LONG TERM DEBT AND NOTES PAYABLE TO BANK

As of September 30, 2015 and December 31, 2014, the Company had credit facilities with each of The Bank of Kentucky, Inc. ("KY Bank") and Wells Fargo Bank, National Association (the "Bank"). As of September 30, 2015 and December 31, 2014, the Company was not in compliance with a financial covenant in its credit facility with the Bank. On November 6, 2015, the Company executed the Forbearance Agreement (see Note 1) with the Bank. Under GAAP, all of the Company’s debt is required to be classified in the accompanying balance sheets as of September 30, 2015 and December 31, 2014 as a current liability due within the next 12 months. Neither the Bank nor KY Bank has accelerated repayment of the indebtedness. For additional information, see Note 1 - Summary of Significant Accounting Policies - Going Concern.

On October 15, 2013, WESSCO, LLC ("WESSCO"), a wholly-owned subsidiary of the Company, signed two promissory notes (collectively, the "KY Bank Notes") in favor of KY Bank, one in the amount of $3.0 million (the "Term Note") and one in the amount of $1.0 million (the "Line of Credit Note"). The Company is a guarantor of the KY Bank Notes. The Company has also signed a $3.0 million demand promissory note (the “Company Note”) in favor of WESSCO in exchange for the proceeds of the Term Note.

During 2014, the draw period of the Line of Credit Note expired and the outstanding balance automatically converted into a term note ("Line of Credit Term Note") with a five-year term. As of September 30, 2015, $0.5 million was outstanding on the Line of Credit Term Note.

On January 15, 2015, the Company signed a new line of credit ("2015 Line of Credit Note") in the amount of $1.0 million with KY Bank in order to purchase additional equipment. The draw period for the 2015 Line of Credit Note will expire on January 14, 2016, at which time the outstanding balance will be converted into a term note with a five-year term. As of September 30, 2015, the outstanding principal balance on the 2015 Line of Credit Note was $0.3 million.

As security for the KY Bank Notes, WESSCO provided KY Bank a first priority security interest in all of its assets, including the Company Note, pursuant to a Security Agreement (the “Security Agreement”). The KY Bank Notes impose a Fixed Charge Coverage Ratio Covenant on WESSCO under which: (i) the sum of (a) WESSCO’s earnings before interest, taxes, depreciation, rent, and interest expense, less distributions and (b) unfunded capital expenditures, divided by (ii) the sum of (x) the current portion of long term debt due for the period, (y) interest expense and (z) rent expense is required to be at least 1.15 to 1 at all times. KY Bank will test this ratio annually measured for periods starting January 1 and ending December 31. The Security Agreement also contains other customary covenants.

The interest rate on the KY Bank Notes, 2015 Line of Credit Note, and the Company Note is equal to the one month LIBOR plus three and one-half percent (3.50%) adjusted automatically on the first day of each month during the term of the KY Bank Notes, which have a final maturity date of October 14, 2019. As of September 30, 2015, the interest rate was 3.67%. In the event of a default, the interest rate under the KY Bank Notes and the 2015 Line of Credit Note (but not the Company Note) will increase by five percent (5.00%). Events of default under the KY Bank Notes and the 2015 Line of Credit Note include (a) the failure to pay (i) any installment of principal or interest payable pursuant to the Term Note or the Line of Credit Note on the date when due, or (ii) any other amount payable to KY Bank under the KY Bank Notes and/or the 2015 Line of Credit Note, the Security Agreement or any of the other Loan Documents within five (5) days after the date when any such payment is due in accordance with the terms thereof; (b) the occurrence of any default under the Wells Fargo security agreement; (c) the occurrence of any default under any of the documents evidencing or securing any other loan made to WESSCO or the Company (except that if there is an event of default under the documents evidencing the Wells Fargo Loan, it will not constitute an event of default under the KY Bank Notes or the 2015 Line of Credit Note if Wells Fargo Bank and the Company enter into a forbearance agreement within sixty (60) days of that event of default); and (d) the occurrence of any other “Event of Default” under the Security Agreement or any of the other Loan Documents. The only event of default under the Company Note is the failure of the Company to pay all funds due to WESSCO on demand.

The principal under the Term Note is payable in sixty (60) monthly installments as follows: $45.3 thousand for the first year, $47.5 thousand for the second year, $49.9 thousand for the third year, $52.4 thousand for the fourth year, and $54.4 thousand for the eleven months of the final year. Interest will be calculated as noted above and paid each month. The first payment commenced November 1, 2013, and the final unpaid principal amount of $60.0 thousand, together with all accrued and unpaid interest, charges, fees, or other advances, if any, is to be paid on November 1, 2018. As of September 30, 2015, the outstanding principal balance on the Term Note was $1.9 million.

With respect to the 2015 Line of Credit Note, the Company can request advances up to $1.0 million for twelve (12) months after the effective date of the 2015 Line of Credit Note (the "Draw Period"). Advances are limited to eighty percent (80%) of the purchase price for equipment. Advances made to WESSCO that were repaid can be re-borrowed during the Draw Period. During the Draw Period, interest-only payments in the amount of all accrued and unpaid interest on the principal balance of the 2015 Line of Credit Note are made monthly. The total of all advances, less any repayments, through the end of the Draw Period, will be equal to the principal balance of the 2015 Line of Credit Note, and no further advances will be made after the Draw Period. At the conclusion of the Draw Period, the principal and interest are payable in sixty (60) monthly installments that commenced on the first day of the month immediately following the end of the Draw Period. Any unpaid principal amount due, together with all accrued and unpaid interest, charges, fees, or other advances, if any, will be paid at maturity.

