NOTE 9 – DEBT

Short- term

P&F, along with Florida Pneumatic, Hy-Tech and Nationwide, as borrowers, entered into a Loan and Security Agreement (“Credit Agreement”) with Capital One Leverage Finance Corporation, as agent (“COLF”) in October 2010. The Credit Agreement had a three year term, with maximum borrowings of $22,000,000 at inception. The Credit Agreement provides for a Revolver Loan (“Revolver”) with an original maximum borrowing of $15,910,000. Direct borrowings under the Revolver are secured by the Company’s accounts receivable, mortgages on its real property located in Cranberry, PA, Jupiter, FL and Tampa, FL (“Real Property”), inventory and equipment, and are cross-guaranteed by certain of our subsidiaries (the “Subsidiary Guarantors”). Revolver borrowings bear interest at LIBOR (London InterBank Offered Rate) or the Base Rate, as defined in the Credit Agreement (“Base Rate”), plus the Applicable Margin (the “Applicable Margin”), as defined in the Credit Agreement. The Applicable Margin on Revolver borrowings is determined based upon the computation of total debt divided by earnings before interest, taxes, depreciation and amortization (“EBITDA”). The interest rate, either LIBOR or Base Rate, which is added to the Applicable Margin, is at the option of the Company, subject to limitations on the number of LIBOR borrowings.

On December 19, 2012, the Company and COLF entered into a new Amendment to Loan and Security Agreement (“Amendment 3”), which among other things:

Increased the total commitment by COLF from $24,500,000 to $29,453,000.

	Ø	Extended the term of the Credit Agreement through December 19, 2017, the Maturity Date.
	Ø	Increased the maximum borrowings on the Revolver from $15,910,000 to $20,000,000.
	Ø	Reduced the Applicable Margin on all borrowings.
	Ø	Increased the Term Loan, as defined below, to $7,000,000.
	Ø	Extended the rate of amortization on the Term Loan from 20 years to 25 years.
	Ø	Increased the amount of borrowings for Capex Term Loans

The balance of Revolver borrowings outstanding was $6,613,000 at June 30, 2013 and $2,793,000 at December 31, 2012. Applicable Margins added to Revolver borrowings at LIBOR and the Base Rate at June 30, 2013 were 2.25% and 1.25%, respectively, and 2.00% and 1.00%, respectively, at December 31, 2012.

The Company is required to provide, among other things, monthly financial statements, monthly borrowing base certificates and certificates of compliance with various financial covenants. The Company is in compliance with all covenants. As part of the Credit Agreement, if an event of default occurs, the interest rate would increase by two percent per annum during the period of default.

The Credit Agreement also provides for a Term Loan (the “Term Loan”), which is secured by mortgages on the Real Property, accounts receivable, inventory and equipment. The balance due on the Term Loan at June 30, 2013 and December 31, 2012 was $6,860,000 and $7,000,000, respectively. The Term Loan, effective January 2013, is repaid $23,000 each month, with the remaining balance due at the Maturity Date. Term Loan borrowings incur interest at LIBOR or the Base Rate plus the Applicable Margins, which were 3.00% and 2.00%, respectively, at June 30, 2013 and December 31, 2012.

Additionally, the Company borrowed $380,000 and $519,000 in March 2012 and September 2012, respectively, as Capex Term Loans. The repayment of these two loans is based on sixty-month amortization periods, resulting in repayments of $6,000 and $9,000, respectively. Applicable Margins added to these Capex Term Loans at June 30, 2013 and December 31, 2012 were 3.00% and 2.00%, for borrowings at LIBOR and the Base Rate, respectively.

Long-term debt consists of:

	June 30, 2013		December 31, 2012
Term loan - $23,000 payable monthly January 1, 2013 through December 1, 2017, balance due December 19, 2017. (NOTE: in 2012, monthly payment was $34,000.)	$	6,860,000	$	7,000,000
Capex Term Loan - $6,000 payable monthly May 1, 2012 through April 1, 2017.		292,000		330,000
Capex Term Loan - $9,000 payable monthly October 1, 2012 through September 1, 2017.		441,000		493,000
		7,593,000		7,823,000
Less current maturities		460,000		460,000
	$	7,133,000	$	7,363,000

Effective May 22, 2013, the Company and COLF entered into a new Amendment to Loan and Security Agreement (“Amendment 4”), primarily relating to collateral concentration limits with respect to certain customers.