The Loan Facility provides that, from time to time, the Subsidiaries may request advances equal to the lesser of: (a) $2,000,000, or (b) the Borrowing Base which is the sum of and in the following priority (i) 85% of eligible U.S. accounts receivable, plus (ii) 35% of finished goods inventory not to exceed $300,000, plus (iii) 50% of eligible Canadian accounts receivable not to exceed $300,000, subject to any reserve amount established by the Lender. Annual interest on unpaid advances under the Loan Facility is equal to the Prime Rate plus 2.00%, where Prime may not be less than 4.00%, and a monthly loan fee of 0.15% will be payable to the Lender monthly on the daily loan balance. The Loan Facility has an initial term of one year which automatically extends for successive one-year terms unless either party gives at least 30 days' prior written notice of its intent to terminate the Loan Facility at the end of the then current term. The Lender has the right to terminate the Loan Facility upon 120 days' prior written notice.
The Loan Facility contains restrictions on the Subsidiaries' and the Company's ability to, among other things, dispose of certain assets, engage in certain mergers and acquisition transactions and create liens on assets. The Loan Facility contains events of default that include, among other things, default by the Subsidiaries on any payment or other obligations under the Loan Facility, default by the Subsidiaries or the Company on any other indebtedness for borrowed funds, adverse changes in the Subsidiaries' or the Company's business or financial condition, bankruptcy or insolvency, a change of control of the Subsidiaries, default or termination of any material third party agreement, and default by the Company on its obligations as guarantor. The occurrence of an event of default would increase the applicable rate of interest by 3% and could result in the acceleration of the Subsidiaries' obligations under the Loan Facility. The Subsidiaries pai