6. Debt

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

6. Debt

The Company has a revolving credit facility with Silicon Valley Bank (“SVB”).  On December 29, 2015, the Company, RELM Communications, Inc., the Company’s wholly-owned subsidiary, and SVB entered into a Fifth Amendment to the Loan and Security Agreement dated as of October 23, 2008, as amended by the First Amendment thereto dated as of October 20, 2010, the Second Amendment thereto dated as of June 22, 2011,  the Third Amendment thereto dated as of December 18, 2012, and the Fourth Amendment thereto dated as of January 28, 2015 (effective as of December 31, 2014) (as amended, the “Loan and Security Agreement”). Under the Fifth Amendment, the existing collaterized revolving credit facility was amended as follows:

●   maximum borrowing availability under the credit facility has been reduced to $2.0 million from $5.0 million;

●   the maturity date has been extended to December 28, 2016;

●   the “Borrowing Base” under the credit facility was removed;

●   the Company’s minimum “Tangible Net Worth” requirement was replaced with a “Total Leverage” requirement of no more than 3.00 to 1.00, to be measured on a trailing twelve month basis; and

●   the variable rate at which borrowings under the credit facility bear interest has been reduced to the prime rate, as in effect from time to time, from the prime rate plus 50 basis points.

The Company continues to be subject to substantially the same customary borrowing terms and conditions under the credit facility as it was prior to the Fifth Amendment, including the accuracy of representations and warranties, compliance with financial maintenance and restrictive covenants and the absence of events of default.

The financial maintenance covenants, required to be maintained at all times and tested quarterly (or, for the “quick ratio” covenant, monthly, if any obligations are outstanding), include: (1) a ratio of “quick assets to current liabilities” minus “deferred revenue” (all as defined in the Loan and Security Agreement) of at least 1.25:1.00 and (2) “maximum total leverage” (as defined in the Loan and Security Agreement) of no greater total indebtedness than 3 times adjusted EBITDA. The Company is permitted to pay cash dividends, the total of which may not exceed $3.5 million in the aggregate during the twelve month period so long as an event of default does not exist at the time of such dividend and would not exist after giving effect to such dividend. The Company’s obligations are collaterized by substantially all of the Company’s assets, principally accounts receivable and inventory.

The Company was in compliance with all covenants under the Loan and Security Agreement, as amended by the Fifth Amendment, as of December 31, 2015.  The Company had no borrowings outstanding under the credit facility as of December 31, 2015, and $2.0 million was available for borrowing.