BORROWINGS

On August 30, 2010, the Company entered into the Credit Agreement (the “Credit Agreement”) with the financial institutions that are or may from time to time become parties thereto and Bank of America, N.A., as administrative agent for the lenders, and as swing line lender and issuing lender. The Credit Agreement makes available to the Company a revolving credit facility which includes letters of credit and replaces the Company's former facility.

The Credit Agreement is a four-year revolving credit facility, expiring in August 2014, in an amount of up to $90 million, with a sub-facility for letters of credit in an amount not to exceed $25 million. In addition, the Company, at its option, may choose to increase the revolving commitment up to an additional $20 million. The obligations of the Company under the Credit Agreement are secured by (i) a guaranty from certain material direct and indirect domestic subsidiaries of the Company, and (ii) a lien on substantially all of the assets of the Company and such subsidiaries.

The Credit Agreement and related loan documents contain terms and provisions (including representations, covenants and conditions) customary for transactions of this type. The financial covenants include a leverage ratio test (as defined, Total Funded Debt to EBITDA) and an interest coverage ratio test (as defined, EBITDA minus capital expenditures to interest expense). Other covenants include limitations on lines of business, additional indebtedness, liens and negative pledge agreements, incorporation of other debt covenants, guarantees, investments and advances, cancellation of indebtedness, restricted payments, modification of certain agreements and instruments, inconsistent agreements, leases, consolidations, mergers and acquisitions, sale of assets, subsidiary dividends, and transactions with affiliates.

The Credit Agreement also contains customary events of default, including nonpayment of the principal of any loan or letter of credit obligation, interest, fees or other amounts; inaccuracy of representations and warranties; violation of covenants; certain bankruptcy events; cross−defaults to other material obligations and other indebtedness (if any); change of control of events; material judgments; certain ERISA−related events; and the invalidity of the loan documents (including the collateral documents). If an event of default occurs and is continuing under the Credit Agreement, the lenders may terminate their obligations thereunder and may accelerate the payment by the Company and the subsidiary guarantors of all of the obligations due under the Credit Agreement and the other loan documents.

On December 16, 2011, the Company entered into an amendment to the Credit Agreement (the “Amendment”) which included the following terms:


•	A suspension of the leverage ratio test for the quarter ended November 12, 2011;


•	A reduction of the revolving commitment under the Credit Agreement from $105 million to $90 million; and


•	Suspension of dividend and other restricted payments, including share repurchases, until the Company presents evidence of its compliance with its debt covenants.

If the leverage ratio test for the quarter ended November 12, 2011 had not been suspended, the Company would not have been in compliance with this covenant. The current Credit Agreement requires a leverage ratio not to exceed 2.50 to 1.00. As of November 12, 2011, the Company's calculated leverage ratio was 3.10 to 1.00. The Company is currently evaluating long-term financing alternatives, which may include further amendment to the Credit Agreement. Until such time as financing alternatives and/or amendments are formalized, the balance currently outstanding under the revolving credit facility totaling $73.5 million as of November 12, 2011 has been classified as current in the consolidated balance sheet.

As of November 12, 2011, the Company has recorded unamortized prepaid debt fees of approximately $1.4 million pertaining to the Credit Agreement, which will be charged to expense in the fourth quarter in proportion to the decrease in the revolving commitment resulting from the Amendment. Furthermore, the Company incurred costs of approximately $255,000 in connection with the Amendment.

As part of the Company’s former credit facility, the Company had entered into an interest rate swap agreement to manage the interest rate risk on a portion of its term loan. This swap agreement expired on September 17, 2010. The fixed rate gain related to this agreement was $2.0 million for the first three quarters of fiscal year 2010, which is included in Interest expense for such period.