Note 5. Current Liabilities and Debt Obligations

Accounts Payable and Other Accrued Payables

As of March 31, 2016 and December 31, 2015, the accounts payable and other accrued payables consisted of $9.4 million and $9.3 million, respectively, in trade account payables and $2.2 million and $3.4 million, respectively, in accrued payables.

Senior Revolving Credit Facility

The Facility has various covenants that may, among other things, affect our ability to merge with another entity, sell or transfer certain assets, pay dividends and make other distributions beyond certain limitations. The Facility contains financial covenants including minimum EBITDA, minimum recurring revenue and a limit on capital expenditures.

On March 27, 2014, we amended our revolving credit facility (the "Facility") with Wells Fargo Capital Finance, LLC ("Wells Fargo") to amend the terms of the Facility with respect to repayment on the term loan component. Since 2010, the principal of the term loan component had been repaid in quarterly installments of $93,750. The amended Facility required quarterly installment payments of $250,000 beginning July 1, 2014, with a final installment of the unpaid principal amount payable on the maturity date of the amended Facility.

On March 31, 2015, the Facility was amended ("the Twelfth Amendment") to extend the maturity date to April 1, 2016. The Twelfth Amendment also amended the terms of the Facility, reducing the total credit available from $30 million to $20 million, and reducing the letter of credit sub-line limit from $5 million to $1 million. The reduced limits under the Facility more appropriately reflected the Company's projected utilization of the Facility. The Twelfth Amendment required quarterly installment payments of $350,000 beginning April 1, 2015, and extended the maturity date to April 1, 2016. The Twelfth Amendment established EBITDA and recurring revenue covenants, amending and restating in the entirety previously established financial covenants. The Twelfth Amendment authorized the issuance of $5 million in subordinated notes to affiliated entities of John R.C. Porter ("Porter Notes"), a holder of Telos Class A Common Stock and Senior Redeemable Preferred Stock. The Twelfth Amendment also established a minimum excess availability requirement under the revolving component of $1.25 million and allowed for the payment of interest under the Porter Notes, subject to separate subordination agreements. In consideration for the closing of the Twelfth Amendment, we paid Wells Fargo a fee of $150,000, plus expenses related to the closing.

Prior to the Twelfth Amendment, the interest rate on the term loan component was the same as that on the revolving credit component of the Facility, which was the higher of the Wells Fargo Bank "prime rate" plus 1%, the Federal Funds rate plus 1.5%, or the 3-month LIBOR rate plus 2%. In lieu of having interest charged at the foregoing rates, the Company could have elected to have the interest on all or a portion of the advances on the revolving credit component be a rate based on the LIBOR Rate (as defined in the Facility) plus 3.75%. The Twelfth Amendment also amended the interest rate on the components of the Facility. The Twelfth Amendment established two tiers of interest rate pricing based upon the Company's performance compared to projections provided to Wells Fargo for 2015. The first tier interest rate pricing was effective as of the date of the amendment and is the higher of the Wells Fargo Bank "prime rate" plus 2.25%, the Federal Funds rate plus 2.75%, or the 3-month LIBOR rate plus 3.25%. In lieu of having interest charged at the foregoing rates, the Company may elect to have the interest on all or a portion of the advances on the revolving credit component be a rate based on the LIBOR Rate plus 5%. Upon receipt by Wells Fargo of our quarterly financial statements, starting with the June 2015 financials, pricing is redetermined based on the Company's performance compared to plan. Failure to meet or exceed plan EBITDA for each quarter (as defined by the Facility) would result in the first tier rates remaining in effect until the quarter-end reflecting plan achievement. Assuming plan achievement, which was the case for the quarter ended June 30, 2015, the second tier interest rate pricing becomes effective, which is the higher of the Wells Fargo Bank "prime rate" plus 1%, the Federal Funds rate plus 1.5%, or the 3-month LIBOR rate plus 2%. In lieu of having interest charged at the foregoing rates, the Company may elect to have the interest on all or a portion of the advances on the revolving credit component be a rate based on the LIBOR Rate plus 3.75%. As of March 31, 2016, we had not elected the LIBOR Rate option. Borrowings under the Facility are collateralized by substantially all of the Company's assets including inventory, equipment, and accounts receivable.

