6. Debt

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

6. Debt

The Company has a revolving credit facility with Silicon Valley Bank (“SVB”). Effective as of December 28, 2016, the Company, RELM Communications, Inc., the Company’s wholly-owned subsidiary, and SVB entered into a Sixth 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, the Fourth Amendment thereto dated as of January 28, 2015 (effective as of December 31, 2014) (as amended, the “Loan and Security Agreement”), and the Fifth Amendment thereto dated as of December 29, 2015. The Loan and Security Agreement, as amended, governing the revolving credit facility contains customary borrowing terms and conditions, including the accuracy of representations and warranties, compliance with financial maintenance and restrictive covenants and the absence of events of default. Under the Sixth Amendment, the existing collateralized revolving credit facility was amended as follows:

● maximum borrowing availability was reduced from $2.0 million to $1.0 million;

● the Company is permitted to pay cash dividends, the total of which may not exceed $5.0 million in the aggregate during any 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 variable rate at which borrowings under the credit facility bear interest has been changed from the Silicon Valley Bank prime rate (4.00% as of December 31, 2015) to the Wall Street Journal prime rate plus 25 basis points (4.00% as of December 31, 2016); and

● the maturity date was extended to December 27, 2017.

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’s obligations are collateralized 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, as of December 31, 2016. The Company had no borrowings outstanding under the credit facility as of December 31, 2016, and $1.0 million was available for borrowing.