver of certain existing defaults under the Facility including failure to maintain required EBITDA (as defined in the Facility) covenants. The March 2014 amendment also amends the terms of the Facility with respect to repayment on the term loan component. Since 2010, the principal of the term loan component has been repaid in quarterly installments of $93,750. The amended Facility requires quarterly installment payments of $250,000 beginning July 1, 2014, with a final installment of the unpaid principal amount payable on November 13, 2015, the maturity date of the amended Facility. In consideration for the closing of this amendment, we paid Wells Fargo a fee of $75,000, plus expenses related to the closing.

On December 24, 2014, the Facility was amended to provide for Wells Fargo's consent to the sale of 10% of our membership interests in Telos ID to certain private equity investors and to specify the amount of the transaction proceeds that were to be applied to the term loan component of the Facility. The amendment specifies that $1 million of the proceeds from the sale of the membership interests will be applied to the term loan component of the Facility, with the remaining balance of the proceeds being applied to the revolving component of the Facility. As of December 31, 2014, the $1 million application to the term loan had not occurred and accordingly this amount is classified as a current liability, which, when added to the regular quarterly amortization of the term loan, results in a total short term liability of $2 million related to the Facility. Additional information regarding the sale transaction is disclosed in Note 2 – Non-controlling Interests.

On February 27, 2015 the Facility was amended to change the February 28, 2015 dates specified in the November 2014 amendment to March 23, 2015. On March 19, 2015, the Facility was amended ("the Eleventh Amendment") to change the March 23, 2015 dates specified in the February 2015 amendment to March 31, 2015.

On March 31, 2015 the Facility was amended ("the Twelfth Amendment") to extend the maturity date to April 1, 2016. The Twelfth Amendment also amends the terms of the Facility, reducing the total credit available from $30 million to $20 million, and reducing the letter of credit sub-line limit from $5 million to $1 million. The reduced limits under the Facility more appropriately reflect the Company's current and near-term projected utilization of the Facility. The Twelfth Amendment also amends the terms of the Facility with respect to the repayment of the term loan component. Since March 2014, the principal of the term loan component has been repaid in quarterly installments of $250,000. The amended Facility requires quarterly installment payments of $350,000 beginning April 1, 2015, with a final installment of unpaid principal amount payable on April 1, 2016, the maturity date of the amended Facility. The Twelfth Amendment establishes EBITDA and recurring revenue covenants, amending and restating in the entirety previously established financial covenants. Also in March 2015, we issued $5 million in subordinated notes to affiliated entities of John R.C. Porter ("Porter Notes"), a holder of Telos Class A Common Stock and Senior Redeemable Preferred Stock. The Twelfth Amendment also establishes a minimum excess availability requirement under the revolving component of $1.25 million and allows for the payment of interest under the Porter Notes, subject to separate subordination agreements. In consideration for the closing of this amendment, we paid Wells Fargo a fee of $150,000, plus expenses related to the closing.

Prior to the Twelfth Amendment, the interest rate on the term loan component was the same as that on the revolving credit component of the Facility, which was the higher of the Wells Fargo Bank "prime rate" plus 1%, the Federal Funds rate plus 1.5%, or the 3-month LIBOR rate plus 2%. In lieu of having interest charged at the foregoing rates, the Company could have elected to have the interest on all or a portion of the advances on the revolving credit component be a rate based on the LIBOR Rate (as defined in the Facility) plus 3.75%. As of December 31, 2014, we had not elected the LIBOR Rate option. The Twelfth Amendment also amended the interest rate on the components of the Facility. The Twelfth Amendment established two tiers of interest rate pricing based upon the Company's performance compared to projections provided to Wells Fargo for 2015. The first tier interest rate pricing is effective as of the date of the amendment and is the higher of the Wells Fargo Bank "prime rate" plus 2.25%, the Federal Funds rate plus 2.75%, or the 3-month LIBOR rate plus 3.25%. In lieu of having interest charged at the foregoing rates, the Company may elect to have the interest on all or a portion of the advances on the revolving credit component be a rate based on the LIBOR Rate (as defined in the Facility) plus 5%. Upon receipt by Wells Fargo of our second quarter 2015 financials, pricing will be redetermined based on the Company's performance compared to plan. Failure to meet or exceed plan EBITDA (as defined by the Facility) would result in the first tier rates remaining in effect until the quarter-end reflecting plan achievement. Assuming plan achievement, the second tier interest rate pricing would be effective, which is the higher of the Wells Fargo Bank "prime rate" plus 1%, the Federal Funds rate plus 1.5%, or the 3-month LIBOR rate plus 2%. In lieu of having interest charged at the foregoing rates, the Company may elect to have the interest on all or a portion of the advances on the revolving credit component be a rate based on the LIBOR Rate (as defined in the Facility) plus 3.75%. Borrowings under the Facility are collateralized by substantially all of the Company's assets including inventory, equipment, and accounts receivable.

