Notes Payable to Banks and Long-Term Debt

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements [Abstract]

Notes Payable to Banks and Long-Term Debt

D.   Notes Payable to Banks and Long-Term Debt

	March 31, 2012		December 31, 2011
Notes Payable:	(in thousands)
MtronPTI revolving loan with J.P. Morgan Chase Bank, N.A. (“Chase”) at the greater of Chase’s prime rate or the one-month LIBOR rate plus 2.50% per annum (3.25% at March 31, 2012), due June 30, 2013.	$	2,956	$	3,026
Long-Term Debt:
MtronPTI term loan with Chase due January 31, 2013. The note bears interestat a fixed rate of 5.00%		316		400
Less: Current maturities		316		400
Long-Term Debt	$	--	$	--

On June 30, 2011, certain of the Company’s subsidiaries, together referred to as MtronPTI, entered into a loan agreement with Chase (the “Chase Loan Agreement”). The Chase Loan Agreement provides for the following credit facilities: (i) a revolving line of credit in the amount of $4,000,000, to be used solely for working capital needs (the “Chase Revolving Loan”), (ii) a commercial line of credit in the amount of $2,000,000, to be used solely for tangible capital expenditures and, at Chase’s sole discretion, business acquisitions (the “Chase Commercial Loan”), and (iii) a term loan in the amount of $536,000 (the “Chase Term Loan”). The Chase Revolving Loan bears interest at the greater of (x) Chase’s prime rate or (y) the one-month LIBOR rate plus 2.50% per annum (the “CB Rate”), with interest due and payable on a monthly basis and the outstanding principal balance plus all accrued but unpaid interest due and payable on June 30, 2013. The Chase Commercial Loan bears interest at the CB Rate, with interest due and payable on a monthly basis and the outstanding principal balance plus all accrued but unpaid interest due and payable on June 30, 2012.  There was no amount outstanding under the Chase Commercial Loan as of March 31, 2012, or December 31, 2011.  The Chase Term Loan bears interest at 5.00% per annum, with principal and interest due and payable in monthly installments of $29,500 and the outstanding principal balance, plus all accrued but unpaid interest due and payable on January 31, 2013.

All outstanding obligations of MtronPTI under the Chase Loan Agreement are collateralized by a first priority security interest in all of the assets of MtronPTI, excluding real property. Additionally, in connection with the Chase Loan Agreement, PTI entered into a separate agreement with Chase providing that PTI would not mortgage or otherwise encumber certain real property it owns in Florida while the credit facilities under the Chase Loan Agreement are outstanding.

The Chase Loan Agreement contains a variety of affirmative and negative covenants, including, but not limited to, financial covenants that MtronPTI maintain: (i) tangible net worth not less than the sum of $7,500,000, plus 50% of the net income earned by MtronPTI for the preceding six-month period at June 30, 2011, with the threshold amount continuing to increase at December 31st and June 30th of each year by 50% of the net income earned by MtronPTI for the preceding six months; (ii) net income of not less than $1,000,000 for the fiscal year-to-date period ending June 30, 2011, $1,500,000 for the fiscal year-to-date period ending September 30, 2011, and $2,000,000 for the fiscal year-to-date period ending December 31, 2011, and for each trailing twelve-month period thereafter, tested on a quarterly basis, provided that MtronPTI not experience two consecutive quarterly losses; and (iii) a debt service coverage ratio of not less than 1.25 to 1.00, tested at the end of every fiscal year.

As of March 31, 2012, MtronPTI was not in compliance with the net income covenant under the Chase Loan Agreement.  Based on the definition of net income under the Chase Loan Agreement, which includes a pro forma computation of standalone tax expense for MtronPTI using the separate tax return method, MtronPTI had net income of $474,000 for the trailing twelve months ended March 31, 2012, as compared to the minimum requirement of $2,000,000.  Chase has waived non-compliance with this covenant as of March 31, 2012, in accordance with the terms of a letter agreement, dated May 15, 2012, pursuant to which MtronPTI will make a cash collateral deposit of $4,000,000 with Chase.  Refer to Note M – Subsequent Events.

Additionally, we have entered into negotiations with Chase regarding an amendment to the Chase Loan Agreement to adjust the financial covenants to permit our compliance with the terms of such covenants in future periods.  While we expect to finalize the amendment with Chase shortly, there can be no assurance that we will be able to enter into such an amendment.