LONG TERM DEBT AND NOTES PAYABLE TO BANK

Summary:

Prior to and during 2014, the Company had certain loans with Fifth Third Bank (Fifth Third) and certain loans with KY Bank. During 2014, the Company paid off the Fifth Third loans with new loans from Wells Fargo (hereinafter “Wells Fargo”). As of December 31, 2014, the Company was in default under the Wells Fargo loans and during the second half of 2015 entered into a Forbearance Agreement with Wells Fargo whereby the due dates on the loans were accelerated and the Company was required to take certain actions. During 2015, as more fully described in Note 1 - Summary of Significant Accounting Policies, the Company took steps to pay down debt and increase liquidity. On December 4, 2015, in conjunction with the sale of substantially all assets of the Company’s Waste Services Segment, the Company paid off the KY Bank loans and certain Wells Fargo loans. As of December 31, 2015, the Company had an outstanding balance of $19.7 thousand to Wells Fargo. Subsequent to December 31, 2015, the Company closed on new financing with MidCap and paid off in full remaining amounts due to Wells Fargo. See Note 1 - Summary of Significant Accounting Policies and below for further details.

MidCap:

On February 29, 2016, the Company entered into the 2016 Loan, which is a $6 million senior, secured asset-based line of credit with MidCap. The Company may borrow up to the sum of (a) 85% of the value of its eligible domestic accounts receivable; (b) the lesser of (i) $2.5 million, and (ii) 75% of the net orderly liquidation value of eligible inventory; and (c) the lesser of (i) $500,000, and (ii) 40% of appraised net forced liquidation value of eligible fixed assets (the "Equipment Sublimit"). The Equipment Sublimit shall amortize monthly on a straight line basis over sixty (60) months with no reduction to the overall line of credit availability.

Proceeds from this loan were used to pay transaction expenses, pay off and close the remaining balance on the Wells Fargo revolving line of credit and fund working capital requirements.

The interest rate on the 2016 Loan is equal to the prime rate (3.5% as of February 29, 2016) plus 250 basis points (2.50%). In the Event of a Default (as defined in the 2016 Loan Agreement), the interest rate will increase by 300 basis points (3.00%). The 2016 Loan also has a monthly collateral-monitoring fee equal to 27.5 basis points (0.275%) of the average daily balance, an annual facility fee of 100 basis points (1.00%) and an unused line fee equal to an annual rate of 50 basis points (0.50%) of the average undrawn portion of the 2016 Loan.

The 2016 Loan has a maturity date of February 28, 2018.

The Company is subject to a prepayment fee of $120,000 in the event the 2016 Loan is terminated or prepaid prior to the one year anniversary of the loan. The Company is subject to a prepayment fee of $60,000 in the event the 2016 Loan is terminated or prepaid subsequent to the one year anniversary of the loan. The $60,000 fee is reduced to zero if the 2016 Loan is refinanced by an FDIC insured institution after eighteen months from February 29, 2016.

Interest and monthly fees under the 2016 Loan are payable monthly in arrears.

The 2016 Loan Agreement contains a minimum line availability covenant equal to $350,000. This covenant may be replaced by a Fixed Charge Coverage Ratio ("FCCR") covenant once the Company has achieved a FCCR of 1.0x on an annualized basis.

The Company granted MidCap a first priority security interest in all of the assets of ISA pursuant to a Security Agreement.

The Company is allowed to sell or refinance up to $3 million in fair market value of real property provided (i) the proceeds from such refinance or sale remain with the Company; and (ii) no event of default exists at the time of such refinance or sale.

The 2016 Loan had an outstanding balance at the February 29, 2016 closing date of $472.6 thousand and additional availability of $2.4 million.

The Bank of Kentucky:

On October 15, 2013, WESSCO 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 used the proceeds from the Term Note to pay $3.0 million against the Company’s loan from Fifth Third Bank. WESSCO used the Line of Credit Note to purchase additional equipment. The Company signed a $3.0 million demand promissory note (the “Company Note”) in favor of WESSCO in exchange for the proceeds of WESSCO’s Term Note. All amounts under the KY Bank Notes have been repaid as of December 4, 2015.

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 December 31, 2015 and 2014, $0.0 thousand and $0.6 million were outstanding on this 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 was set to expire on January 14, 2016. All amounts under the KY Bank loans were repaid on December 4, 2015.

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 imposed 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 was required to be at least 1.15 to 1 at all times.

The interest rate on the KY Bank Notes and the Company Note were 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 had a final maturity date of October 14, 2019. As of December 31, 2014, the interest rate was 3.65%.

