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Long-Term Debt

9 Months Ended

Sep. 30, 2013

Costa Brava Term Note

SPY North America issued a promissory note to Costa Brava in the principal amount of $7.0 million (“Costa Brava Term Note”), which amount was outstanding at September 30, 2013 and December 31, 2012 (excluding Accrued PIK Interest, as defined below, of $1.9 million and $1.2 million, respectively). The Costa Brava Term Note was amended in May 2013 to extend the due date from April 1, 2014 to April 1, 2015. This amendment was accounted for as a modification of debt, in accordance with authoritative guidance. The Costa Brava Term Note is subordinate to the BFI Line of Credit, pursuant to the terms of a debt subordination agreement between Costa Brava and BFI.

Interest attributable to the Costa Brava Term Note accrues daily at a rate equal to 12% per annum. On January 1, 2012, SPY North America began paying monthly interest payments in kind, as an addition to the outstanding principal amount due, rather than making interest payments in cash (“Accrued PIK Interest”). The Costa Brava Term Note also requires that SPY North America pay a facility fee equal to 1% of the outstanding principal amount in cash (without giving effect to the Accrued PIK Interest) annually on December 31, and on the revised maturity date. As of September 30, 2013, the company had approximately $52,000 in accrued expenses and other liabilities related to the 1% annual facility fee due to Costa Brava.

During the term of the Costa Brava Term Note, Costa Brava may, at its discretion, convert up to $2,250,000 of the principal amount of the Costa Brava Term Note (excluding the Accrued PIK Interest) into shares of the Company’s common stock at a conversion price of $2.25 per share. (See Note 11 “Related Party Transactions”).

Costa Brava Line of Credit

SPY North America has an additional $9.0 million line of credit from Costa Brava (“Costa Brava Line of Credit”) of which $8.5 million was outstanding at September 30, 2013 and December 31, 2012 (excluding Accrued PIK Interest of $1.8 million and $0.9 million, respectively). The Costa Brava Line of Credit was amended in May 2013 to: (i) extend the due date from April 1, 2014 to April 1, 2015 and (ii) to reduce Costa Brava’s maximum line of credit commitment from $10.0 million to $9.0 million. This amendment was accounted for as a modification of debt, in accordance with authoritative guidance. The Costa Brava Line of Credit is subordinate to BFI Line of Credit, pursuant to the terms of a debt subordination agreement between Costa Brava and BFI.

Interest on the outstanding borrowings under the Costa Brava Line of Credit accrues daily at a rate equal to 12% per annum. On January 1, 2012, SPY North America began paying monthly interest payments in kind, as an addition to the outstanding principal amount due, rather than making interest payments in cash. Monthly interest accrued prior to January 1, 2012 was paid in cash.

In addition, the Costa Brava Line of Credit, as amended, requires that SPY North America pay a facility fee as of June 21 of each year and on the revised maturity date of April 1, 2015, calculated as the lesser of (i) 1% of the average daily outstanding principal amount owed under the note (excluding Accrued PIK Interest) for the 365 day period ending on such payment date or (ii) $90,000. In July 2013, the company paid a facility fee of approximately $82,000 to Costa Brava under this Line of Credit and had approximately $23,000 in accrued expenses and other liabilities related to this Line of Credit as of September 30, 2013.

Costa Brava Loans

The total outstanding borrowings under all credit facilities entered into with Costa Brava at September 30, 2013 and December 31, 2012 was $15.5 million (excluding $3.7 million and $2.1 million of Accrued PIK Interest, respectively). The Costa Brava Term Loan and Costa Brava Line of Credit are pari passu with respect to the rights and preferences of the Harlingwood Notes (defined below).

Harlingwood Convertible Debt

In 2012, SPY North America entered into convertible note purchase agreements with Harlingwood under which SPY North America issued two promissory notes to Harlingwood in the principal amounts of $1.0 million and $0.5 million (“Harlingwood Notes”). Total outstanding borrowings under the Harlingwood Notes at September 30, 2013 and December 31, 2012 were $1.5 million (excluding Accrued PIK Interest of $0.2 million and less than $0.1 million, respectively). The Harlingwood Notes were amended in May 2013 to extend the due date from April 1, 2014 to April 1, 2015. This amendment was accounted for as a modification of debt, in accordance with authoritative guidance. The Harlingwood Notes are subordinate to the amounts owed by SPY North America under the BFI Line of Credit, pursuant to the terms of a debt subordination agreement between Harlingwood and BFI.

The Harlingwood Notes accrue interest at the rate of 12% per annum. Such interest is required to be paid in kind and may not be paid in cash until the revised maturity date.

The $1.0 million promissory note requires a facility fee equal to the lesser of $10,000 or 1% of the average daily outstanding principal amount due under the Harlingwood Notes (without giving effect to the Accrued PIK Interest). SPY North America paid $20,000 to Harlingwood for initial aggregate facility fees in 2012. Facility fees are due in advance on the respective anniversary date of the $1.0 million promissory note until maturity. The $0.5 million promissory note has a facility fee of $10,000, which was paid at the inception of the note. The Company paid $10,000 to Harlingwood in September 2013 related to this facility fee on the $1.0 million promissory note.

The principal amount due under the Harlingwood Notes (including Accrued PIK Interest) is convertible into shares of the Company’s common stock at $1.40 per share, subject to adjustment for stock splits or stock dividends. The Harlingwood Notes contain standard representations, warranties and reporting requirements that are customary for financings of this type, and cross default provisions with respect to the Costa Brava indebtedness. SPY North America was in compliance with all covenants under the Harlingwood Notes at September 30, 2013. The Harlingwood Notes are pari passu with the respect to the rights and preferences of Costa Brava Term Note and Costa Brava Line of Credit. (See Note 11 “Related Party Transactions”).

Long-Term Debt

Notes payable at September 30, 2013 consist of the following:

	(Thousands)
Costa Brava Term Loan (subordinated debt, of which up to $2.25 million is convertible into shares of common stock at a conversion price of $2.25 per share)	$	8,897
Costa Brava Line of Credit (subordinated debt)		10,274
Harlingwood Notes (subordinated convertible debt, all of which is convertible into shares of common stock at a conversion price of $1.40 per share )		1,685
Secured note payable for vehicle purchases, 4.69% interest rate with monthly payments of $1,400 due through December 2015, secured by vehicles		36
Subtotal		20,892
Less current portion		16

Notes payable, less current portion	$	20,876