Secured Credit Agreement

On June 30, 2009, the Company entered into a Secured Credit Agreement (the “Credit Agreement”) with Wells Fargo Capital Finance (“WFCF”), which includes a revolving line of credit (the “Revolver”). The Revolver was amended during 2012 and 2013 for changes in financial covenants, maximum availability, maturity date and interest rate. The following is a summary of the significant terms of the Revolver:



Maturity	December 31, 2016
Interest/Usage Rate	Company’s option of Base Rate^(a) plus a Base Rate Margin (ranges from 0.50%–1.00% based on Revolver availability) or LIBOR plus a LIBOR Rate Margin (ranges from 1.50%–2.00% based on Revolver availability)
Maximum Availability	Lesser of $150,000 or the borrowing base^(b)
Periodic Principal Payments	None


(a)	Base Rate is the higher of (i) the Federal Funds Rate plus 0.5% or (ii) the prime rate.

(b)

The Revolver’s borrowing base is calculated as the sum of (i) 85% of the Company’s eligible accounts receivable plus (ii) the lesser of 90% of the eligible credit card receivables and $5,000, plus (iii) the lesser of $125,000, 65% of the eligible inventory or 85% of the net liquidation value of eligible inventory as defined in the Credit Agreement minus (iv) reserves from time to time set by the administrative agent. The eligible accounts receivable and inventories are further adjusted as specified in the agreement. The Company’s borrowing base can also be increased pursuant to certain terms outlined in the Credit Agreement.

The Credit Agreement provides that the Company can use the Revolver availability to issue letters of credit. The fees on any outstanding letters of credit issued under the Revolver include a participation fee equal to the LIBOR Rate Margin. The fee on the unused portion of the Revolver is 0.375% if the average daily usage is $75,000 or below, and 0.25% if the average daily usage is above $75,000. The Revolver includes a financial covenant that requires the Company to maintain a minimum Fixed Charge Coverage Ratio of 1.00:1.00 as defined by the Credit Agreement. The Fixed Charge Coverage Ratio is only applicable if adjusted liquidity is less than $15,000, and remains in effect until the date on which adjusted liquidity has been greater than or equal to $15,000 for a period of 30 consecutive days. Adjusted liquidity is defined as the sum of (i) availability under the Revolver, (ii) qualified cash and (iii) for all periods from June 13, 2013 through the earlier of the date of consummation of a qualified initial public offering by the Company and August 31, 2013, up to $15,000 of suppressed availability. Suppressed availability means, as of any date of determination, the difference between the amount of the borrowing base as of such date and the Revolver usage as of such date, provided that if the result is a negative number, then suppressed availability shall be $0. The Company has incurred operating losses and has used cash for operating activities for the six months ended June 30, 2013 and 2012. While there can be no assurances, based upon the Company’s forecast, the Company does not expect the covenants to become applicable during the year ended December 31, 2013.

The Company had outstanding borrowings of $117,699 and $72,218 with net availability of $22,301 and $31,344 as of June 30, 2013 and December 31, 2012, respectively. The interest rate on outstanding LIBOR Rate borrowings of $111,000 was 2.3% and the interest rate on outstanding Base Rate borrowings of $6,699 was 4.25% as of June 30, 2013. The interest rate on outstanding LIBOR Rate borrowings of $65,000 ranged from 3.1%-3.3% and the interest rate on outstanding Base Rate borrowings of $7,218 was 5.0% as of December 31, 2012. The Company had $10,000 and $7,550 in letters of credit outstanding under the Credit Agreement as of June 30, 2013 and December 31, 2012, respectively. The Revolver is collateralized by substantially all assets of the Company. The carrying value of the Revolver at June 30, 2013 and December 31, 2012 approximates fair value as the Revolver contains a variable interest rate. As such, the fair value of the Revolver was classified as a Level 2 measurement in accordance with ASC 820.

The Revolver was reclassified to a long-term liability as of June 30, 2013 as the Company was no longer required to maintain a lockbox sweep arrangement with Wells Fargo Capital Finance, due to net availability exceeding a minimum threshold defined in the Credit Agreement.