WESSCO cannot make demand for payment of the Company Note before December 31, 2016.

On June 13, 2014, the Company entered into a senior, secured credit facility (the "Credit Agreement") with the Bank pursuant to which the Bank granted the Company a revolving line of credit of up to $15.0 million (the "Revolving Loan"), up to $1.0 million of which is available to the Company as a sub-facility for letters of credit. The Company may borrow up to 85% of the value of its eligible accounts receivable and 65% of the value of eligible inventory under the Revolving Loan. As of September 30, 2015, an availability block that limits borrowings under the revolver in the amount of $1.6 million is in place. If the Company demonstrated to the Bank that no default or event of default shall have occurred or be continuing and the fixed charge coverage ratio, determined on a trailing twelve month period, for each of the most recent three consecutive months then ending, is at least 1.25:1, the availability block shall reduce to $1.0 million. If the Company demonstrated to the Bank that no default or event of default shall have occurred or be continuing and the fixed charge coverage ratio, determined on a trailing twelve month period, for each of the most recent three consecutive months then ending, is at least 1.50:1, the availability block shall reduce to zero. As of September 30, 2015, these financial ratios were not met and this availability block remained in place.

The Credit Agreement also provided the Company with a secured equipment term loan of $2.8 million (the "Term Loan"). The Company used the proceeds from the Credit Agreement to repay in full its prior credit facility with Fifth Third Bank (the "Prior Credit Agreement").

The interest rate on the Revolving Loan is equal to daily three month LIBOR plus three percent (3.00%). The interest rate on the Term Loan is equal to daily three month LIBOR plus three and 25/100 percent (3.25%). If there is an Event of a Default (as defined in the Credit Agreement) under either the Revolving Loan or the Term Loan, the interest rate will increase by two percent (2.00%). Each of the Revolving Loan and the Term Loan has a maturity date of June 13, 2019. As of March 19, 2015, the lender decreased the borrowing base block for the Credit Agreement, thereby increasing the availability of capital under our revolving line of credit by $350,000. The lender charged us $5,000 per week for each week in which we used this additional $350,000. As of April 30, 2015, the borrowing base block reduction was canceled and no longer available to the Company.

The Company is subject to a prepayment fee of up to 2.00% of the maximum Revolving Loan and Term Loan amount in the event the Credit Agreement is terminated or prepaid prior to June 13, 2018.

Interest under the Revolving Loan is payable monthly in arrears. Principal and interest under the Term Loan is payable in sixty (60) monthly installments, with the first payment commencing July 1, 2014, and the final unpaid principal amount, together with all accrued and unpaid interest, charges, fees, or other advances, if any, to be paid on June 13, 2019.

The Credit Agreement contains customary covenants, including a minimum EBITDA covenant, a capital expenditure covenant, and a fixed charge coverage ratio covenant, measured monthly on a trailing twelve month basis at the end of each month, beginning with the month ending June 30, 2015 of not less than 1.25 to 1.00. As of September 30, 2015 and December 31, 2014, we were not in compliance with our bank financial covenants.

As of September 30, 2015, we have $298.6 thousand available for draw under our existing credit facilities.

The Company and each of its wholly-owned subsidiaries, other than WESSCO, granted the Bank a first priority security interest in all of their assets pursuant to a Security Agreement, and each of the Company's subsidiaries guaranteed the Company's obligations under the Credit Agreement pursuant to a Continuing Guaranty; provided that WESSCO's guarantee is subordinated to its obligations to KY Bank (described above), pursuant to a subordination agreement among WESSCO, the Bank and KY Bank. The Company paid fees in 2014 totaling $245.0 thousand related to the Credit Agreement. These fees were capitalized and are being amortized to interest expense over the life of the Credit Agreement.

For additional information related to long term debt and notes payable to bank subsequent to September 30, 2015, see Note 1 - Summary of Significant Accounting Policies.

Swap agreements

In October 2013, we entered into an interest rate swap agreement with KY Bank swapping a variable rate based on LIBOR for a fixed rate. This swap agreement covers approximately $2.1 million in debt, commenced October 17, 2013 and matures on October 1, 2018. The swap agreement fixes our interest rate at 4.74%. At September 30, 2015, we recorded the estimated fair value of the liability related to this swap at approximately $19.4 thousand. We entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional amounts and forecasted amounts.

Our long term debt as of September 30, 2015 and December 31, 2014 consisted of the following:



	2015		2014
	(Unaudited)
	(in thousands)
Revolving credit facility of $15.0 million in 2014 with Wells Fargo Bank. See above description for additional details.	$	2,852	$	10,453
Note payable to Wells Fargo Bank in the original amount of $2.8 million secured by shredder system assets, and other Recycling equipment. See above description for additional details.	2,100		2,520
Note payable to the Bank of Kentucky, Inc. in the original amount of $3.0 million secured by all WESSCO assets. See above description for additional details.	1,934		2,361
Note payable to the Bank of Kentucky, Inc. in the original amount of $596.6 thousand secured by all WESSCO assets. See above description for additional details.	487		577
Revolving credit facility convertible to term loan of up to $1.0 million in 2015 with the Bank of Kentucky, Inc. See above description for additional details.	291		—
	7,664		15,911
Less current maturities	7,664		15,911
	$	—	$	—

The annual maturities of long term debt (in thousands) for the next five twelve-month periods and thereafter ending September 30 of each year are as follows:



2015	$	7,664
2016	—
2017	—
2018	—
2019	—
Total	$	7,664