Note 7 –Debt

Long-term debt consisted of the following as of December 31:

	2011			2010
First mortgage note payable due in monthly installments of $23 including interest at 5.75% through January 1, 2024; payment and rate subject to adjustment every 3 years, next adjustment January 14, 2013	$	2,407		$	2,529

Second mortgage note payable due in monthly installments of $4 including interest at 5.75% through October 1, 2028; payment and rate subject to adjustment every 5 years, next adjustment October 1, 2013		456			470

Revolving credit note payable, interest at Wall Street Journal Prime Rate of 3.25%		-			500

Sale/leaseback financing		2,428			2,451
Total debt		5,291			5,950
Current portion of long-term debt		(155	)		(648	)
Long-term debt, net of current portion	$	5,136		$	5,302

Principal maturities on total debt are scheduled to occur in the following years:

2012	$	155
2013		165
2014		2,603
2015		186
2016		196
Thereafter		1,986
Total debt	$	5,291

Mortgage Notes

The first mortgage note payable represents the balance on a $3,200 note (“First Mortgage Note”) issued on January 14, 2004 by Spitz. The First Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On each third anniversary of the First Mortgage Note, the interest rate is adjusted to the greater of 5.75% or 3% over the Three-Year Constant Maturity Treasury Rate published by the United States Federal Reserve (“3YCMT”). The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance as of the date of the change in the interest rate over the remaining portion of the original 20-year term. On January 14, 2010, the 3YCMT was 1.49% and the interest rate on the First Mortgage Note adjusted to 5.75% per annum. As a result of the interest rate adjustment, the monthly installment amount was changed from $26 to $23.

The second mortgage note payable represents the balance on a $500 note (“Second Mortgage Note”) issued on September 11, 2008 by Spitz. The Second Mortgage Note requires repayment in monthly installments of principal and interest over 20 years. On each fifth anniversary of the Second Mortgage Note, the interest rate is adjusted to the greater of 5.75% or 3% over 3YCMT. The monthly installment is recalculated on the first month following a change in the interest rate. The recalculated monthly installment is equal to the monthly installment sufficient to repay the principal balance, as of the date of the change in the interest rate, over the remaining portion of the original 20-year term. The monthly installment for the first 5 years is $4 and includes interest at 5.75% per annum.

The Mortgage Notes are secured by the real property occupied by Spitz pursuant to a Mortgage and Security Agreement. The real property had a carrying value of $4,627 as of December 31, 2011. The Mortgage Notes are guaranteed by E&S.

Line of Credit

The Company is a party to a Credit Agreement with a commercial bank which permits borrowings of up to $1,100 to fund Spitz working capital requirements. Interest is charged on amounts borrowed at the Wall Street Journal Prime Rate. Borrowings under the Credit Agreement are secured by Spitz real and personal property and all of the outstanding shares of Spitz common stock. The Credit Agreement and Mortgage Notes contain cross default provisions whereby the default of either agreement will result in the default of both agreements. The Credit Agreement has no fixed term or maturity date but can be terminated by the bank at any time whereby any borrowings under the Credit Agreement are payable upon demand by the bank. The weighted average balance for borrowings outstanding under the Credit Agreement was $342 for 2010 and the weighted average interest rate charged on borrowings outstanding under the Credit Agreement was 3.25% for 2010. There were no borrowings outstanding under the Credit Agreement during 2011.

Sale/Leaseback Financing

In November 2009, the Company completed a purchase agreement with a buyer, Wasatch Research Park I, LLC (“Wasatch”) to sell its corporate office buildings and its interest in the lease for the land occupied by the buildings in Utah for $2,500. Under the agreement, E&S transferred legal title of the buildings including improvements and assigned the related land lease to Wasatch. E&S also entered into a sublease agreement to lease back the land and building for rent of $501 per year, of which $126 represents the land lease and $375 represents the building lease. The sublease agreement has a term of 5 years with an option for two subsequent 5 year renewal periods. The agreement provided the Company with a 5-year option to repurchase all of the buildings under lease or only one of the buildings known as the Substation along with the lease interest in the land. In 2011, Rocky Mountain Power (“RMP”), a public utility company, obtained a decree of condemnation of the Substation so that RMP may repurpose the Substation for public use (see Note 12). As such the Company no longer has the option to buy the Substation.

The repurchase price for the buildings excluding the Substation for the remaining term of the repurchase option is as follows:

Date
From:	To:		Repurchase price:
November 1, 2011		October 31, 2012	$	2,579
November 1, 2012		October 31, 2013	$	2,837
November 1, 2013		October 31, 2014	$	3,120

The arrangement was accounted for as a financing and no sale was recorded because the Company has the right to repurchase the property. Therefore, the assets representing the building and improvements remain in property, plant and equipment and the Company recorded the net proceeds of the sale as long-term debt. The $126 portion of the sublease payment attributable to the land lease is equivalent to the payment under the assigned land lease and therefore is subject to the same rent escalations the Company was bound to before the assignment. The land lease portion of the sublease payment is recorded as rent expense consistent with the treatment of the prior land lease payment before the assignment of the lease. The $375 portion of the sublease agreement attributable to the building lease is accounted for as debt service under the financing transaction. The net proceeds of the financing amounted to $2,329 consisting of the $2,500 sales price less a security deposit of $125, prorated building rent of $15 and the first monthly payment of $31. E&S records interest expense at a rate of approximately 20% imputed from the estimated cash flows assuming it exercises the option to repurchase the property at the end of the 5-year term. In the event that E&S exercises the option to repurchase the property sooner than the end of the 5-year term, the difference between the book balance of the debt and the repurchase cost would be recorded as a prepayment premium or discount on the payoff of the debt balance. The cash payment required to repurchase the property on December 31, 2011 was $2,454 consisting of $2,579 repurchase price under the agreement less a credit for the $125 security deposit. Accordingly, if the Company had exercised its option to repurchase the property on December 31, 2011, it would have recorded a prepayment premium of approximately 1% in the amount of $26 over the $2,428 book balance of the debt.