Note 8 — Long-term Debt and Credit Facilities

Long-term debt was comprised as follows at December 31 (dollar amounts in thousands):

	2012		2011
Credit Facility:
Term loan	$	325,407	$	362,601
Revolving loan committment	21,000		-
Capital leases	860		699
	347,267		363,300
Less current maturities	(346,691)		(10,395)
	$	576	$	352,905

Bank Credit Facility ¾ In April 2007, we entered into a $675.0 million bank Credit Facility, comprised of a $625.0 million term loan, which was to mature in April 2014, and a $50.0 million revolving loan commitment, which was to mature in April 2013. The term loan originally required quarterly repayments of $1,562,500, which began September 30, 2007. The term loan originally bore interest at our option of (1) the bank’s base rate plus a margin of 1.0% or (2) LIBOR plus a margin of 2.0%. The Credit Facility is collateralized by substantially all of the assets of the Company.

Effective March 22, 2011, we entered into a First Amendment (the “First Amendment”) to the bank Credit Facility. The First Amendment modified certain terms of the Credit Facility, including an increase in the permitted consolidated leverage ratio, the creation of a specific preferred stock dividend payment basket and the potential to extend the term beyond its expiration in April 2014. The restricted payment basket within the First Amendment allowed for dividend payments not to exceed $5,750,000 per year. The First Amendment also reduced the commitments under the revolving loan commitment, increased the interest rate and required quarterly repayment amount and adjusted other covenants. In 2011, the Company incurred $2.7 million of debt issuance costs related to certain fees and expenses in connection with this First Amendment.

Under the First Amendment, the $50.0 million revolving loan commitment was reduced to $25.0 million. The First Amendment also required us to make quarterly term loan repayments of $2.5 million, beginning June 30, 2011, through December 31, 2012, and $3.75 million beginning March 31, 2013 through December 31, 2013. The amended term loan and revolving loan commitment bear interest at our option of (1) the bank’s base rate plus a margin of 4.0% or (2) LIBOR plus a margin of 5.0%. In addition, a LIBOR floor of 1.5% was established under the First Amendment.

The First Amendment included terms and conditions which required compliance with leverage and interest coverage covenants. As of September 30, 2012, our actual consolidated leverage ratio was 4.52, which was above the maximum allowable ratio of 4.00. As such, we were not in compliance with the required consolidated leverage ratio for the quarter ended September 30, 2012. Effective October 15, 2012, we entered into a Forbearance Agreement and Second Amendment to the Credit Facility (the “Forbearance Agreement”). Under the terms of the Forbearance Agreement, the lenders agreed to forbear from exercising their respective default-related rights and remedies under the Credit Facility until the earlier of December 17, 2012, or the occurrence of further defaults under the Credit Facility (the “Forbearance Period”). Through a series of amendments, the Forbearance Agreement was extended until approval of the reorganization plan under Chapter 11, at which time the Credit Facility is to be restructured. However, as a result of our non-compliance with our debt covenants, our liquidity constraints and our bankruptcy case under Chapter 11 of the Bankruptcy Code, we have classified our outstanding debt obligations, contractually due in April 2014, as current in our consolidated balance sheet as of December 31, 2012.

In consideration of the forbearance, we agreed to certain additional terms and conditions, including the following: (a) the retention of a strategic planning officer, (b) the provision of certain specific information regarding the Company and required management conference calls and meetings, as well as monthly and weekly reports, (c) the elimination of certain available baskets for incurring debt, disposing of property, and making investments, and a limitation of $5,000,000 on indebtedness outstanding and secured by permitted liens to finance the acquisition of fixed or capital assets, (d) the limitation on making capital expenditures to only those made in the ordinary course and not in excess of $10.5 million during the Forbearance Period, and (e) the requirement that the Company maintain Consolidated EBITDA of at least $4,543,000 for the period beginning October 1, 2012 and ending October 31, 2012 and Consolidated EBITDA of at least $8,701,000 for the period beginning October 1, 2012 and ending November 30, 2012. In addition, the Forbearance Agreement adjusted certain other covenants and definitions of the Credit Agreement. The Company was also required to pay certain fees and expenses in connection with the Forbearance Agreement. These interim financial covenants did not extend beyond November and, through a series of amendments, the Forbearance Agreement was extended until approval of the reorganization plan under Chapter 11, at which time the Credit Facility is to be restructured.

