(8)

Notes Payable

The components of notes payable at December 31, 2011 and 2010 are as follows:


	2011			2010
	(In thousands)
Revolving credit agreement	$	5,000		$	4,000
Capital lease obligation (Note 9)		211			365
Other short-term note payable		—			50

Total notes payable		5,211			4,415
Less current portion of capital lease obligation and short-term note		(154	)		(194	)

Non-current notes payable	$	5,057		$	4,221

Revolving Credit Agreement

The Company entered into a credit agreement with JP Morgan Chase Bank, N.A. ("Chase") in October 2007. The credit agreement has a maturity on July 1, 2013. At December 31, 2011, and 2010 there were $5.0 million and $4.0 million of borrowings outstanding and at December 31, 2011, there was additional borrowing capacity of $3.7 million. The revolving credit line is $10.0 million with a limit of up to $6.0 million of borrowing in the event that "adjusted net income" is less than $1.00 for any quarter ("Line Limit"). Adjusted net income is defined as domestic operating income plus depreciation and amortization. The agreement is collateralized by the Company's real estate in Houston and Beaumont, Texas, trade accounts receivable, equipment, inventories, and work-in-process, and the Company's U.S. subsidiaries are guarantors of the borrowings. Under the agreement, the Company pays a commitment fee of 0.3% of the unused portion of the credit limit each quarter. Additionally, the terms of the agreement contain covenants which provide for customary restrictions and limitations, the maintenance of certain financial ratios, including maintenance of a minimum current ratio, leverage ratio and tangible net worth and restriction from paying dividends without prior written consent of the bank. On July 27, 2011, the Company amended its interest rate on the Company borrowings to 30 day LIBOR rate (0.28% at December 31, 2011) plus 3.25% per annum. Prior to July 27, 2011, the interest rate on the Company's borrowings was 30 day LIBOR rate (0.26% at December 31, 2010) plus 2.75% per year.

At December 31, 2011, the Company's tangible net worth was $7.88 million, the current ratio was 1.99 times and the leverage ratio was 2.06 times all of which were unfavorably impacted by an increase in customer deposits and the recording of the $5.4 million deferred tax asset valuation allowance giving rise to a net deferred tax liability of $2.3 million on the face of the Company's Consolidated Balance Sheet. Therefore, on March 28, 2012, the Company amended its agreement with Chase with an effective date of December 31, 2011. In this amendment, Chase modified its covenants to a minimum tangible net worth of $7.130 million and to remain at this level until the earlier to occur of 1) a step up in the minimum tangible net worth of 80% of any equity or capital raise or 2) a step up of an incremental $1.0 million as of December 31, 2012. Additionally, the current ratio was modified from a minimum 2.0 times to 1.50 times at December 2011 and then increase back to 2.0 times at June 30, 2012. The leverage ratio was modified from a maximum of 2.0 times to 2.75 times and then reduces back to 2.0 times at June 30, 2012. In the definition of total liabilities per the agreement, the deferred tax liability may be excluded; however, such exclusion has certain exceptions.

At December 31, 2010 the minimum tangible net worth, as defined in the agreement, was $11.35 million; however, the Company's tangible net worth was approximately $11.2 million. Therefore, on March 28, 2011, the Company amended its revolving credit agreement with Chase, with an effective date of December 31, 2010. The amendment lowered the minimum required tangible net worth to $10.0 million (from $11.35 million) and increased the Line Limit to $6.0 million (from $4.0 million). The revised agreement included the Company's real estate in Houston and Beaumont, Texas as additional collateral for borrowings under the line.

Effective July 1, 2010, the Company amended its agreement with Chase with a revolving credit line not to exceed the lesser of $10.0 million or the sum of (i) 80% of eligible accounts receivable and (ii) 40% of the eligible inventory up to an amount not to exceed $1.0 million, less (iii) $75,000. In addition, the interest rate on borrowings under the agreement was amended, increasing the rate from the 30 day LIBOR rate plus 2.25% to the 30 day LIBOR rate plus 2.75%.