The principal under the Term Note was 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 was 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, was to be paid on November 1, 2018. As of December 31, 2015, the outstanding principal balance on the Term Note was $0.0 million. With respect to the Line of Credit Note, WESSCO requested advances up to $1.0 million for twelve (12) months after the effective date of the Line of Credit Note (the "Draw Period"). Advances were limited to eighty percent (80%) of the purchase price for equipment. Advances made to WESSCO that were repaid were eligible to 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 Line of Credit Note were made monthly. The total of all advances, less any repayments, through the end of the Draw Period, were equal to the principal balance of the Line of Credit Note, and no further advances were made after the Draw Period. At the conclusion of the Draw Period, the principal and interest were 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, were paid. As of December 31, 2015 and 2014, the outstanding principal balance on the Line of Credit Note was $0.0 thousand and $577.0 thousand, respectively.

WESSCO could not make demand for payment of the Company Note before December 31, 2016. As of December 4, 2015, this note has been cancelled.

Wells Fargo:

On June 13, 2014, the Company entered into a senior, secured credit facility (the "Credit Agreement") with Wells Fargo pursuant to which Wells Fargo granted the Company a revolving line of credit of up to $15.0 million (the "Revolving Loan"), up to $1.0 million of which was available to the Company as a sub-facility for letters of credit. As of December 31, 2015, all loans under the credit agreement except the Revolving Loan had been paid in full. The Company was able to 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 December 31, 2015 and 2014, an availability block that limits borrowings under the revolver in the amount of $1.6 million and $1.3 million, respectively, is 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 was equal to daily three month LIBOR plus three percent (3.00%). The interest rate on the Term Loan was equal to daily three month LIBOR plus three and 25/100 percent (3.25%). In the Event of a Default (as defined in the Credit Agreement) under either the Revolving Loan or the Term Loan, the interest rate would increase by two percent (2.0%). Each of the Revolving Loan and the Term Loan had a maturity date of June 13, 2019. During 2015, the lender temporarily decreased the borrowing base block, thereby increasing the availability of capital under our revolving line of credit by $350,000. The Company was charged $5,000 per week for each week in which it utilized this additional $350,000.

The Company was 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 was terminated or prepaid prior to June 13, 2018. However, Wells Fargo waived these fees as part of the December 4, 2015 and February 29, 2016 payoffs.

Interest under the Revolving Loan was payable monthly in arrears. Principal and interest under the Term Loan was 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 contained 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 December 31, 2015 and 2014, the Company was not in compliance with our bank financial covenants. Under GAAP, all of the Company’s debt was required to be classified in the accompanying balance sheets as of December 31, 2015 and 2014 as a current liability.

As of December 31, 2015, the Company had $0.8 million under our existing credit facilities that it could use.

The Company and each of its wholly-owned subsidiaries, other than WESSCO, granted Wells Fargo 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 was subordinated to its obligations to the KY Bank (described above), pursuant to a subordination agreement among Wessco, Wells Fargo and the KY Bank. The Company paid fees in 2014 totaling $245.0 thousand related to the Credit Agreement.

Swap agreements

In October 2013, the Company 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 $2.4 million in debt, commenced October 17, 2013 and was scheduled to mature on October 1, 2018. The swap agreement fixes our interest rate at 4.74%. At December 31, 2014, the Company recorded the estimated fair value of the liability related to this swap at approximately $10.0 thousand. The swap was settled for $15.0 thousand during 2015.

The Company entered into the swap agreements for the purpose of hedging the interest rate market risk for the respective notional amounts and forecasted amounts. See Note 1 – Summary of Significant Accounting Policies – Derivative and Hedging Activities for additional information about these derivative instruments.

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



	2015		2014
	(in thousands)
Revolving credit facility with Wells Fargo. See above description for additional details.	$	20	$	10,453
Note payable to Wells Fargo in the original amount of $2.8 million secured by shredder system assets and other Recycling equipment. See above description for additional details.	—		2,520
Note payable to the KY Bank in the original amount of $3.0 million secured by all WESSCO assets. See above description for additional details.	—		2,361
Revolving credit facility converted to term loan with the Bank of Kentucky, Inc. See above description for additional details.	—		577
	20		15,911
Less current maturities	20		15,911
	$	—	$	—

The annual maturities of long term debt, in thousands, for the next five years and thereafter as of December 31, 2015 are as follows:



2016	$	20
2017	—
2018	—
2019	—
2020	—

Total long-term debt	$	20