(7) CREDIT FACILITY AND DEBT COVENANTS, LONG-TERM DEBT, AND FINANCING LEASE OBLIGATIONS

On December 11, 2015, the Company and certain of its subsidiaries (collectively known as the “Borrower”) entered into its First Amendment to the Third Amended and Restated Credit Agreement (the “Credit Agreement”), which amended and restated the Company’s Third Amended and Restated Credit Agreement (the “Third Credit Agreement”) with Wells Fargo Bank, National Association as administrative agent and lender (the “Lender”). The Credit Agreement will expire on December 31, 2018 and contains a $3.0 million revolving credit facility (the “Facility”) with a $2.0 million letter of credit sublimit, and a term loan with a maximum of $12.0 million (the “Term Loan”). See “Long-Term Debt” below.

Principal amounts outstanding under the Facility bear interest at either an adjusted Eurodollar rate plus an applicable margin or at a Base Rate plus an applicable margin. The Base Rate is defined in the Credit Agreement as the greater of the Federal Funds Rate plus 1.5% or the Wells Fargo Prime rate. The applicable margin is initially 3.25% for Eurodollar Rate Loans, 1.75% for Base Rate Loans and 0.50% for Commitment Fees, and will thereafter be adjusted based upon the Adjusted Leverage Ratio. The applicable margin will depend on the Company’s Adjusted Leverage Ratio, as defined, at the end of the previous quarter and will range from 2.25% to 3.25% for Eurodollar Rate Loans and from 0.75% to 1.75% for Base Rate Loans. Unused portions of the Facility will be subject to an unused Facility fee which will be equal to either 0.375% or 0.500% of the unused portion, depending on the Company’s Adjusted Leverage Ratio. Our rate for the unused portion of the Facility as of January 3, 2016, was 0.375%. Our current weighted average interest rate for the fiscal years ended January 3, 2016 and December 28, 2014 was 2.66% and 2.72%, respectively.

The Facility contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Borrower with respect to indebtedness, liens, investments, distributions, mergers and acquisitions, dispositions of assets and transactions with affiliates of the Borrower, among others. The Facility also includes various financial covenants that include maximum target capital expenditures, cash flow ratios, minimum EBITDA ratios and adjusted leverage ratios.

The Credit Agreement currently provides for up to $2.0 million in letters of credit to be used by the Company, with any amounts outstanding reducing our availability for general corporate purchases, and also allows for the termination of the Facility by the Borrower without penalty at any time. At January 3, 2016 we had no borrowings under this Facility, $12.0 million of outstanding principal under the Term Loan, and approximately $1.1 million in letters of credit for real estate locations. As of January 3, 2016, we were in compliance with all of our covenants. The Company was also generally prohibited from making any Restricted Payment (as defined in the Credit Agreement) and from making any Growth Capital Expenditures (as defined in the Credit Agreement) in the fiscal quarter ending December 31, 2015 and, for the subsequent quarters, is prohibited from making Growth Capital Expenditures costing in excess of $2 million in the aggregate during any fiscal year.

Under the terms of the Amendment, the Company is required to pay $150,000 each month commencing after the First Amendment Effective Date as a principal reduction of the term loans and are required to make mandatory principal prepayments in an amount equal to specified percentages of the net cash proceeds of Dispositions (as defined in the First Amendment) based upon the Adjusted Leverage Ratio. These mandatory principal prepayments will be applied first to the term loans and second to any revolving loans then outstanding.

If the bank were to call the Facility prior to expiration, the Company believes there are multiple options available to obtain other sources of financing. Although possibly at different terms, the Company believes there would be other lenders available and willing to finance a new credit facility. However, if replacement financing were unavailable to us, termination of the Facility without adequate replacement would have a material and adverse impact on our ability to continue our business operations.

We expect to use any borrowings under the Credit Agreement for general working capital purchases as needed. Under the Facility, the Borrower has granted the Lender a security interest in all current and future personal property of the Borrower.

Our facility consisted of the following at:

Long-Term Debt

Principal amounts outstanding under the Term Loan bear interest at the same rate as the Facility. The weighted average interest rate of the Term Loan for fiscal years ended January 3, 2016 and December 28, 2014 was 2.77% and 2.12%, respectively. The Company is required to pay $150,000 each month commencing after the First Amendment Effective Date as a principal reduction of the term loans and are required to make mandatory principal prepayments in an amount equal to specified percentages of the net cash proceeds of Dispositions (as defined in the First Amendment) based upon the Adjusted Leverage Ratio. The $150,000 monthly payments are payable until December 31, 2018 at which time the Company will have a balloon payment of approximately $6.8 million plus interest. These mandatory principal prepayments will be applied first to the term loan and second to the revolving credit facility then outstanding.

Long-term debt consisted approximately of the following at:

Financing Lease Obligation

On March 31, 1999, the Company completed a $4.5 million financing obligation involving three existing restaurants as part of a sale/leaseback transaction. Under this financing, we are obligated to make monthly payments of $56,627 (which increases 4.04% every two years) for a minimum of 20 years. At the end of the 20 year lease term, we may extend the lease for up to two additional five year terms. We also have the option to purchase the leased restaurants on the 20^th anniversary of the lease term and between the first and second five year option terms. The option purchase price is the greater of $4.5 million or the fair market value, as defined in the agreement, of the properties at the time the purchase option is exercised. Based upon our continued involvement in the leased property and its purchase option, the transaction has been accounted for as a financing arrangement. Accordingly, the three existing restaurants are included in property, equipment and leasehold improvements, and are being depreciated over a 20 year term. In addition, as the monthly lease payments are made, the obligation will be reduced by the 20 year amortization table.

Financing lease obligations consisted of the following at: