Interest is due and payable in arrears monthly for revolving loans bearing
interest at the base rate and at the end of an interest period (or at each three
month interval in the case of loans with interest periods greater than three
months) in the case of revolving loans bearing interest at the adjusted LIBOR
rate. Principal, together with all accrued and unpaid interest, is due and
All borrowings under the Revolving Loan Agreement are limited by amounts available pursuant to a borrowing base calculation, which is based on percentages of eligible accounts receivable, inventory, machinery and equipment, in each case subject to reductions for applicable reserves.
The Revolving Loan Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries' ability to, among other things, incur indebtedness, grant liens, dispose of assets and pay dividends or make distributions to stockholders, in each case subject to customary exceptions for a credit facility of this size and type. 38
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Pursuant to the Revolving Loan Agreement, the Company is also required to maintain compliance with a fixed charge coverage ratio and to limit its annual capital expenditures to
$4.0 millionper fiscal year (subject to carry-over rights) at such times that it fails to maintain excess availability under the revolving credit facility above a specified level. The fixed charge coverage ratio, which is defined as the ratio of EBITDA minus unfinanced capital expenditures to Fixed Charges (as each term as defined in the Revolving Loan Agreement), as at the end of each fiscal quarter of the Company, must be not less than the ratio set forth opposite such period below: Applicable RatioApplicable Period 1.0:1.0 For the three quarter period ending August 31, 20131.0:1.0 For the four quarter period ending on the last day of each November, February, May or August thereafter
The Revolving Loan Agreement contains customary events of default including, among others, non-payment defaults, defaults due to an inaccuracy of representations and warranties, covenant defaults, bankruptcy and insolvency defaults and a change of control default, in each case subject to customary exceptions for a credit facility of this size and type. The occurrence of an event of default could result in an increased interest rate equal to 2.0% above the applicable interest rate for loans, the acceleration of the Company's obligations pursuant to the Revolving Loan Agreement, a termination of the commitments under the Revolving Loan Agreement, an obligation by any guarantors to repay their respective obligations in full and the right of the lenders to exercise remedies with respect to any collateral securing the obligations under the Revolving Loan Agreement. If the Company were unable to obtain a waiver for a breach of covenant and the lenders accelerated the payment of any outstanding amounts, such acceleration may cause the Company's cash position to deteriorate or, if cash on hand were insufficient to satisfy the payment due, may require the Company to obtain alternate financing to satisfy the accelerated payment. If the Company's cash is utilized to repay any outstanding debt, we could experience an immediate and significant reduction in working capital available to operate our business.