Quarterly report pursuant to Section 13 or 15(d)

Debt and Line of Credit

Debt and Line of Credit
3 Months Ended
Mar. 31, 2014
Debt and Line of Credit

7. Debt and Line of Credit

In December 2012, the Company closed on a $21.5 million senior secured credit facility with a bank consortium led by GE Capital (the “GE Secured Lending Facility”). The agreement consists of a term loan in the original principal amount of $18.0 million and an up to $3.5 million revolving line of credit secured by the Company’s accounts receivable, based on certain defined criteria, and matures in May 2016. The term loan included interest only payments for a period of 12 months, followed by monthly principal payments of approximately $600,000 for a period of 30 months, which the Company commenced paying in January 2014. The term loan bears interest at the fixed rate of 7.5% per annum, while the line of credit had an interest rate of 7.0% at March 31, 2014 and December 31, 2013, which is based on the variable rate of 5.5% plus the higher of (i) 1.5% and (ii) the three-month LIBOR determined as of two London business days divided by a number equal to 1.0 minus the aggregate of the rates of reserve requirements on the day that is two London business days prior to the beginning of the interest period for Eurocurrency funding that are required to be maintained by a member bank of the Federal Reserve System. There was no amount outstanding under the revolving line of credit and $86,000 was available to borrow at March 31, 2014. The Company pledged all of its assets as collateral for these loans. The agreement includes a non-refundable final payment fee of $720,000, as well as an annual management fee of $15,000 per year.

As of March 31, 2014, the total outstanding principal was $16.2 million, although the financial statements reflect a carrying value of $16.1 million due to the bifurcated value of warrants issued in connection with the GE Secured Lending Facility, which is being amortized to interest expense over the life of the loan. The Company had been in covenant default with regards to the liquidity covenant of the GE Secured Lending Facility several times during 2013. The Company entered into four amendments to its agreement with GE Capital during 2013 to forego the liquidity covenant testing required under the facility. The fourth amendment to the agreement which was entered into in December 2013 stipulated the liquidity covenant would not be tested by GE through January 31, 2014. In January 2014, the Company entered into a fifth amendment to the agreement that extended the time through which the liquidity covenant would not be tested to February 28, 2014. Although the Company was in compliance with the liquidity covenant at March 31, 2014, the Company anticipates that it will be non-compliant with the liquidity covenant by the fourth quarter of 2014, and has therefore classified the entire obligation as a current liability. The Company incurred amendment fees which are being amortized to interest expense over the remaining life of the loans. The total accrued amendment fees at March 31, 2014 and December 31, 2013 were $1.4 million and $1.1 million, respectively. The Company was in compliance with all other covenants under the agreement as of March 31, 2014.