As of December 31, 2014, the interest rate on the Facility was 4.25%. We incurred interest expense in the amount of $0.7 million, $0.6 million, and $0.8 million for the years ended December 31, 2014, 2013, and 2012, respectively, on the Facility.

On May 11, 2012, the Facility was amended to allow for the redemption of Senior Redeemable Preferred Stock, under certain conditions, at a discount from par value plus accrued dividends of at least 10%, at an aggregate price not to exceed $4.0 million. On May 16, 2012 and on August 24, 2012, a portion of the Senior Redeemable Preferred Stock was redeemed (see Note 7 – Redeemable Preferred Stock).

On December 18, 2012, we prepaid and satisfied in full our obligations under a subordinated promissory note with IT Logistics, Inc. ("ITL") with a principal amount of $15 million (the "ITL Note"). As a condition to the prepayment of the Note, ITL accepted payment in the amount of $7.6 million, which is the sum of $7.5 million in principal plus $0.1 million in accrued interest. This amount represents a discount of 50% off of the principal amount of the ITL Note. No penalties were due to ITL in connection with the prepayment of the ITL Note. As a result of this transaction, a gain in the amount of $5.2 million was recorded in other income on the consolidated statements of operations. On or about December 17, 2012, ITL and Telos signed an agreement in which ITL agreed to accept the prepayment and discount in full satisfaction of the ITL Note. Wells Fargo consented to the payment of approximately $7.6 million on December 17, 2012.

On June 11, 2013, the Facility was further amended to allow for the further redemption of Senior Redeemable Preferred Stock, under certain conditions, at a discount from par value plus accrued dividends of at least 10%, at an aggregate price not to exceed $2.0 million. On June 14, 2013, a portion of the Senior Redeemable Preferred Stock was redeemed (see Note 7 – Redeemable Preferred Stock).

The Facility has various covenants that may, among other things, affect our ability to merge with another entity, sell or transfer certain assets, pay dividends and make other distributions beyond certain limitations. The financial covenants also include minimum EBITDA, minimum recurring revenue and a limit on capital expenditures. In conjunction with the March 2014 amendment, Wells Fargo issued a waiver of certain existing defaults under the Facility including failure to maintain required EBITDA covenants. In conjunction with the March 2015 amendment, Wells Fargo issued a waiver of certain existing defaults under the Facility. The March 2015 amendment establishes EBITDA and recurring revenue covenants, amending and restating in the entirety previously established financial covenants. Prior to the March 2014 amendment, the term loan component of the Facility amortized at 5% per year, which is paid in quarterly installments and is classified as current on the consolidated balance sheets. Since July 1, 2014, the quarterly installment repayments had been $250,000, but the Twelfth Amendment increased the quarterly installment payment to $350,000, effective with the April 1, 2015 installment. The remaining balance of the term loan, or $5.5 million, and the revolving component of the Facility mature over the period 2014 through April 1, 2016.

At December 31, 2014, we had outstanding borrowings of $10.9 million on the Facility, which included the $5.5 million term loan, of which $2.3 million was short-term. At December 31, 2013, the outstanding borrowings on the Facility were $19.8 million, which included the $6.2 million term loan, of which $0.7 million was short-term. At December 31, 2014 and 2013, we had unused borrowing availability on the Facility of $4.9 million and $9.2 million, respectively. The effective weighted average interest rates on the outstanding borrowings under the Facility were 5.3% and 5.6% for the years ended December 31, 2014 and 2013, respectively.

The following are maturities of the Facility presented by year (in thousands):

	2015		2016		Total
Short-term:
Term loan	$	2,300	$	--	$	2,300	¹
Long-term:
Term loan	$	--	$	3,200	$	3,200	¹
Revolving credit		--		5,390		5,390	²
Subtotal	$	--	$	8,590	$	8,590
Total	$	2,300	$	8,590	$	10,890

$1 million of the principal will be repaid in 2015 upon application of proceeds from the sale of Telos ID membership interests. The principal will be repaid in quarterly installments of $350,000, with a final installment of the unpaid principal amount payable on April 1, 2016.

Balance due represents balance as of December 31, 2014, with fluctuating balances based on working capital requirements of the Company.