Loan and Security Agreements

As of February 28, 2013, in conjunction with the Company entering into the 2013 Loan and Security Agreement, the Company terminated the 2009 Loan and Security Agreement (the "2009 Loan and Security Agreement") with TD Bank, N.A. During the three months ended March 31, 2013 and 2012, in connection with the 2009 Loan and Security Agreement, the Company incurred unused line fees of $0.02 million and $0.04 million, respectively.

2013 Loan and Security Agreement

Proceeds from the 2013 Loan and Security Agreement are to be used for working capital purposes and capital expenditures. The 2013 Loan and Security Agreement provides a revolving credit facility to the Company in an aggregate principal amount at any one time outstanding which does not exceed 85% of “Eligible Receivables” (as defined in the 2013 Loan and Security Agreement), provided that in no event can the aggregate amount of the revolving credit loans at any time exceed $10 million. The Company may also request a revolving credit limit increase, not to exceed $5 million, subject to certain terms and conditions and at the sole discretion of Keltic Financial. As of March 31, 2013, there were no outstanding borrowings.

As of March 28, 2013, the Company entered into the First Amendment to the 2013 Loan and Security Agreement. Under the First Amendment, the annual facility fee increased to 1.5% from 1.0% of the revolving credit limit of $10 million; the monthly collateral management fee increased to $2,500 per month from $1,500 per month; and the monthly collateral management fee increased to $5,000 per month from $3,000 per month if there is an occurrence or event of default. In addition, the early termination fee changed a) if prior to the first anniversary of the effective date, from 3% to 5% of the revolving credit limit; b) if after the first anniversary but before the second anniversary of the effective date, from 2% to 3% of the revolving credit; and c) if after the second anniversary but prior to the third anniversary of the effective date, from 1% to 2% of the revolving credit limit. Also, the Company granted to the lender a mortgage of the Company's corporate headquarters building as additional security. In regard to the financial covenants, the first EBITDA measurement date changed from the six months ended June 30, 2013 to the twelve months ending June 30, 2014. The Company paid an amendment fee of $0.2 million.

Interest on revolving credit loans will be calculated based on the greatest of (i) the annualized prime rate plus 2.75%, (ii) the 90 day LIBOR rate plus 5.25%, and (iii) 6% per annum. In connection with the 2013 Loan and Security Agreement, the Company incurred a commitment fee of $0.1 million and other issue costs totaling $0.7 million. During the three months ended March 31, 2013, in connection with the 2013 Loan and Security Agreement the Company incurred $0.01 million in facility fees.

The revolving credit loans are payable in full, together with all accrued interest and fees, on February 28, 2016. The 2013 Loan and Security Agreement provides for the prepayment of the entire outstanding balance of the revolving credit loans, however the Company would be required to pay an early termination fee as noted above.

As security for the Company's payment and other obligations under the 2013 Loan and Security Agreement, the Company granted Keltic Financial 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, equipment and corporate headquarters. The aforementioned security interest is collectively referred to herein as the “collateral”. In addition, in connection with entering into the First Amendment to the 2013 Loan and Security Agreement as March 28, 2013, the Company granted to the lender a mortgage of the Company's headquarters building as additional security.

Pursuant to the terms of the 2013 Loan and Security Agreement, Keltic Financial, at its sole discretion, may establish reserves with respect to (a) any event which in Keltic Financial's reasonable determination, diminishes the value of any collateral or (b) any contingent liability of the Company. A reserve may reduce the aggregate amount of indebtedness that may be incurred under the 2013 Loan and Security Agreement.

The 2013 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 or otherwise become liable for the indebtedness, except for transactions in the ordinary course of business;


•	permit a change of control of the board of directors and certain senior management positions of the Company without prior consent of Keltic Financial;


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


•	create liens or encumbrances on the Company's assets; and


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

The 2013 Loan and Security Agreement also contains financial covenants, which require the Company to achieve a minimum EBITDA amount (earnings before interest expense, income taxes, depreciation and amortization) with the twelve months ending June 30, 2014, as amended, as the first measurement date. In addition, the Company has limitations on the maximum amount of unfunded capital expenditures for each fiscal year, beginning with the year ending December 31, 2013.

The failure of the Company or 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 2013 Loan and Security Agreement, constitutes an event of default under the agreement. In addition, the 2013 Loan and Security Agreement provides that "Events of Default" include the occurrence or failure of any event or condition that, in Keltic Financial'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, collectability or salability of the collateral, or (iii) on the ability of the Company and its subsidiary guarantors to perform under the 2013 Loan and Security Agreement.