In December 2012, we announced that we entered into an investment agreement with a syndicate formed by an affiliate of Colony Capital, LLC (the “Colony Syndicate”) pursuant to which the Colony Syndicate agreed to provide $60.0 million of new capital to support a proposed recapitalization of the Company. In addition, our lenders have agreed to restructure our existing $346.4 million secured credit facility to a new five year term loan, In addition, the lenders expect the company to have a revolving line loan commitment in place at that time. This transaction is being implemented through an expedited Chapter 11 bankruptcy process, at the conclusion of which the Colony Syndicate will become the controlling stockholder of the Company. The Company commenced a prepackaged Chapter 11 process in the United States Bankruptcy Court for the Southern District of New York on January 27, 2013.

On March 7, 2013, the Bankruptcy Court entered an order confirming the plan. The plan provides that it will become effective upon the completion of certain conditions precedent, including closing conditions under the investment agreement with the Colony Syndicate, as described in Note 1 to the financial statements. We expect to have all conditions precedent completed and the transaction closed in late March of 2013. The investment agreement with the Colony Syndicate terminates on April 30, 2013.

The following sets forth the terms and conditions of the expected restructuring of the Company’s existing credit agreement. The restructuring will provide that all outstanding principal of loans under the existing credit agreement, and all accrued and unpaid interest thereon, shall be capitalized and restructured on the closing date of the investment agreement with the Colony Syndicate.

It is expected that the new credit agreement will consist of a $346.4 million five year term loan, plus capitalized interest accrued (i) pre-petition and (ii) post-petition through the earlier of the closing date and date that is 90 days after the petition date, in each case at the non-default contract interest rate. The interest rate is to be 6.75% per annum and the maturity date is to be five years after the closing date. The principal payments are expected to be 1.00% each year of the outstanding principal amount thereof on the Closing Date, payable in equal quarterly installments. The financial covenants consisting of a maximum leverage ratio and a minimum interest coverage ratio are to be measured each fiscal quarter-end commencing March 31, 2014. The credit agreement is to contain mandatory prepayment terms and is to be collateralized by substantially all of the assets of the Company, subject to the priority claims under the revolving credit facility referred to in the following paragraph. In addition, the credit agreement is to include certain affirmative and negative covenants including compliance with laws and regulations, delivery of financial statements and restrictions on additional indebtedness, liens, sales of assets, restricted payments, capital expenditures and investments.

The Company expects to enter into a revolving credit facility agreement of up to $20.0 million, including a $5.0 million sub-limit for letters of credit. Advances under the revolving credit facility will be limited to the lesser of (a) the sum of (i) up to 85% of eligible accounts receivable, plus (ii) an amount equal to the lesser of (x) $5,000,000 and (y) 75% of the appraised fair market value of Company’s eligible owned real estate; or (b) $20,000,000 minus such reserves as the lender may establish in good faith. All obligations will be secured by first priority liens on all of Company’s existing and future accounts receivable, inventory, intercompany notes and intellectual property and other intangible assets less a priority claim that DirecTV will have on all accounts receivable related to DirecTV programming or financing and (ii) the Company’s owned real estate. The revolving credit facility will mature 4.5 years after the closing date and will bear interest at a rate equal to 1-, 2- or 3-month LIBOR plus 225 basis points or Base Rate plus 125 basis points, at the election of the Company. The revolving credit facility will contain representations and warranties, covenants, and events of default that are usual and customary for similar revolving credit facilities.

