4.        Debt and capital leases

(a) Revolving credit facility   

The Company borrows money under a Revolving Credit and Security Agreement with PNC Bank, National Association and its Canadian branch (collectively, “PNC”). This revolving credit facility (the “PNC Facility”) had an original term of three years, but on April 7, 2014 an amendment to the PNC Facility was signed and the term of the PNC facility was extended to January 2, 2015. The term debt facility with Export Development Canada (“EDC”, and the “EDC Facility”) was fully paid on October 1, 2013. Advances made under the U.S. revolving PNC Facility bear interest at the U.S. base rate plus 1.75%. Advances made under the Canadian revolving PNC Facility denominated in Canadian dollars bear interest at the Canadian base rate plus 1.75%. For advances made under the Canadian facility denominated in U.S. dollars, interest will be charged at the U.S. base rate plus 1.75%. The base commercial lending rate of each respective country of borrowing should approximate prime rate.

At December 29, 2013, $20,222 (December 30, 2012 - $12,896) was outstanding under the PNC Facility and is classified as a current liability based on the terms of the PNC Facility. At December 29, 2013, there was a Canadian dollar denominated debit balance of $618. At December 30, 2012, there was a Canadian dollar denominated debt balance of $1,245.

The maximum amount of funds available under the PNC Facility was reduced from $45 million to $40 million subsequent to December 29, 2013 as part of the April 7, 2014 amendment to the loan facility. Availability under the revolving credit facility is subject to certain conditions, including borrowing base conditions based on the eligible inventory and accounts receivable, and certain conditions which are not objectively determinable. The Company is required to use a “lock-box” arrangement for the PNC Facility, whereby remittances from customers are swept daily to reduce the borrowings under the revolving credit facility.

The PNC Facility is jointly and severally guaranteed by the Company and secured by the assets and capital stock of each of the Company’s subsidiaries and its future subsidiaries.

The PNC agreement contains certain financial and non-financial covenants (note 4(c)).

(b) Term facility 

The following table shows the classification of the term facility as at:

The term debt facility with Export Development Canada (“EDC”, and the “EDC Facility”) was fully paid on October 1, 2013.

(c) Covenants 

The PNC agreement contains certain financial and non-financial covenants.

The Company violated a financial covenant included in the PNC agreement as of December 29, 2013.  Subsequent to December 29, 2013, the Company secured a waiver from PNC covering the event of default. In addition, the Company and PNC have amended the lending agreement.

Under the amended PNC Facility, the financial covenants require the Company to maintain minimum amounts of earnings before interest, taxes and depreciation and amortization, limit unfunded capital expenditures and maintain a minimum fixed charge coverage ratio (all as defined in the PNC agreement).  The financial covenant relating to maintaining a minimum amount of earnings before interest, taxes and depreciation and amortization is only in effect for the fiscal quarter ending June 29, 2014.  The financial covenant relating to a minimum fixed charge coverage ratio is in effect for the fiscal quarter ending September 28, 2014 and the six months ending December 28, 2014.  Market conditions have been difficult to predict and there is no assurance that the Company will achieve its forecasts. A failure to comply with the covenants could result in an event of default. If an event of default occurs and is not cured or waived, it could result in all amounts outstanding, together with accrued interest, becoming immediately due and payable.

(e) Obligations under capital leases 

Minimum lease payments for capital leases due within each of the next three years consist of the following: