BORROWINGS

On August 30, 2010, the Company entered into 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 $105 million (amended - see below), with a sub-facility for letters of credit in an amount not to exceed $25 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 revolving loans under the Credit Agreement bear interest, at the Company’s option, at either the London Interbank Offered Rate (“LIBOR”) plus a spread ranging from 2.25% to 3.0%, or an alternative base rate plus a spread range from 1.25% to 2.0%. The alternative base rate is the greater of Bank of America, N.A. prime rate, the Federal Funds rate plus 0.5% or the one month British Bankers’ Association LIBOR plus 1.0% (the “Base Rate”). The Company is also required to pay a non−use fee of 0.4% to 0.5% per annum on the unused portion of the revolving loans and letter of credit fees of 2.25% to 3.0% per annum. The interest rate spread in the case of LIBOR and Base Rate loans and the payment of the non−use and letter of credit fees is dependent on the Company’s Total Funded Debt to EBITDA ratio, as defined in the Credit Agreement. Interest on each Base Rate loan is payable quarterly in arrears and at maturity. Interest on each LIBOR loan is payable on the last day of each Interest Period, as defined in the Credit Agreement, relating to such loan, upon a repayment of such loan and at maturity.

The Credit Agreement and related loan documents contain terms and provisions, including representations, covenants and conditions. 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.

The proceeds of the revolving loans may be used for working capital purposes and general business purposes, for acquisitions permitted under the Credit Agreement, for capital expenditures (including retail store expansions and conversion to digital photography), for refinancing existing debt and to pay dividends and distributions on the Company’s capital securities to the extent permitted thereunder (see below), and to make purchases or redemptions of the Company’s capital securities to the extent permitted thereunder.

On December 16, 2011, the Company entered into an amendment to the Credit Agreement 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. As of February 4, 2012, the Company was not in compliance with both the leverage ratio covenant and the interest coverage ratio covenant, and such noncompliance continues to exist as of May 4, 2012. In light of the existing non-compliance, borrowings of $74.0 million under the revolving credit facility have been recorded as current liabilities as of February 4, 2012. The Company is in active discussions with the lenders to secure additional borrowing capacity under the Credit Agreement and to secure both a short-term financial debt covenant compliance waiver to cure the existing default, as well as further amendments to the Credit Agreement to avoid a subsequent default. There can be no assurances that the lenders will grant such waivers or amendments on commercially reasonable terms, if at all.

Outstanding debt obligations are as follows:



in thousands	February 4, 2012			February 5, 2011

Revolving credit facility	$	74,000		$	48,900
Less: current maturities	(74,000		)	—

Outstanding long-term debt obligations	$	—		$	48,900

As of February 4, 2012, the Company has recorded unamortized prepaid debt fees of approximately $1.1 million pertaining to the Credit Agreement, which are being amortized over the life of the revolving commitment. The Company wrote off approximately $195,000 in unamortized debt fees in the fourth quarter of 2011 as a result of the reduction in revolving commitment under the Amendment. The Company also incurred and recognized costs of $255,000 in connection with the Amendment. These charges are included in Interest expense in the consolidated statement of operations for fiscal year 2011.

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 and $1.5 million for 2010 and 2009, respectively, which is included in Interest expense for those respective periods.