Note 6—Credit Agreement

On October 31, 2009, the Company entered into a credit agreement with Silicon Valley Bank, which was most recently amended on May 14, 2012 (as amended, the “Credit Agreement”). Currently, the Credit Agreement provides that the Company can borrow up to the lesser of (i) 80% of eligible accounts receivable, or (ii) $10.0 million. The Company has the option to increase credit availability to $15.0 million at any time through the maturity date of September 30, 2014, subject to the conditions of the Credit Agreement.

September 2010 amendment to the Credit Agreement, Silicon Valley Bank extended a $1.5 million term loan under the Credit Agreement, bearing interest at a rate of prime plus 2.00%. The Company was required to make monthly principal payments of $41,666 over the 36 month term of the loan, or $0.5 million annually. In May 2011, Silicon Valley Bank extended an additional $3.0 million term loan, bearing interest at a rate of prime plus 2.75%. The Company was required to make monthly principal payments of $125,000 over the 24 month term of the loan, or $1.5 million annually. In May 2012, Silicon Valley Bank consolidated both term loans and extended additional credit, resulting in a combined balance of $3.5 million (the “Consolidated Term Loan”). The Consolidated Term Loan is payable in 36 installments of $97,222, beginning December 2012, and bears interest at a rate of prime plus 2.50%. Interest is payable monthly from the date of funding through final payoff of the loan.

Prior to the May 2012 amendment, the Credit Agreement contained an overall sublimit of $10.0 million to collateralize the Company’s contingent obligations under letters of credit and other financial services. Amounts outstanding under the overall sublimit reduced the amount available pursuant to the Credit Agreement. As a result of the May 2012 amendment, letters of credit and other financial services are no longer subject to borrowing base sublimits and do not reduce the amount that may be borrowed under the revolving line of credit. Rather the Company has an additional credit facility for up to $3.0 million in letters of credit through September 30, 2014. At March 30, 2013, letters of credit in the amount of $2.0 million were outstanding.

The following table presents details of interest expense related to borrowings on the lines of credit, along with certain other applicable information (in thousands):



	Three Months Ended
		March 30,		March 31,
		2013		2012

Interest expense	$	67	$	23

The following table presents details of the Company’s outstanding borrowings and availability under our line of credit:


		March 30,		December 29,
		2013		2012
Availability under the revolving line of credit	$	261	$	1,486
Outstanding borrowings on the revolving line of credit		-		-
Amounts reserved under credit sublimits		-		-
(Over-utilized) unutilized borrowing availability under the revolving line of credit	$	261	$	1,486

All obligations under the Credit Agreement are secured by a first priority lien on the Company’s tangible and intangible assets. The Credit Agreement subjects the Company to certain affirmative and negative covenants, including financial covenants with respect to the Company’s liquidity and tangible net worth and restrictions on the payment of dividends. As of March 30, 2013 and December 29, 2012, the Company was in violation of the tangible net worth covenant but remained in compliance with the quick ratio covenant.

On January 23, 2013, the Company entered into a Forbearance Agreement with Silicon Valley Bank (the “Forbearance Agreement”), pursuant to which Silicon Valley Bank agreed to forbear from filing any legal action or instituting or enforcing any rights and remedies it may have against the Company as a result of its violation of the financial covenants until February 28. 2013. On March 27, 2013, the effectiveness of the Forbearance Agreement was extended until April 30, 2013. The Company is in the process of working with the Bank to extend the forbearance period through June 30, 2013. As a result of the Company’s non-compliance with a loan covenant and in accordance with relevant accounting guidance, the Company reclassified the long-term portion of the Consolidated Term Loan to current portion of debt in the accompanying consolidated balance sheet as of March 30, 2013 and December 29, 2012. The Company is currently working with Silicon Valley Bank to obtain a waiver of such non-compliance.

Pursuant to the Forbearance Agreement, the principal amount outstanding under the revolving line shall accrue interest at a per annum rate equal to the following (i) at all times that a Streamline Period (as defined) is an effect, 1.75% above the Prime Rate; and (ii) at all times that a Streamline Period (as defined) is not in effect, 2.75% above the Prime Rate; which interest shall be payable monthly. In addition, the reserve on the revolving line increased to $2 million thereby limiting the borrowing availability further. The Credit Agreement requires payment of an unused line fee, as well as anniversary and early termination fees, as applicable.

Pursuant to the Forbearance Agreement, the principal amount outstanding under the term loan accrues interest, which is payable monthly, at a per annum rate equal to 3.25% above the Prime Rate.