Note 9 – Debt

As of September 30, 2015, the Company is in compliance with the financial covenants included in its outstanding indebtedness.

Senior Debt

On May 1, 2014, the Company entered into a loan and security agreement (the “Bank Loan Agreement”) and line of credit note (the “Note”) with Middlesex dated May 1, 2014 pursuant to which it agreed to provide up to $4 million, subject to the availability restrictions described below, under a revolving line of credit loan to the Company for general corporate purposes. The Bank Loan Agreement provides that the loan expires on May 1, 2017, at which time all outstanding principal and unpaid interest shall become due and payable.

The Bank Loan Agreement and the Note are secured by (i) a security interest in substantially all of the Company’s personal property and (ii) sixty-five percent (65%) of Dynasil’s equity interests in its UK subsidiary, Hilger Crystals, Ltd. Under the Note, the borrowing base is determined monthly based on eligible billed and unbilled accounts receivable and eligible inventory. The interest rate under the Note is equal the Prime Rate, but in no event less than 3.25%.

The Bank Loan Agreement also contains other terms, conditions and provisions that are customary for commercial lending transactions of this sort. The Bank Loan Agreement requires Dynasil, at the close of each fiscal quarter, to maintain a Debt Service Coverage ratio, as defined, of at least 1.20 to 1.00 on a trailing four quarter basis.

The Bank Loan Agreement provides for events of default customary for credit facilities of this type, including but not limited to non-payment, defaults on other debt, misrepresentation, breach of covenants, representations and warranties, insolvency and bankruptcy, change of management, as defined and the occurrence of a material adverse change, as defined. As a result of the material adverse change clause, the line of credit is classified as a current liability.

The Bank Loan Agreement was amended on September 29, 2015 to permit the Company to repay up to $3 million of the subordinated debt owed Massachusetts Capital Resources Company (“MCRC”) and also provides for the Company, if it meets certain conditions, to convert up to $2 million of the advances under the line of credit to a fixed rate note with the principal amortizing monthly over a five year term.

Subordinated Debt

On July 31, 2012, the Company entered into a Note Purchase Agreement (the “Agreement”) with Massachusetts Capital Resource Company (“MCRC”). Pursuant to the terms of the Agreement, the Company issued and sold to MCRC a $3,000,000 subordinated note (the “Subordinated Note”) for a purchase price of $3,000,000.

The Subordinated Note initially matured on July 31, 2017, unless accelerated pursuant to an event of default. The Subordinated Note provided for interest at the rate of ten percent (10%) per annum, with interest to be payable monthly on the last day of each calendar month and principal payments of $130,000 beginning on September 30, 2015, and on the last day of each calendar month thereafter through and including July 31, 2017.

Effective October 1, 2015, in connection with a prepayment of $2 million of the Subordinated Note, MCRC agreed to adjust the interest rate to 6% and to amend the principal repayment terms such that beginning on September 30, 2016, the Company will redeem monthly, without premium, $43,478 in principal amount of Subordinated Note together with all accrued and unpaid interest then due on the amount redeemed.

Other Debt

The Company’s Optometrics Corporation subsidiary entered into notes payable with two government entities for up to $500,000 of financing in connection with the purchase of certain equipment. The notes bear interest at 5% to 5.25% and are repayable in monthly installments over a five year period.

The Company’s Xcede joint venture raised $2.0 million through the issuance of convertible notes which bear interest at 5%, due on demand after June 30, 2016. The notes are convertible into equity of Xcede at a 20% discount to the first equity financing of Xcede of at least $3.0 million.

Debt at September 30, 2015 and 2014 is summarized as follows:

	2015		2014
Note payable to Middlesex Savings Bank for revolving line of credit. The note expires May, 2017 at which time all outstanding principal and unpaid interest shall become due and payable. The interest rate is equal to the Prime Rate, but in no event less than 3.25%. The rate at September 30, 2015 was 3.25% and the note is secured by an interest in substantially all of the Company's personal property and sixty-five percent of the Company's equity interests in its UK subsidiary, Hilger Crystals, Ltd.	$	1,455,000	$	2,122,000

Note payable to Town of Ayer Industrial Development Finance Authority (Ayer) for an equipment line of credit made with Dynasil subsidiary Optometrics. The note payable to Ayer is in monthly installments of $16,000 per year and will be amortized over ten years with a balloon payment at five years from the date of the note. The interest rate is 5.00%. The note is secured by an interest in the equipment purchased with the line.		175,000		191,000

Note payable to Massachusetts Development Finance Agency (MBDC) for promissory note made with Dynasil subsidiary Optometrics. The note payable to MBDC is in monthly installments of $6,000 for principal and interest through March, 2019. The interest rate is 5.25%. The note is secured by an interest in substantially all of Optometric's personal property.		237,000		298,000

Convertible notes issued by Xcede, a 90% owned subsidiary, payable on demand after June 30, 2016. The interest rate is 5.00%. The notes are convertible into equity in Xcede upon completion of an equity financing raising $3,000,000, inclusive of the convertible notes and interest.		2,123,000		1,433,000

Subordinated note payable to Masschusetts Capital Resource Corporation in monthly installments of $5,000 through August, 2016 for interest only, followed by monthly payments of interest and principal through July 2018. The interest rate is fixed at 6.00% for the life of the loan.		1,000,000		3,000,000
Total Debt	$	4,990,000	$	7,044,000
Less current portion		(1,577,000)		(2,329,000)
Less convertible notes		(2,123,000)		(1,433,000)
Long term portion	$	1,290,000	$	3,282,000

The aggregate maturities of debt based on the payment terms of the agreement are as follows:

For the years ending on September 30:
2016	$	3,700,000
2017		607,000
2018		524,000
2019		56,000
2020		21,000
Thereafter		82,000
	$	4,990,000