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.

Prior to the Second Amendment, the Credit Agreement was a four-year revolving credit facility, expiring in August 2014, with a borrowing amount of up to $105 million and a sub-facility for letters of credit in an amount not to exceed $25 million. The obligations of the Company under the Credit Agreement continue to be 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.

Prior to the amendments discussed below, the revolving loans under the Credit Agreement bore 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 was 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 interest rate spread in the case of LIBOR and Base Rate loans and the payment of the non−use and letter of credit fees was dependent on the Company’s Total Funded Debt to EBITDA ratio, as defined in the Credit Agreement.

On December 16, 2011, the Company entered into an amendment to the Credit Agreement (the "First Amendment") that included 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. 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 April 28, 2012 and February 4, 2012, the Company was not in compliance with several covenants under the Credit Agreement.

The Company has been in active discussions with its lenders to obtain a short-term covenant compliance waiver to cure its existing defaults. On May 23, 2012, the Company entered into a forbearance agreement with its lenders that, among other items, suspended the lenders rights and remedies under the Credit Agreement through July 21, 2012. Based on the Company's default status under the Credit Agreement, the lenders had the right to provide the Company with notice to call the loan. Under the forbearance agreement, that right was relinquished until July 21, 2012 and certain restrictions were placed on the Company during the forbearance period. On June 6, 2012, the Company entered into the Second Amendment to the Credit Agreement (the “Second Amendment”), which waived the existing defaults and terminated the forbearance period.

The Second Amendment provides for revolving commitment limits of $90 million on June 6, 2012, $94.0 million on June 12, 2012, $95.0 million on July 22, 2012, $94.0 million on September 15, 2012, $90.0 million on November 10, 2012 and $85.0 million on December 11, 2012 and thereafter, subject to the Company's satisfaction of certain conditions and covenants. The Credit Agreement, as amended by the Second Amendment, now matures on December 31, 2012 and bears interest at an annual base rate of 3.25% payable in cash on a monthly basis. Additionally, under the Second Amendment, all outstanding revolving loans (including both base-rate loans and LIBOR loans) and all outstanding accumulated and unpaid interest other than the 3.25% cash interest are now defined as Payment in Kind ("PIK") Obligations and accrue interest at a rate of fourteen percent (14%) per annum (“PIK interest”). This PIK interest accrues monthly and is due and payable in full, in cash upon termination of the Credit Agreement. Fifteen business days after the quarters ending July 21, 2012 and November 10, 2012, the amount by which adjusted EBITDA (as defined, net earnings from continuing operations before interest expense, income taxes, depreciation and amortization and other non-cash charges) exceeds ($4.8) million and $1.4 million, respectively, shall be paid in cash to reduce the PIK Obligation. At the end of each week, any cash amounts exceeding $5.0 million must be paid to reduce the revolving loans under the Credit Agreement within two (2) business days. In connection with the Second Amendment, the Company is required to pay to the lenders an amendment fee of $1.8 million, which is payable at maturity.

Other terms of the Second Amendment include, but are not limited to:


•	The Company granted the lenders warrants to purchase an aggregate amount equal to 19.9% of the common stock of the Company, calculated on a fully-diluted basis at the time of exercise. See further discussion in Note 12.


•	The Company is required to engage a CRO acceptable to the lenders.


•	The Company is required to provide financial statements for each 4-week period, weekly 13-week cash flow statements and weekly compliance certificates to the lenders.

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The Company is required to engage an Investment Bank acceptable to the lenders to solicit offers to purchase the Company, and/or the debt outstanding under the Credit Agreement, with a targeted close of December 31, 2012. The Company will also use these resources to explore means of alternative financing. The Second Amendment requires management to develop a plan for an orderly liquidation in the event the Company is unable to execute restructuring alternatives that are acceptable to the lenders.


•	In connection with the Second Amendment, the Company executed amendments to its host agreements with Walmart and Sears. See further discussion in Note 12.


•	The financial covenants included in the Credit Agreement were replaced with:


◦	Minimum Period Cumulative EBITDAR - assigned for each 4 week period for periods five through 11, which totals $5.2 million;


◦	Minimum Weekly Cumulative Gross Sales Revenue - gross sales related to the Sears and Walmart contracts are established on a weekly basis and total $169.8 million for the period May 27, 2012 through January 5, 2013;


◦	Minimum Weekly Cash - not permitted to be less than $2.3 million for any calendar week.

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The Company is required to sell properties in Matthews, North Carolina and St. Louis, Missouri, with net carrying amounts of $2.74 million and $2.69 million respectively at April 28, 2012, prior to September 15, 2012. The processing facility in Charlotte, North Carolina, with a net carrying amount of $2.88 million at April 28, 2012, is required to be marketed for sale. Proceeds from these sales shall be applied to pay down the revolving loans with net proceeds obtained from the sale of the Charlotte, North Carolina facility permanently reducing the borrowing commitment levels. Additionally, the Company is required to transition all of the processing activities currently in Charlotte, North Carolina to the processing facility in St. Louis, Missouri by August 30, 2012.

The Credit Agreement and related loan documents, as amended, contain terms and provisions, including representations, covenants and conditions. The financial covenants are defined above. 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, as amended, 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.

As a result of the Second Amendment, the Company's debt is now due December 31, 2012. Accordingly, borrowings of $76.1 million under the revolving credit facility have been recorded as current liabilities as of April 28, 2012. Borrowings of $74.0 million were recorded as current liabilities as of February 4, 2012 due to non-compliance with several covenants.

As of April 28, 2012, the Company has recorded unamortized prepaid debt fees of approximately $1.0 million pertaining to the Credit Agreement, which are being amortized over the life of the revolving commitment.