Short-Term Debt

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Short-Term Debt

SPY North America has a Loan and Security Agreement with BFI, originally dated February 26, 2007 and most recently modified on September 10, 2014 (the “BFI Line of Credit”). The BFI Line of Credit has a maximum borrowing limit of $8.0 million.  The maximum availability under the BFI Line of Credit was $7.2 million and $5.1 million at September 30, 2014 and December 31, 2013, respectively, of which SPY North America had borrowed $4.4 million and $4.0 million, respectively, as of those dates. The BFI Line of Credit renews annually in February for one additional year unless otherwise terminated by either SPY North America or BFI. The Company had $2.8 million and $1.1 million in unused availability as of September 30, 2014 and December 31, 2013, respectively.

Actual borrowing availability under the BFI Line of Credit is based on eligible trade receivable and inventory levels of SPY North America. Prior to the modification on September 10, 2014 (the “Modification”), actual borrowings were subject to the following limitations: (i) up to 80% of eligible United States accounts receivable, (ii) 80% of eligible Canadian receivables, (iii) 65% of eligible United States inventory, provided, however, such amount does not exceed 65% of eligible United States and Canadian accounts receivable and does not exceed the maximum inventory borrowing amount of $3.5 million, and (iv) advances against eligible foreign accounts receivable (excluding Canadian accounts receivable) up to $0.4 million.  In connection with the Modification, actual borrowings are subject to the following limitations until February 26, 2015: (i) up to 80% of eligible United States accounts receivable, (ii) 80% of eligible Canadian receivables, (iii) 65% of eligible United States inventory, provided, however, such amount does not exceed 100% of eligible United States and Canadian accounts receivable and does not exceed the maximum inventory borrowing amount of $3.5 million, and (iv) advances against eligible foreign accounts receivable (excluding Canadian accounts receivable) up to $0.4 million. On February 27, 2015, actual borrowings under the BFI Line of Credit will revert to the pre-Modification limitations.

Borrowings under the BFI Line of Credit accrue interest at a rate per annum equal to the prime rate, as reported in the Western Edition of The Wall Street Journal, plus 1.75%, with a minimum monthly interest charge of $2,000. The interest rate was 5.0% per annum at September 30, 2014. The Company and SPY North America granted BFI a security interest in substantially all of SPY North America’s assets, and substantially all of the Company’s accounts receivable and inventories to secure BFI’s position under the BFI Line of Credit.  Additionally, the obligations under the BFI Line of Credit are guaranteed by SPY Inc.

 The BFI Line of Credit imposes certain covenants on SPY North America, including, but not limited to, covenants requiring SPY North America to provide certain periodic reports to BFI, to inform BFI of certain changes in the business, to refrain from incurring additional debt in excess of $100,000 and to refrain from paying dividends.  The BFI Line of Credit also contains cross default provisions. BFI may declare SPY North America in default if SPY North America experiences a material adverse change in its business, financial condition, or in its ability to perform the obligations owed under the BFI Line of Credit.  BFI’s prior consent, which BFI will not unreasonably withhold, is required in the event that SPY North America seeks additional debt financing, including debt financing subordinate to BFI.  SPY North America has also established bank accounts in BFI’s name in the United States and Canada into which collections on accounts receivable and other collateral are deposited (the “Collateral Accounts”).  Pursuant to the deposit control account agreements between BFI and SPY North America, BFI is entitled to sweep all amounts deposited into the Collateral Accounts and apply the funds to outstanding obligations under the BFI Line of Credit; provided that BFI is required to distribute to SPY North America any amounts remaining after payment of all amounts due under the BFI Line of Credit.  SPY North America was in compliance with all covenants under the BFI Line of Credit at September 30, 2014.