REVOLVING BANK LOAN AND LONG-TERM DEBT

6 Months Ended

Jul. 02, 2011

REVOLVING BANK LOAN AND LONG-TERM DEBT

REVOLVING BANK LOAN AND LONG-TERM DEBT

9.The Company entered into a Fifth Amendment to the Credit Agreement effective April 14, 2011 in order to extend the maturity date of the revolving credit line portion of the Credit Agreement and to modify certain other terms. The Company was in compliance with all covenants of the amended Credit Agreement at July 2, 2011. The Fifth Amendment provides for the following:

·The Company must maintain a Fixed Charge Coverage Ratio of 1.15 tested quarterly on a trailing twelve months basis commencing with the fiscal quarter ending July 2, 2011.

·The Company must maintain a minimum Tangible Net Worth of $32,000,000 plus 50% of future net income. At July 2, 2011, the Company’s tangible net worth, as defined, was $36,648,000.

·Annual capital expenditures may not exceed $3,500,000.

·The maximum revolving credit facility line will remain at $13,500,000 until January 1, 2012 when it will be reduced to $12,000,000.

·The maturity date of the credit facility is extended to May 1, 2013.

·Performance-based interest rate pricing has been added based upon the Leverage Ratio achieved. The LIBOR borrowing rate ranges from 2.25% to 4.25% over LIBOR, with a LIBOR floor of 1%. The prime or base borrowing rate ranges from 0.25% to 2.0% over prime, with a prime floor of 3%.

·The interest rate swap transaction will remain in effect.

·The term loan principal repayment schedule is revised. The table below reflects the new maturities based on the Fifth Amendment.

·The Company has entered into an agreement to distribute a product currently being developed by a third party. Should the product be successfully developed such that it results in a commercially salable product, the Company, through a newly formed subsidiary, is likely to incur start-up costs and other expenses prior to the realization of revenues by this new business venture. Should such costs and expenses cause the Company to fail to meet the required Fixed Charge Coverage Ratio, the Fifth Amendment allows the Company to cure such default by obtaining unsecured subordinated loans and to include the amount of such subordinated loans (Fixed Charge Cure Amount) in the calculation of the Fixed Charge Coverage Ratio.

Definitions under the Credit Agreement as amended are as follows:

·Tangible Net Worth is defined as net worth plus subordinated debt, minus intangible assets (goodwill, intellectual property, prepaid expenses and deferred charges), minus all obligations owed to the Company or any of its subsidiaries by any affiliate or any or its subsidiaries and minus all loans owed by its officers, stockholders, subsidiaries or employees (Note: there are no loans owed by any of the referenced parties at July 2, 2011 or as of the date of this filing except for a loan of $336,000 to an officer of one of the Company’s subsidiaries made during the first quarter of fiscal 2011in conjunction with his relocation as discussed in Note 7).

·Adjusted EBITDA is defined as net income plus interest, income taxes, depreciation, depletion and amortization plus other non-cash charges approved by the lender.

·Fixed Charge Coverage Ratio is defined as, for any computation period, the ratio of the sum for such period of Adjusted EBITDA, plus the aggregate Fixed Charge Cure Amount, if any, minus the sum of income taxes paid in cash (excluding the aggregate amount of federal income taxes paid with respect to the amendment of the 2009 Federal income tax return to the extent such amount does not exceed $360,000 in the aggregate) and all unfinanced capital expenditures to the sum of interest expense and scheduled principal payments of the term debt under the Credit Agreement.

As of January 1, 2011, the term loan payments under the Fifth Amendment and the amortization of deferred financing fees are scheduled as follows (amounts in thousands):

			Amortization
	Term Loan		of Deferred
	Payments		Financing Fees
2011	$	1,125	$	205
2012	1,375		60
2013	3,035		—
	$	5,535	$	265