The Company’s increasing liquidity challenges have been a result of several business trends and debt servicing issues that have negatively impacted our liquidity position. During 2012, the Company experienced a significant decrease in total revenue. The rate of decline in our movie revenue per room for 2011 was approximately 6% versus 2010. The decline accelerated in 2012 and the annual rate of decline has more than doubled to approximately 13% versus the prior year. Although significant declines were experienced in the first six months of 2012, the decline in revenue experienced during the third quarter of 2012 was even greater than what we had previously estimated. At the same time, two of our major vendors required us to enter into payment plans. Therefore, during September 2012, we entered into forbearance agreements with these two major vendors. The decline in revenue during the third quarter of 2012 and the payment terms of our vendor forbearance agreements created liquidity constraints on our operations and related financial results.

Historically, the Company followed a practice of reducing outstanding debt under our Credit Facility by making prepayments on our debt. These additional debt payments contributed to our historical debt covenant compliance. However, during 2012, our practice of making additional debt payments was achieved in part by delaying certain payments to our vendors, including major vendors such as DirecTV and HBO. During the third quarter of 2012, each of these vendors required us to enter into payment plans. In order to maintain continued service from these vendors, we entered into forbearance agreements with each of them. Through a series of amendments, the forbearance agreements with each of these vendors were extended until the filing of our prepackaged plan of reorganization under Chapter 11.

As discussed in Note 1, our inability to comply with the financial covenants under the Credit Facility, uncertainty over our ability to be in compliance with these covenants in the future, our bankruptcy case under Chapter 11 of the Bankruptcy Code, and our liquidity constraints, have raised substantial doubt about our ability to meet our ongoing financial obligations. We are experiencing significant liquidity constraints and our ability to continue as a going concern is dependent upon maintaining adequate liquidity levels and satisfying our vendor obligations, a successful refinancing or restructuring of our existing Credit Facility, and closing of the investment agreement with the Colony Syndicate. The investment agreement contains certain conditions precedent, including conditions which are described in more detail in Note 1 to the consolidated financial statements, and terminates on April 30, 2013. These liquidity constraints, our non-compliance with certain of our debt covenants and our bankruptcy case under Chapter 11 of the Bankruptcy Code have resulted in there being substantial doubt about our ability to continue as a going concern.

The Credit Facility originally provided for the issuance of letters of credit up to $15.0 million, subject to customary terms and conditions. Under the terms of the First Amendment, this amount was reduced to $7.5 million. As of December 31, 2012, we had outstanding letters of credit totaling $350,000, which reduces amounts available under the revolving loan commitment. The lenders are not required to permit the issuance of additional letters of credit under the Credit Facility pursuant to the terms of the Forbearance Agreement. During 2012, we borrowed $62.0 million under the revolving loan commitment and repaid $41.0 million.

During the first quarter of 2012, we made a prepayment of $15.0 million on the term loan, along with the required payment of $2.5 million. We expensed $156,000 of debt issuance costs related to the first quarter prepayment. During the second quarter of 2012, we prepaid $17.0 million on the term loan and made our required quarterly payment of $2.5 million. We expensed $156,000 of debt issuance costs related to the second quarter prepayment. During the third quarter of 2012, we made our required quarterly payment of $2.5 million. We did not make a debt payment in the fourth quarter of 2012.

During 2011, we made our required quarterly payments totaling $8.5 million on the term loan, along with a prepayment of $2.0 million. We expensed $0.2 million of debt issuance costs related to the prepayment and the First Amendment described above.

Capital Leases — As of December 31, 2012, we had total capital lease obligations of $0.9 million. Equipment acquired under capital lease arrangements totaled $0.8 million, $0.1 million and $0.2 million during the years ended December 31, 2012, 2011 and 2010, respectively. Our capital lease obligations consist primarily of vehicles used in our field service operations.

Long-term debt had the following scheduled annual maturities for the years ended December 31 (dollar amounts in thousands):

	2013		2014		2015		2016		2017
Long-term debt	$	346,407	$	-	$	-	$	-	$	-
Capital leases	302		276		252		65		-
	346,709		276		252		65		-
Less amount representing interest on capital leases	(18)		(11)		(5)		(1)		-
	$	346,691	$	265	$	247	$	64	$	-

We do not utilize special purpose entities or off-balance sheet financial arrangements.