Loan and Security Agreement

The Company has a loan and security agreement (the “Loan and Security Agreement”) with TD Bank, N.A. (“TD Bank”) which expires on March 8, 2013. The Company is currently exploring future funding alternatives and options in anticipation of the expiration of the Loan and Security Agreement. There can be no assurance that the Company will be able to obtain such funding or, if funding were available, that it would be on terms acceptable to the Company.

The Loan and Security Agreement provides for revolving credit loans to the Company in an aggregate principal amount at any one time outstanding which, when combined with the aggregate undrawn amount of all unexpired letters of credit, does not exceed 85% of “Eligible Receivables” (as that term is defined in the Loan and Security Agreement), provided that in no event can the aggregate amount of the revolving credit loans and letters of credit outstanding at any time exceed $15 million. The maximum aggregate face amount of letters of credit that may be outstanding at any time may not exceed $1.5 million. As of September 30, 2012, the Company had a $0.1 million TD VISA credit card account which reduces the Company’s borrowing capacity. As of September 30, 2012, the Company’s borrowing capacity under the revolving line of credit totaled $14.2 million and there were no outstanding borrowings.

Borrowings of revolving credit loans shall take the form of LIBOR rate advances with the applicable interest rate being the LIBOR rate, plus 3.5% per annum.

Through March 7, 2012, the Company was obligated to pay, on a monthly basis in arrears, an unused line fee (usage fee) equal to 1% per annum on the difference between $15 million and the average daily outstanding principal balance of cash advances under the revolving credit line plus the average daily aggregate undrawn portion of all outstanding letters of credit for the preceding month. Effective March 8, 2012, the usage fee is one-half of one percent (1/2%) per annum. In addition, the Company is required to pay an annual loan fee of $0.1 million. During the three and nine month periods ended September 30, 2012, the Company incurred unused line fees of $0.02 million and $0.08 million, respectively. During the three and nine month periods ended September 30, 2011, the Company incurred unused line fees of $0.04 million and $0.1 million, respectively.

The Company granted TD Bank a security interest in all existing and after-acquired property of the Company and its subsidiary guarantors, including its receivables (which are subject to a lockbox account arrangement), inventory and equipment. As further security, the Company granted TD Bank a mortgage lien encumbering the Company’s corporate headquarters.

Pursuant to the terms of the Loan and Security Agreement, TD Bank, in its sole discretion based upon its reasonable credit judgment, may (A) establish and change reserves required against Eligible Receivables, (B) change the advance rate against Eligible Receivables or the fair market value of the Company’s corporate headquarters, and (C) impose additional restrictions on the standards of eligibility for Eligible Receivables, any of which could reduce the aggregate amount of indebtedness that may be incurred under the Loan and Security Agreement.

The Loan and Security Agreement contains covenants that, among other things, restrict the Company’s ability, and that of its subsidiaries, to:


•	pay any dividends or distributions on, or redeem or retire any shares of any class of its capital stock or other equity interests;


•	incur additional indebtedness;


•	sell or otherwise dispose of any of its assets, other than in the ordinary course of business;


•	create liens on its assets;


•	enter into any sale and leaseback transactions; and


•	enter into transactions with any of its affiliates on other than an arm’s-length or no less favorable basis.

The Company is obligated to maintain a Fixed Charge Coverage Ratio on a rolling 12 month basis of not less than 1.1 to 1.0 as of any fiscal quarter ending after September 30, 2011 if, for any one or more day(s) following any such fiscal quarter end, (a) the outstanding balance of cash advances under the Loan and Security Agreement is greater than $0 and (b) the amount of the Company's cash on deposit with TD Bank is less than $6 million.

As of September 30, 2012, both because the Company's cash on deposit with TD Bank exceeded $6 million and the Company's outstanding balance of cash advances under the Loan and Security Agreement was $0, compliance with the Fixed Charge Coverage Ratio is not applicable. However, if this covenant did apply, the Fixed Charge Coverage Ratio measured as specified in the Loan and Security Agreement as of September 30, 2012 was (17.9) to 1. As such, the Company would fail this financial covenant and therefore would have no borrowing capability under the terms of its Loan and Security Agreement.

The failure of the Company or that of any subsidiary guarantor to comply with any of the covenants or the breach of any of its or their representations and warranties, contained in the Loan and Security Agreement, constitutes an Event of Default under the agreement. In addition, the Loan and Security Agreement provides that “Events of Default” include the occurrence or failure of any event or condition that, in TD Bank’s sole judgment, could have a material adverse effect (i) on the business, operations, assets, management, liabilities or condition of the Company, (ii) in the value of or the perfection or priority of TD Bank’s lien upon the Collateral, or (iii) on the ability of the Company and its subsidiary guarantors to perform under the Loan and Security Agreement.