NOTE 7—LONG-TERM DEBT

Long-term debt consists of the following:


	December 31,
	2011			2010
Citizens real estate loan	$	10,703,000		$	11,223,000
Citizens equipment facility		3,586,000			4,586,000

		14,289,000			15,809,000
Less—current portion		(1,520,000	)		(1,520,000	)

	$	12,769,000		$	14,289,000

In June 2007, a $13,000,000 real estate loan was advanced to the Company pursuant to the loan agreement (the "Citizens Loan Agreement") with RBS Citizens, National Association ("Citizens"). The proceeds of this loan were used to finance a portion of the acquisition of an approximate 340,000 square foot manufacturing, office and warehouse facility located in Owatonna, Minnesota. The principal of the Owatonna real estate loan is being retired by eighty three equal monthly payments of $43,000 along with a balloon payment of $9,403,000 at July 2, 2014.

In July 2007, the Company entered into a Loan Agreement (the "Wells Fargo Loan Agreement") with Wells Fargo Bank, NA, formerly named Wachovia Bank, NA ("Wells Fargo"), which was supplemented and modified in March 2008, March 2009 and December 2009. The Wells Fargo Loan Agreement as supplemented and modified provided for three term loans aggregating $7,975,000, the proceeds of which financed the acquisition of machinery and equipment. The Wells Fargo term loans were prepaid in full in June 2010 with the proceeds of the Citizens Equipment Facility. The Wells Fargo term loans were secured by the Company's equipment.

In July 2008, the Company entered into a credit agreement (the "Citizens Credit Agreement") with Citizens, providing for a revolving line of credit of up to the lesser of a ceiling or an amount determined by reference to a borrowing base composed of designated percentages of the Company's eligible accounts receivable and eligible inventory. In addition to working capital loans, the revolving line of credit can also be utilized for letters of credit, and in June 2011, an $8,000,000 letter of credit was issued under the Citizens Credit Agreement to support the stay in the Barnhard product liability suit, which letter of credit was terminated in connection with the 2012 settlement of the litigation (see Note 14).

In March 2012, the Citizens Credit Agreement and Loan Agreement were amended to among other things increase the ceiling to the revolving line of credit to $18,000,000 and provide a $8,122,000 mortgage loan on the Company's Medway facility. This additional borrowing capacity was used to finance a portion of the settlement payments in the Barnhard product liability suit. The principal of the Medway real estate loan is to be retired by sixty equal monthly payments of $45,000 along with a balloon payment of $5,415,000 at March 15, 2017.

Availability under the revolving loan fluctuates daily based on the borrowing base, and is reduced by outstanding letters of credit. At December 31, 2011 and March 15, 2012, the net remaining availability under the revolving line of credit was $2,000,000 and $13,971,000, respectively. The Citizens revolving line of credit is available to July 2, 2013.

In June 2010, the Company entered into a Master Lease Agreement (the "Citizens Equipment Facility") with an affiliate of Citizens, RBS Asset Finance, Inc. (referred to herein as "Citizens"), pursuant to which $4,999,000 of equipment lease financing was advanced. Proceeds of the advance were used to retire in full the Wells Fargo equipment term loans and related obligations. The Citizens Equipment Facility is being retired by 60 equal monthly payments of fixed rent plus interest. While the documentation for this transaction is structured as a lease, the advances under the facility are treated for all purposes as a loan.

The Owatonna real estate loan, the Medway real estate loan and the revolving line of credit are secured by substantially all of the Company's assets. Amounts outstanding under the Citizens Equipment Facility are secured by designated equipment owned by the Company and cross-collateralized by the Company's accounts receivable and inventory.

The Citizens revolving line of credit prior to April 1, 2009 bore interest at a floating rate equal to LIBOR plus 1.25% or the prime rate minus 1%, from April 1, 2009 to June 30, 2009 bore interest at LIBOR plus 2.25%, and from June 30, 2009 to March 15, 2012 bore interest at LIBOR plus 2.5% to 3.0% based on a performance grid. The Citizens Owatonna real estate loan prior to April 1, 2009 bore interest at a floating rate equal to LIBOR plus 1.2% per annum, from April 1, 2009 to June 30, 2009 bore interest at LIBOR plus 2.25%, and from June 30, 2009 to March 15, 2012 bore interest at LIBOR plus 2.5% to 3.0% based on a performance grid. From March 15, 2012, the Citizens Owatonna real estate loan and Medway real estate loan bear interest at LIBOR plus 2.5% and the Citizens revolving line of credit bears interest at LIBOR plus 2.0% to 3.75% based on a performance grid. The Citizens Equipment Facility bears interest at a floating rate equal to LIBOR plus 3%. The Wells Fargo initial and second term loans prior to April 1, 2009 bore interest at LIBOR plus 1.2% to 1.45% based on a performance grid and from April 1, 2009 to June 30, 2009 these loans bore interest at LIBOR plus 2.25%. The third Wells Fargo term loan prior to June 30, 2009 bore interest at LIBOR plus 2.25%. After June 30, 2009, each Wells Fargo term loan bore interest at LIBOR plus 3.5%. LIBOR was .30% at December 31, 2011.

There were no revolving loans outstanding during 2011 and 2010. The average outstanding revolving loan balance during 2009 was $859,000 and the weighted average interest rate was 1.77%. Interest expense on the revolving line of credit, including an unused availability fee on the revolving loans, was $13,000, $25,000, and $50,000 for the years ended December 31, 2011, 2010, and 2009, respectively. Interest expense on the Wells Fargo term loans, which were retired at the end of the second quarter 2010, was $219,000 and $332,000 for the years ended December 31, 2010 and 2009, respectively. Interest expense on the Citizens Owatonna real estate loan, including interest rate swap payments, was $911,000, $973,000 and $963,000 for the years ended December 31, 2011, 2010, and 2009, respectively. Interest expense on the Citizens Equipment Facility, which was advanced at the end of the second quarter 2010, was $132,000 and $87,000 for the years ended December 31, 2011 and 2010, respectively.

The Company's credit facilities require the Company to maintain various financial covenants. The Company failed to meet certain of these covenants at the end of the first and second quarters of 2009, which failures were waived by the lenders. In connection with these waivers, the Company entered into amendments to its credit facilities. The Wells Fargo amendments increased the interest rate on the term loans, modified the financial covenants, and increased the collateral for the term loans to include all of the Company's equipment. The Citizens amendments increased the interest rate on the credit facilities, cross-collateralized the Citizens credit facilities, reduced the ceiling and modified the borrowing base calculation for the revolving line of credit, and amended the financial and certain other covenants contained in the credit facilities. In June 2010, the Company, coincident with entering into the Citizens Equipment Facility, entered into a further amendment with Citizens, modifying a financial covenant in the Citizens Loan Agreement and Credit Agreement. In March 2011, the parties entered into amendments to the Citizens credit facilities which further modified the financial covenants, thereby permitting the Company to remain in compliance with them as of December 31, 2010 and to date. While there can be no assurance, the Company believes that it will remain in compliance with its financing agreements for at least the next 12 months.

The Company's credit agreements contain cross default provisions to each other.

At December 31, 2011 long-term debt maturities are as follows (prior to the March 2012 borrowings to partially fund the Barnhard product liability settlement):


2012	$	1,520,000
2013		1,520,000
2014		10,663,000
2015		586,000
2016		—

	$	14,289,000