NOTE 8 — CREDIT FACILITY

We maintain an Amended and Restated Revolving Credit Facility (the “Credit Facility” or “Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”).  The Credit Facility provides us with revolving credit loans and letters of credit of up to $50 million, in the aggregate, subject to a borrowing base formula based on inventory levels.  The Credit Facility expires on June 30, 2014 and interest is calculated based on the three-month London Interbank Market Offered Rate (“LIBOR”) plus 2%, reset daily.

On March 22, 2012, we entered into the Eighth Amendment to the Credit Facility (the “Eighth Amendment”) with Wells Fargo.  The Eighth Amendment addressed certain terms and financial covenants of the Credit Facility, including reducing the minimum required inventory turns ratio from 2.70 to 1.00, to 2.50 to 1.00 for each quarter during fiscal 2012.  The minimum required inventory turns ratio then reverts back to 2.70 to 1.00 for each fiscal quarter ending after February 2, 2013.  In addition, the Eighth Amendment adjusted the minimum required cash and investments on hand to $20 million at the end of the first and second quarters of fiscal 2012 and $25 million at the end of each quarter thereafter.  The Eighth Amendment also adjusted the maximum line amount available between December 1 and August 31 of each calendar year of the Facility to the lesser of 85% of the net orderly liquidation value of eligible inventory, as defined in the Facility, or 70% of eligible inventory and between September 1 and November 30 of each calendar year of the Facility to the lesser of 90% of the net orderly liquidation value of eligible inventory or 80% of eligible inventory.

Interest under the Credit Facility is payable monthly in arrears.  The Credit Facility carries a facility fee of 0.25%, based on the unused portion as defined in the agreement, a collateral monitoring fee and a guaranteed service charge.  Borrowings under the Credit Facility are collateralized by our equipment, intangible assets, inventory, inventory letters of credit and letter of credit rights.

We had no revolving credit loan borrowings under the Credit Facility during the first thirteen weeks of fiscal 2012 or the transition period.  Historically, we have utilized the Credit Facility only to open letters of credit.  The borrowing base at April 28, 2012 was $22.9 million.  As of April 28, 2012, we had open on-demand letters of credit and a reserve against our corporate purchasing card totaling $5.1 million.  Accordingly, the availability of revolving credit loans under the Credit Facility was $17.8 million at April 28, 2012.

The Credit Facility contains certain restrictive covenants, including restrictions on incurring additional indebtedness and limitations on certain types of investments, as well as requiring the maintenance of certain financial covenants.  As of April 28, 2012, the most recent measurement date, we were in compliance with all financial covenants under the Credit Facility and we anticipate we will be in compliance with all financial covenants of the Credit Facility at the end of each quarter in fiscal 2012.  While we do not currently anticipate the need to borrow against our Credit Facility in fiscal 2012, failure to remain in compliance with the financial covenants would constrain our operating flexibility and our ability to fund our business operations through use of the Credit Facility.