12.

DEBT

A summary of total debt outstanding at December 31, 2011 and 2010 is as follows:

(thousands)	Dec. 31, 2011			Dec. 31, 2010
Short-term borrowings (revolver)	$	-		$	19,250
Long-term debt:
Revolver	$	24,336		$	-
Term loan		-			15,323
Secured senior subordinated notes		7,700			-
Subordinated secured promissory note		1,750			-
Interest paid-in-kind		-			1,660
Debt discount		(832	)		-
Total long-term debt		32,954			16,983
Less: current maturities of long-term debt		1,000			16,983
Total long-term debt, less current maturities and discount	$	31,954		$	-
Total short-term borrowings and long-term debt	$	32,954		$	36,233

Secured Senior Credit Facility

On March 31, 2011, the Company entered into a credit agreement (the “2011 Credit Agreement”) with Wells Fargo Capital Finance, LLC (“WFCF”) as the lender and agent and Fifth Third Bank as participant to establish a four-year $50.0 million revolving secured senior credit facility (the “2011 Credit Facility”). The 2011 Credit Agreement replaces the Company's credit agreement, dated May 18, 2007, as amended, among the Company, the lenders party thereto and JPMorgan, as Administrative Agent (the “2007 Credit Agreement”), which was scheduled to mature on May 31, 2011.

The 2011 Credit Agreement is secured by a pledge of substantially all of the assets of the Company pursuant to a Security Agreement, dated March 31, 2011, between the Company and WFCF, as agent. The 2011 Credit Agreement includes certain definitions, terms and reporting requirements and includes the following provisions:

·	The maturity date for the 2011 Credit Facility is March 31, 2015;

·	Borrowings under the revolving line of credit (the “Revolver”) are subject to a borrowing base, up to a maximum borrowing limit of $50.0 million;

·	The interest rates for borrowings under the Revolver are the Base Rate plus the Applicable Margin or the London Interbank Offer Rate (“LIBOR”) plus the Applicable Margin, with a fee payable by the Company on unused but committed portions of the Revolver;

·	The financial covenants include a minimum fixed charge coverage ratio, minimum excess availability under the Revolver, and annual capital expenditure limitations (see further details below);

·	The Company's existing standby letters of credit as of March 31, 2011 will remain outstanding; and

·	Customary prepayment provisions which require the prepayment of outstanding amounts under the Revolver based on predefined conditions.

At December 31, 2011, the interest rate for borrowings under the Revolver was the Prime Rate plus 1.75% (or 5.00%), or LIBOR plus 2.75% (or 3.03%), and the fee payable on committed but unused portions of the Revolver was 0.375%. At December 31, 2010, (i) the interest rate for borrowings under the Company's previous revolving line of credit was the Alternate Base Rate (the “ABR”) plus 3.5% (or 6.75%), or LIBOR plus 4.5% (or 4.75%), (ii) the interest rate under the Company's previous term loan was the ABR plus 6.5% or LIBOR plus 7.5%, and (iii) the fee payable on committed but unused portions of the Company's previous revolving loan facility was 0.50%.

Pursuant to the 2011 Credit Agreement, the financial covenants include (a) a minimum fixed charge coverage ratio, measured on a month-end basis, of at least 1.25:1.00 for the 12 month period ending on such month-end; (b) a required minimum excess availability plus qualified cash at all times under the Revolver of at least $2.0 million; and (c) for fiscal year 2011, a limitation on annual capital expenditures of $4.0 million.

The fixed charge coverage ratio is the ratio for any period of (i) earnings before interest, taxes, depreciation and amortization (“EBITDA”) minus capital expenditures made to (ii) fixed charges. Fixed charges for any period is the sum of (a) interest expense accrued (other than interest paid-in-kind, amortization of financing fees, and other non-cash interest expense), (b) principal payments in respect of indebtedness that are required to be paid, (c) all federal, state, and local income taxes accrued, and (d) all restricted junior payments paid (whether in cash or other property, other than common stock).

Excess availability for any period refers to the amount that the Company is entitled to borrow as advances under the 2011 Credit Agreement (after giving effect to all outstanding obligations) minus the aggregate amount, if any, of the Company's trade payables aged in excess of historical levels and all book overdrafts of the Company in excess of historical practices.

As of and for the fiscal period ended December 31, 2011, the Company was in compliance with all three of these financial covenants. The required minimum fixed charge coverage ratio, minimum excess availability plus qualified cash, and the annual capital expenditures limitation amounts compared to the actual amounts as of and for the fiscal period ended December 31, 2011 are as follows:

(thousands except ratio)	Required		Actual
Fixed charge coverage ratio (12-month period)		1.25		6.9
Excess availability plus qualified cash (end of period)	$	2,000	$	12,025
Annual capital expenditures limitation	$	4,000	$	2,436

Revolver

As of December 31, 2011, the Company had $24.3 million outstanding under its revolving line of credit. Borrowings under the Revolver are subject to a borrowing base, up to a maximum borrowing limit of $50.0 million. The borrowing base (as defined in the 2011 Credit Agreement), as of any date of determination, is the sum of current asset availability plus fixed asset availability less the aggregate amount of reserves, if any. The actual borrowing base available as of December 31, 2011 was $35.8 million.

The Company's financial statements at December 31, 2010 reflected a deficit in working capital (total current assets less total current liabilities) of approximately $12.9 million primarily as a result of the classification of its previous credit facility as short-term. Because the 2007 Credit Agreement was scheduled to expire on May 31, 2011 and the Company did not enter into a financing agreement with its existing or other lenders before the issuance of the statement of financial position for the year ended December 31, 2010, the Company's outstanding long-term indebtedness as of December 31, 2010 was classified as a current liability until the refinancing or replacement of the former credit facility was completed.

Our ability to access unused borrowing capacity under the 2011 Credit Facility as a source of liquidity is dependent on our maintaining compliance with the financial covenants as specified under the terms of the 2011 Credit Agreement. Based on the 2012 operating plan, the Company expects to continue to maintain compliance with the financial covenants under the 2011 Credit Agreement, notwithstanding continued uncertain and volatile market conditions.

If the Company fails to comply with the covenants under the 2011 Credit Agreement, there can be no assurance that the lenders that are party to the 2011 Credit Agreement will consent to an amendment of the 2011 Credit Agreement. In this event, the lenders and/or the holders of the March 2011 Notes or the September 2011 Notes could cause the related indebtedness to become due and payable prior to maturity or it could result in the Company having to refinance its indebtedness under unfavorable terms. If our debt was accelerated, our assets might not be sufficient to repay our debt in full should they be required to be sold outside of the normal course of business, such as through forced liquidation or bankruptcy proceedings.

Management has also identified other actions within its control that could be implemented, if necessary, to provide liquidity and help the Company reduce its leverage position. These actions include the exploration of asset sales, divestitures and other types of capital raising alternatives. However, there can be no assurance that these actions will be successful or generate cash resources adequate to retire or sufficiently reduce the Company's indebtedness under the 2011 Credit Agreement.

Secured Senior Subordinated Notes

March 2011 Notes

In connection with entering into the 2011 Credit Agreement, the Company issued $5.0 million aggregate principal amount of Secured Senior Subordinated Notes (the “March 2011 Notes”) to TCOMF2 and Northcreek. The March 2011 Notes are secured by a pledge of substantially all of the assets of the Company and are subordinated to the indebtedness under the 2011 Credit Agreement. The March 2011 Notes bear interest at a rate equal to 10% per annum until March 31, 2013 and 13% thereafter, and mature on March 31, 2016. The Company may prepay all or any portion of the March 2011 Notes at any time based on pre-defined percentages of the principal amount being prepaid.

In connection with the issuance of the March 2011 Notes, the Company issued the March 2011 Warrants. The debt discount of $0.7 million, which is equal to the fair value of the March 2011 Warrants as of March 31, 2011, is being amortized to interest expense over the life of the March 2011 Notes beginning in the second quarter of 2011. As of December 31, 2011, the unamortized portion of the debt discount was $0.6 million.

September 2011 Notes

In connection with the financing of the acquisition of AIA, the 2011 Credit Agreement was amended to, among other things, allow for the issuance to Northcreek and an affiliate of Northcreek of Secured Senior Subordinated Notes in the aggregate principal amount of $2.7 million (the “September 2011 Notes”). The September 2011 Notes are secured by a pledge of substantially all of the assets of the Company and are subordinated to the indebtedness under the 2011 Credit Agreement. The September 2011 Notes bear interest at 13% per annum and mature on March 31, 2016. The Company may prepay all or any portion of the September 2011 Notes at any time based on pre-defined percentages of the principal amount being prepaid.

In connection with the issuance of the September 2011 Notes, the Company issued the September 2011 Warrants. The debt discount of $0.3 million, which is equal to the fair value of the September 2011 Warrants as of September 16, 2011, is being amortized to interest expense over the life of the September 2011 Notes beginning in the third quarter of 2011. As of December 31, 2011, the unamortized portion of the debt discount was $0.2 million.

