REVOLVING LINE OF CREDIT

6 Months Ended

Jul. 02, 2011

REVOLVING LINE OF CREDIT

REVOLVING LINE OF CREDIT

NOTE 5 — REVOLVING LINE OF CREDIT

On October 18, 2010 Supreme Industries, Inc. entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. (the “Lender”), which agreement was effective as of September 30, 2010.

On March 24, 2011, the Company entered into a First Amendment to Amended and Restated Credit Agreement (the “First Amendment”).  Under the First Amendment, the revolving commitment amount under the Credit Agreement was lowered to $25,000,000, and such revolving commitment amount continues to reduce on a monthly basis beginning April 15, 2011.

Also pursuant to the First Amendment, on March 24, 2011, the Lender agreed to make certain term loans in the aggregate principal amount of $4,000,000, due December 31, 2011, which term loans were funded on March 31, 2011.  In connection with the First Amendment, certain mortgages and deeds of trust were executed on additional real property to secure the revolving line of credit and term loans.

Under the First Amendment, the minimum tangible net worth requirements and the minimum EBITDA requirements were revised, and the Company was in compliance with all financial covenants in the Credit Agreement at July 2, 2011.

Additional events of default were added by the First Amendment.  These additional events of default included: (i) the Company’s failure to receive a $3,000,000 payment from a required sale-leaseback transaction involving the Company’s California manufacturing facility, sale of real estate, or the issuance of subordinated debt or equity capital by May 2, 2011; (ii) the suspension, withdrawal, termination, or reduction of the Company’s OEM chassis bailment pool; or (iii) the settlements of any claims or causes of action for amounts in excess of any amounts covered by insurance if such excess amounts are in excess of the reserves for such claims or causes of action on March 24, 2011 or the aggregate amount of all settlement payments is in excess of $250,000.  Any violations of such additional events of default were waived pursuant to the terms of the Second and Third Amendments (as such terms are defined below).

On May 12, 2011, the Company and its subsidiaries entered into a Second Amendment to the Credit Agreement and Amendment to Security Agreements (the “Second Amendment”) with the Lender.  Pursuant to the Second Amendment, Lender consented to the sale and concurrent leaseback by Supreme Indiana Operations, Inc. (“Supreme Indiana”) of its California manufacturing facility (the “California Real Estate”) to BFG2011 Limited Liability Company (“a related party”) (“Purchaser”) (the “Sale Leaseback Transaction”).

In connection with the Sale Leaseback Transaction, Lender agreed to execute and deliver releases of its mortgage liens on the California Real Estate.  Lender also agreed to (i) lower the amount of net proceeds required to be obtained from the Sale Leaseback Transaction from $3,000,000 to $2,800,000 and (ii) extend the date required to enter into the Sale Leaseback Transaction from May 2, 2011 to May 12, 2011.

On June 15, 2011, the Company and its subsidiaries entered into a Third Amendment (the “Third Amendment”) to the Credit Agreement with the Lender.  The Credit Agreement prohibits settlements of any claims or causes of action in aggregate amounts exceeding $250,000.  Under the terms of the Third Amendment, the Lender approved the Settlement Agreement referred to in Note 9 and waived noncompliance caused by such Settlement Agreement with the Credit Agreement’s $250,000 cap on settlements of any claims or causes of action.  In addition, the Third Amendment increased the revolving commitment amount under the Credit Agreement by $3,000,000 beginning June 15, 2011.

Pursuant to the Third Amendment the revolving commitment amount will reduce on a monthly basis.  These reductions are intended to be consistent with the Company’s seasonal working capital needs.  By August 31, 2011, the revolving commitment amount will be reduced to $14,560,000, unless the Company’s workers compensation letter of credit is returned to the Lender, in which case the revolving commitment amount will only be reduced to $16,560,000.  The revolving commitment decreases further to $14,230,000 or $16,230,000 (if the workers compensation letter of credit is returned to the Lender) by November 30, 2011 and is due and payable December 31, 2011.

As of July 2, 2011, the outstanding balance under the Credit Agreement was $15,000,000 and the Company had unused credit capacity of approximately $9.3 million under its Credit Agreement.  Interest on outstanding borrowings under the revolving line of credit and the term loan was based on the bank’s prime rate or LIBOR depending on the pricing option selected and the Company’s leverage ratio, as defined in the Credit Agreement, resulting in an effective rate of 5.75% and 5.09% at July 2, 2011 and December 25, 2010, respectively.