NOTE 5 – INDEBTEDNESS AND BORROWING FACILITIES

2016 Credit Facility: In August 2012, we entered into an amended and restated credit agreement ("Restated 2016 Credit Facility" or "2016 Credit Facility") with a group of lenders with Bank of America, N.A., as the administrative and collateral agent. The Restated 2016 Credit Facility amends and restates the Company's existing asset-based revolving credit agreement (the "Original 2016 Credit Facility").

The Restated 2016 Credit Facility revised the terms of the Original 2016 Credit Facility to, among other things, provide for $50 million of term loans. The Restated 2016 Credit Facility also provides for an option, subject to customary conditions, to incur up to $25 million of additional term loans in the future.

Like the Original 2016 Credit Facility, the Restated 2016 Credit Facility matures on January 4, 2016, and provides for an asset-based revolving credit line of $450 million, subject to a borrowing base, which was $483.8 million at September 30, 2012. As with the Original 2016 Credit Facility, obligations under the Restated 2016 Credit Facility are secured by substantially all of our inventory, accounts receivable, cash, and cash equivalents. Additionally, at our election, obligations under the Restated 2016 Credit Facility may also be secured by certain real estate.

As with the Original 2016 Credit Facility, revolving borrowings under the Restated 2016 Credit Facility bear interest at our choice of a bank's prime rate plus 1.25% to 1.75% or LIBOR plus 2.25% to 2.75%. The applicable rates in these ranges are based on the aggregate average availability under the facility. We pay commitment fees to the lenders at an annual rate of 0.50% of the unused amount of the facility.

The maximum availability for revolving borrowings under the 2016 Credit Facility is determined at the end of each month and is calculated as the lesser of:

·	$450 million, or

·	Our borrowing base for revolving borrowings less $45 million (calculated as $438.8 million at September 30, 2012), or

·	Our borrowing base for revolving borrowings up to a maximum amount of $450 million less the greater of 12.5% (currently $56.3 million) or $45 million if we do not meet a specified consolidated fixed charge coverage ratio during a trailing twelve-month period (calculated as $393.8 million).

As of September 30, 2012, our maximum availability for revolving borrowings under the 2016 Credit Facility was $393.8 million as a result of us not meeting the consolidated fixed charge coverage ratio at September 30, 2012. As of September 30, 2012, no revolving borrowings had been made under the facility, and letters of credit totaling $2.2 million had been issued resulting in $391.6 million of availability for revolving borrowings under the 2016 Credit Facility.

If at any time the outstanding revolving borrowings and term loans under the 2016 Credit Facility exceed the sum of the revolving borrowing base and the term loan borrowing base, at such time we will be required to prepay an amount equal to such excess. No payments (whether optional or mandatory) may be made in respect of the principal amount of term loans unless all revolving loans have been repaid and any outstanding letters of credit have been cash collateralized. The revolving borrowing base and term loan borrowing base are subject to customary reserves that may be implemented by the administrative agent at its permitted discretion.

The Restated 2016 Credit Facility contains customary affirmative and negative covenants and events of default that are substantially consistent with those contained in the Original 2016 Credit Facility.

2016 Term Loan: Upon entering into the Restated 2016 Credit Facility, we borrowed $50 million under a term loan agreement ("2016 Term Loan"), which is subject to the term loan borrowing base and bears interest at our choice of a bank's prime rate plus 3.5% or LIBOR plus 4.5%. Interest is payable on the interest rate reset dates, which will be on at least a quarterly basis. This term loan is secured by the same assets as those secured under the Restated 2016 Credit Facility and matures on January 4, 2016. Net proceeds of the new term loan were $48.5 million, after fees and expenses of $1.5 million incurred in connection with the Restated 2016 Credit Facility, and will be used for working capital and general corporate purposes. The 2016 Term Loan may not be repaid until all other revolving borrowings, letters of credit, or other commitments under the 2016 Credit Facility have been repaid.

2017 Term Loan: In September 2012, we borrowed $100 million due on September 27, 2017, under a new term loan credit agreement ("2017 Term Loan") with two lenders and Wells Fargo, N. A., as administrative and collateral agent. The 2017 Term Loan bears interest at a rate of 10.0% plus adjusted LIBOR for a one, two, or three month interest period, but never less than 11.0%. Interest is payable on a monthly basis.

Net proceeds of the 2017 Term Loan were $95.6 million, after fees and expenses of $4.4 million, and will be used for working capital and general corporate purposes. Beginning with the fiscal quarter ending December 31, 2014, the term loan is subject to quarterly amortization payments of $1,667,500.

The 2017 Term Loan is secured on a second priority basis by the same assets that secure the 2016 Credit Facility and on a first priority basis by substantially all of our other assets.

Voluntary and mandatory prepayments of the 2017 Term Loan in amounts in excess of $10 million per year are subject to prepayment premiums of 5% in year one, 4% in year two, 3% in year three, and 2% in year four. The 2017 Term Loan contains customary affirmative and negative covenants and events of default that are substantially similar to those contained in the 2016 Credit Facility. The 2017 Term Loan also includes a financial covenant that requires us to maintain a fixed charge coverage ratio of at least 1.0 to 1.0 during any period in which availability under the 2016 Credit Facility is less than the greater of 12.5% of the maximum revolving borrowing amount under the 2016 Credit Facility or $45 million.

2013 Convertible Notes: In the third quarter of 2012, we repurchased $88.1 million of aggregate principal amount of 2.50% convertible senior notes due August 1, 2013 (the "2013 Convertible Notes"). We paid a total of $84.8 million, which consisted of the purchase price of $84.6 million for the 2013 Convertible Notes plus $0.2 million in accrued and unpaid interest, to the holders of the 2013 Convertible Notes. This transaction resulted in a loss of $0.6 million classified as other loss on our condensed consolidated statements of comprehensive income. At September 30, 2012, there was $286.9 million aggregate principal amount of 2013 Convertible Notes still outstanding.

2019 Notes: On May 3, 2011, we sold $325 million aggregate principal amount of 6.75% senior unsecured notes due May 15, 2019, in a private offering to qualified institutional buyers. These notes were exchanged for substantially identical notes that were registered with the SEC in December 2011 ("2019 Notes"). The obligation to pay principal and interest on the 2019 Notes is jointly and severally guaranteed on a full and unconditional basis by all of the guarantors under the 2016 Credit Facility, which currently includes all of our wholly-owned domestic subsidiaries except Tandy Life Insurance Company. The 2019 Notes pay interest at a fixed rate of 6.75% per year. Interest is payable semiannually, in arrears, on May 15 and November 15.

The 2019 Notes contain covenants that could, in certain circumstances, limit our ability to issue additional debt, repurchase shares of our common stock, make certain other restricted payments, make investments, or enter into certain other transactions.

Refer to our Annual Report on Form 10-K for the year ended December 31, 2011, for additional information regarding our indebtedness and borrowing facilities.