On August 12, 2015, the Facility was amended to extend the maturity date to July 1, 2016. On November 17, 2015, the Facility was amended to extend the maturity date to October 1, 2016, and the EBITDA covenant for the period ending September 30, 2015 was reset to more accurately reflect the Company's revised estimates of operating results. On February 19, 2016, the Facility was amended, effective February 15, 2016, and the EBITDA covenant for the period ending December 31, 2015 was revised to more accurately reflect the Company's estimates of operating results. As of March 31, 2016, we were in compliance with the Facility's financial covenants, including EBITDA covenants.

On March 30, 2016 the Facility was amended ("the Seventeenth Amendment") to extend the maturity date to January 1, 2017. The Seventeenth Amendment also amends the terms of the Facility, reducing the total credit available from $20 million to $10 million effective as of the date of the amendment, which more appropriately reflect the Company's projected utilization of the Facility. The Seventeenth Amendment sets the quarterly EBITDA covenants to more accurately reflect the Company's current operating budget. All other financial covenants remain unchanged. The Seventeenth Amendment eliminates the bottom tier of pricing established in the Twelfth Amendment, fixing the interest rate at the higher of the Wells Fargo Bank "prime rate" plus 2.25%, the Federal Funds rate plus 2.75%, or the 3-month LIBOR rate plus 3.25%. The Seventeenth Amendment also increases the minimum excess availability requirement under the revolving component from $1.25 million to $2.0 million, effective as of the date of the amendment, and increases the requirement to $2.5 million, effective July 1, 2016, and $3.0 million, effective November 1, 2016, if the Company does not receive $5 million of equity or subordinated debt investment by June 1, 2016. If such capital investment is not received by June 1, 2016, we would pay a fee of $100,000 to Wells Fargo. In consideration for the closing of the Seventeenth Amendment, we paid Wells Fargo a fee of $100,000, plus expenses related to the closing.

On May 16, 2016, the Facility was amended to extend the maturity date to April 1, 2017.

As of March 31, 2016, the interest rate on the Facility was 5.75%. We incurred interest expense in the amount of $0.1 million for each of the three months ended March 31, 2016 and 2015, on the Facility.

At March 31, 2016, we had outstanding borrowings of $5.1 million on the Facility, which included the $2.9 million term loan, of which $1.4 million was short-term. At December 31, 2015, we had outstanding borrowings of $8.5 million on the Facility, which included the $3.2 million term loan, of which $1.4 million was short-term. At March 31, 2016 and December 31, 2015, we had unused borrowing availability on the Facility of $5.8 million. The effective weighted average interest rates on the outstanding borrowings under the Facility were 8.3% and 6.7% for the three months ended March 31, 2016 and 2015, respectively.

The following are maturities of the Facility presented by year (in thousands):

	2016		2017		Total
Short-term:
Term loan	$	1,400	$	--	$	1,400	¹
Long-term:
Term loan	$	--	$	1,450	$	1,450	¹
Revolving credit		--		2,224		2,224	²
Subtotal	$	--	$	3,674	$	3,674
Total	$	1,400	$	3,674	$	5,074

The principal will be repaid in quarterly installments of $350,000, with a final installment of the unpaid principal amount payable on April 1, 2017.

Balance due represents balance as of March 31, 2016, with fluctuating balances based on working capital requirements of the Company.

Subordinated Debt

On March 31, 2015, the Company entered into Subordinated Loan Agreements and Subordinated Promissory Notes ("Porter Notes") with affiliated entities of Mr. John R. C. Porter (together referenced as "Porter"). Mr. Porter and Toxford Corporation, of which Mr. Porter is the sole shareholder, own 39.3% of our Class A Common Stock. Under the terms of the Porter Notes, Porter lent the Company $2.5 million on or about March 31, 2015. Telos also entered into Subordination and Intercreditor Agreements (the "Subordination Agreements") with Porter and Wells Fargo, in which the Porter Notes are fully subordinated to the Facility and payments under the Porter Notes are permitted only if certain conditions specified by Wells Fargo are met. According to the terms of the Porter Notes, the outstanding principal sum bears interest at the fixed rate of twelve percent (12%) per annum which would be payable in arrears in cash on the 20th day of each May, August, November and February, with the first interest payment date due on August 20, 2015. The Porter Notes do not call for amortization payments and are unsecured. The unpaid principal, together with interest, is due and payable in full on July 1, 2017. The Porter Notes, in whole or in part, may be repaid at any time without premium or penalty. We incurred interest expense in the amount of $75,000 for the three months ended March 31, 2016 on the Porter Notes. In accordance with the terms of the Porter Notes, interest has been accrued but was not paid due to restrictions on the payment of interest in the Subordination Agreements, and is not expected to be paid in the near term.