Subordinated Secured Promissory Note

Also in connection with the financing of the AIA acquisition, the 2011 Credit Agreement was further amended to allow for the issuance of a 10% Promissory Note to the seller of AIA in the principal amount of $2.0 million. The Promissory Note is secured by the Company's inventory and accounts receivable and is subordinated to indebtedness under the 2011 Credit Agreement, the March 2011 Notes and the September 2011 Notes. The Promissory Note matures on September 16, 2013 and is payable in eight quarterly installments of $250,000 plus quarterly interest payments beginning on December 16, 2011. As of December 31, 2011, the principal amount outstanding under the Promissory Note was $1.75 million.

Aggregate maturities of long-term debt, including the debt discount of $0.8 million, which is being amortized over the life of the March 2011 and September 2011 Notes, for the next five years ending December 31 are (in thousands): 2012 - $1,000; 2013 - $750; 2014 - $0; 2015 - $24,336 and 2016 - $7,700. The revolver long-term debt balance of $24.3 million at December 31, 2011 is due to mature in 2015 according to the terms of the 2011 Credit Facility.

The Company is contingently liable for five standby letters of credit totaling $1.5 million at December 31, 2011. Three letters of credit, totaling $1.0 million, exist to meet credit requirements for the Company's insurance providers and expire on December 31, 2012. One letter of credit, totaling $0.3 million, exists to meet credit requirements for the Company's purchase of materials from an overseas supplier and expires on April 1, 2012. The remaining letter of credit for $0.2 million expires on April 23, 2012.

Interest expense for the years ended December 31, 2011, 2010, and 2009 (in thousands) was $4,470, $5,525, and $6,453, respectively.

Interest paid for the years ended December 31, 2011, 2010, and 2009 (in thousands) was $4,390, $5,563, and $6,767, respectively.

Previous Credit Facility, Interest Rate Swaps, Term Loan and Revenue Bonds

Prior to March 31, 2011, the Company's debt financing was supported by its 2007 Credit Agreement which consisted of a senior secured credit facility comprised of revolving credit availability and a term loan.

Under the 2007 Credit Agreement, the Company had the option to defer payment of any interest on term loans in excess of 4.50% ("PIK interest") until the term maturity date. Since January 2009, the Company elected the PIK interest option. As a result, the principal amount outstanding under the term loan increased by $1.8 million from January 2009 through March 30, 2011 and was paid in full to the lenders on March 31, 2011 in conjunction with the refinancing of the previous credit facility. Approximately $0.1 million, $0.6 million, and $1.0 million of the term loan increase related to PIK interest was reflected in interest expense on the consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009, respectively. PIK interest is reflected as a non-cash charge adjustment in operating cash flows under the caption “Interest paid-in-kind”.

In anticipation of entering into the 2011 Credit Facility, the interest rate swap agreements were terminated on March 25, 2011, resulting in the payment of a $1.1 million cash settlement. For each of the years ended December 31, 2010 and 2009, amortized losses of $0.3 million were recognized in interest expense on the consolidated statements of operations. The amortized loss on the swaps of $0.7 million for the year ended December 31, 2011 included $79,000 related to the amortization of the losses on the swaps included in other comprehensive income as of the de-designation date and $0.6 million related to the write-off of the remaining unamortized loss on the swaps as of March 25, 2011, the date upon which it became probable the forecasted swap transactions, as specified in the original swap agreements, would not occur.

In addition, the change in the fair value of the de-designated swaps for the years ended December 31, 2011, 2010 and 2009 resulted in a credit to interest expense and a decrease in the corresponding liability of $0.1 million, $0.3 million and $0.7 million, respectively. Interest expense resulting from net payments under the swap agreements was $0.1 million, $0.9 million and $1.0 million for 2011, 2010 and 2009, respectively.

In connection with the Second Amendment to the 2007 Credit Agreement, the Company issued the 2008 Warrants to the then existing lenders. The debt discount of $214,000, which was equal to the fair market value of the 2008 Warrants as of December 11, 2008, was amortized to interest expense over the life of the term loan. As of December 31, 2010, the unamortized portion of the debt discount was $0. See Note 11 for further details.

The City of Mishawaka, Indiana Industrial Revenue Bonds were payable in monthly installments of $37,500 plus interest at a variable tax-exempt bond rate (3.83% at July 26, 2009). The final installment was originally due on April 12, 2012. Approximately $3.3 million of the net proceeds from the sale of the aluminum extrusion operation were used to pay off the remaining principal on the bonds in July 2009.

The State of Oregon Economic Development Revenue Bonds were payable in annual installments of $400,000 plus interest at a variable tax-exempt bond rate (2.31% at November 30, 2009). The final installment was paid on December 1, 2009.

The State of North Carolina Economic Development Revenue Bonds were payable in annual installments of $500,000 plus quarterly interest payments at a variable tax-exempt bond rate (0.9% at August 1, 2010). The final installment was paid on August 2, 2010.