Credit Facility

In 2012, the Company entered into a $40.0 million credit facility (“Credit Facility”) which expires in August 2017. The Credit Facility consists of a $40.0 million revolving credit facility, which includes a $10.0 million sub-facility for Letters of Credit. Until the later of June 30, 2014 or when the Company achieves certain financial covenants, credit available under the Credit Facility is based upon:


a)	80% of the face amount of the Company’s eligible accounts receivable, generally less than 60 days past due, and


b)	the lesser of 50% of the lower of cost or market value of the Company’s eligible inventory, which is generally inventory expected to be sold within 18 months, or $20.0 million.

The applicable interest rates on borrowings under the Credit Facility are either the Prime rate or the LIBOR rate plus 2.75% for the first year and LIBOR plus 2.50% for the second year of the agreement which begins on August 8, 2013. Following the second year, the interest rate will be based on the Company’s debt to EBITDA ratio and range from LIBOR plus 1.25% to 1.85% or, if the Company elects, Prime minus 1.00% to 0.40%.

The Credit Facility is secured by a first priority perfected security interest in substantially all the assets of the Company. Dividends are restricted under the Credit Facility to amounts not to exceed $1.1 million per quarter subject to a formula based on EBITDA achieved in the previous quarter compared to amounts specified in the Credit Facility.

In addition to other customary representations, warranties and covenants, the Credit Facility requires the Company to comply with certain financial covenants. A minimum Consolidated EBITDA level, as defined in the Credit Facility, must be achieved on a quarterly basis as detailed in the following table:



Quarter Ended	Minimum EBITDA (as Defined in the Credit Facility)
June 30, 2013	$	2,000,000
September 30, 2013	3,500,000
December 31, 2013	3,000,000
March 31, 2014	3,500,000
June 30, 2014	3,500,000

For the period ended June 30, 2013, EBITDA, as defined in the Credit Facility, was $2.8 million, which was in compliance with the minimum EBITDA covenant in effect at June 30, 2013. The Company anticipates that the minimum required EBITDA for future quarters will be reduced to reflect the anticipated closing on the sale of ASMP.

Upon meeting certain financial covenants, but not prior to June 30, 2014, the availability under the Credit Facility will be based upon the following covenants with a maximum borrowing level of $40.0 million:


a)	Minimum Debt Service Coverage Ratio of 1.20:1.00 measured quarterly beginning June 30, 2014 and building cumulatively to a rolling four quarters.


b)	Minimum Tangible Net Worth of not less than 90% of the value of shareholders’ equity less intangible assets established as of June 30, 2014, tested quarterly.


c)	Minimum cash, accounts receivable and inventory to debt ratio of 2.0 to 1.0.

At June 30, 2013, the Company had an outstanding balance of $23.3 million under the revolving line of credit of its Credit Facility and additional borrowing availability of $15.0 million. The Company paid interest of $0.4 million and $0.2 million for the six months ended June 30, 2013 and 2012, respectively. The weighted average interest rate was 3.0% through the six months ended June 30, 2013 and the outstanding balance approximates fair value.