Note 11 – Junior Subordinated Debentures and Senior Debt

On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures in a private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks. The Debentures matured on March 17, 2014 and interest is payable quarterly at a rate per annum equal to the 3-month LIBOR plus 2.54%. The interest rate is determined as of each March 17, June 17, September 17, and December 17, and was 2.78% at December 31, 2013. The Company stopped paying interest on the Debentures in September 2010 and the accrued interest on the Debentures was $656 thousand as of December 31, 2013. Under the Order applicable to the Company discussed in Note 2, the Company is not permitted to make payments on its debt without prior notice to and receipt of written notice of non-objection from the FRB. In addition, under the terms of the Debentures, the Company is not allowed to make payments on the Debentures if the Company is in default on any of its senior indebtedness, which term includes the senior line of credit described below. Subsequent to the end of 2013 the Company submitted a proposal to the trustee for the trust that holds the Debentures to extend the maturity of the Debentures to March 17, 2024 in return for paying all accrued interest on the Debentures and up to $900 thousand, or 15%, of the principal at face value. This proposal was approved by the requisite holders of senior securities of the trust on February 28, 2014, subject to several conditions, including approval by the Company's regulators and senior lender, raising at least $6 million of additional equity capital that will be used in part to make the proposed payments of accrued interest and principal and preparation of a suitable supplemental indenture providing for the modifications to the terms of the Debentures and other applicable documentation. There is no assurance that the Company will be successful in raising the necessary additional capital, obtaining approvals from its regulators and senior lender and satisfying the other conditions to completion of the proposal.

On February 28, 2010, the Company borrowed an aggregate of $5.0 million under its $5.0 million line of credit with another financial institution, and invested all of the proceeds in the equity capital of the Bank. Pursuant to a directive from the FRB and subsequently the Order applicable to the Company discussed in Note 2, the Company has not been permitted to make principal or interest payments on this senior debt since June 2010. The line of credit matured at the end of July 2010, but was not repaid and remains in default. As part of the Recapitalization that closed in August 2013, the Company exchanged 2,575 shares of Series F Common Stock Equivalents with an agreed upon value of $2.6 million for $2.6 million principal amount of this line of credit. In addition, the lender forgave all of the accrued interest, totaling $1.8 million, on the entire amount of the line of credit as of the date of the exchange and modified the terms of the remaining principal amount of $2.4 million. The modified terms for the remaining loan include, among others items, an extension of the maturity of the line of credit to February 22, 2019. In addition the interest rate on the remaining loan has been increased to the Wall Street Journal Prime Rate plus 2%, with a floor (minimum) rate of 6%, from the original loan interest rate of the Wall Street Journal Prime Rate plus 1%, with a floor rate of 6%. As part of the modification, the Default Rate Margin of 5% has been forgiven. Borrowings under this line of credit continue to be secured by 100% of the Company's investment in the Bank.

Required principal payments over the next five years are as follows:

	Amount

	(In thousands)
2014	$	-
2015		458
2016		581
2017		617
2018		656
Thereafter		113


	$	2,425

The repayment schedule specifies six quarterly payments of interest only beginning three months following the closing of the Recapitalization, followed by 48 fully amortizing equal monthly payments of principal and interest on the loan beginning 19 months after the closing of the Recapitalization; provided, that each payment on the loan must receive prior approval from the FRB. Failure to make such any payment due to an inability to obtain such approval despite the exercise by the Company of required efforts to obtain such approval will not constitute an event of default under the revised loan terms.

In accordance with Accounting Standards Codification ("ASC") 470-60 – Troubled Debt Restructurings by Debtors, $1.2 million of the forgiven interest has been recorded as a gain on restructuring in the income statement for the year 2013, and the balance of the forgiven interest ($535 thousand) has been added to the principal balance of the line of credit that remains outstanding after consummation of the Recapitalization. Furthermore, any future payments made on the remaining loan amount pursuant to the modified terms shall be applied to the carrying amount of the loan payable, and no interest expense will be recorded on the modified loan between the date that it was restructured (i.e., the closing of the Recapitalization) and the new maturity of the modified loan provided that the floating rate on the remaining modified loan does not exceed the floor of 6%. As of December 31, 2013, the remaining unamortized deferred gain on restructuring was $498 thousand.