Exhibit 10.6

COMMERCIAL NOTE:  TERM SINGLE ADVANCE/FIXED (Ohio)

Amount

City, State

Date

$1,275,000.00

 

May 3, 2006

FOR VALUE RECEIVED, Northern Technologies Holding Company, LLC, a Minnesota
limited liability company (“Borrower”), whose mailing address is 6680 North
Highway 49, Lino Lakes, MN 55014, hereby promises to pay to the order of
NATIONAL CITY BANK, a national banking association (“Bank”), having a banking
office at 1900 East 9th Street, Cleveland, OH 44114 Attention: Commercial Loan
Division, Locator No. 01-8485, at the address specified on the bills received by
Borrower from Bank (or at such other place as Bank may from time to time
designate by written notice) in lawful money of the United States of America,
the principal sum of

          One Million Two Hundred Seventy Five Thousand and 00/100 Dollars
($1,275,000.00)

together with interest, all as provided below. Borrower acknowledges that the
entire face amount of this Note is to be advanced by Bank to or for the benefit
of Borrower on the date hereof.

1. Interest. From and including April 28, 2006 (the “Starting Date”) through and
including Maturity (as defined below), the unpaid principal balance of this Note
shall bear interest at a fixed rate equal to 8.01% per annum; provided, that so
long as any principal of or accrued interest on this Note is overdue, all unpaid
principal of this Note and all overdue interest on that principal shall bear
interest at a fluctuating rate equal to two percent (2.0%) per annum above the
rate that would otherwise be applicable, but in no case less than two percent
(2.0%) per annum above the Prime Rate; provided further, that in no event shall
any principal of or interest on this Note bear interest at any time after
Maturity at a lesser rate than the rate applicable thereto immediately after
Maturity; and provided further that nothing herein shall affect the rate of
interest applicable to the unpaid principal of this Note or overdue interest
thereon (a) to the extent any principal of or accrued interest on this Note is
overdue, (b) prior to the Starting Date, (c) after Maturity or (d) to the extent
the unpaid principal balance of this Note bears interest at any time based on a
rate other than the rate indicated in this section 1.

2. Repayment. Subject to the rights and remedies of Bank set forth in this Note
upon default, from and after the date hereof, the interest on and the
outstanding principal balance of this Note shall be payable in sixty (60)
installments, commencing on June 1, 2006, and continuing on the 1st day of each
month thereafter until paid in full, each such installment except the final
installment to be in an amount (inclusive of principal and interest) equal to
Ten Thousand Seven Hundred Seventy Six and 05/100 Dollars ($10,776.05), but in
no case less than the accrued and unpaid interest, and the final installment to
be in an amount equal to all unpaid principal of this Note and all accrued and
unpaid interest thereon. Payments shall be made in accordance with the
amortization schedule set forth in the allonge in the form and substance of
Exhibit A to this Note.

The amortization schedule assumes that all payments are made on their respective
due dates and any payment made on other than its due date may alter the actual
amortization. Any interest accruing on this Note after Maturity shall be due and
payable on demand thereafter. If any payment is required to be made on a day
which is not a Banking Day, such payment shall be due on the next immediately
following Banking Day and interest shall continue to accrue at the applicable
rate.

DIRECT DEBIT: The following ·is applicable if checked by Borrower: x Payments
shall be paid by Borrower by debiting Borrower’s checking account, routing
number _________, account number ________________ on the due date.

3. Prepayment. (a) Borrower shall have the right to prepay the principal of this
Note in whole or in part, provided, that (i) each such prepayment shall be in
the principal sum of One Thousand and no/100 Dollars ($1,000.00) or any integral
multiple thereof or an amount equal to the then aggregate unpaid principal
balance of this Note, (ii) each such prepayment shall be applied to the
installments of this Note in the inverse order of their respective due dates,
and (iii) concurrently with the prepayment of the entire unpaid principal
balance of this Note, Borrower shall prepay the accrued interest on the
principal being prepaid.

 

(b)

If this Note is

 

 

 

 

 

 

(i)

prepaid, in whole or in part, during a period when the unpaid principal balance
bears interest, or is scheduled to bear interest, at a fixed rate, or

 

 

 

 

 

 

(ii)

accelerated after the occurrence of an Event of Default hereunder, during a
period when the unpaid principal balance bears interest, or is scheduled to bear
interest, at a fixed rate,

and, if, on the date of the occurrence of either (i) or (ii) above, or with
respect to any partial prepayment for which a Funding Cost Recovery Charge was
not determined on the date of occurrence, on the date of any subsequent
prepayment for which a Funding Cost Recovery Charge is determined (each a
“Determination Date”), the Reinvestment Rate is less than the Funding Cost, then
a “Funding Cost Recovery Charge”, computed in accordance with the terms of the
Funding Cost Recovery Charge Addendum, shall be payable by Borrower to Bank at
the time of prepayment or acceleration as applicable. Bank’s right to collect
any Funding Cost Recovery Charge shall accrue as of each Determination Date, and
any delay on Bank’s part to determine, or to notify Borrower as to, the amount
of any Funding Cost Recovery Charge shall not constitute a waiver of, or
otherwise limit, Bank’s right to recover a Funding Cost Recovery Charge
otherwise payable pursuant to the terms hereof.

The terms “Reinvestment Rate” and “Funding Cost” are defined in the Funding Cost
Recovery Charge Addendum. Borrower’s execution of this Note shall constitute
acknowledgment that Borrower has received a complete copy of the Funding Cost
Recovery Charge Addendum.

4. Definitions. As used in this Note, except where the context clearly requires
otherwise, “Affiliate” means, when used with reference to any Person (the
“subject”), a Person that is in control of, under the control of, or under
common control with, the subject, the term “control” meaning the possession,
directly or indirectly, of the power to direct the management or policies

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of a Person, whether through the ownership of voting securities, by contract, or
otherwise; “Bank Debt” means, collectively, all Debt to Bank, whether incurred
directly to Bank or acquired by it by purchase, pledge, or otherwise, and
whether participated to or from Bank in whole or in part; “Banking Day” means
any day (other than any Saturday, Sunday or legal holiday) on which Bank’s
banking office is open to the public for carrying on substantially all of its
banking functions; “Debt” means, collectively, all obligations of the Person or
Persons in question, including, without limitation, every such obligation
whether owing by one such Person alone or with one or more other Persons in a
joint, several, or joint and several capacity, whether now owing or hereafter
arising, whether owing absolutely or contingently, whether created by lease,
loan, overdraft, guaranty of payment, or other contract, or by quasi-contract,
tort, statute, other operation of law, or otherwise; “Maturity” means the date
(whether occurring by lapse of time, acceleration, or otherwise) upon which the
last scheduled principal payment under this Note is due; “Note” means this
promissory note (including, without limitation, each addendum, allonge, or
amendment, if any, hereto); “Obligor” means any Person who, or any of whose
property, shall at the time in question be obligated in respect of all or any
part of the Bank Debt of Borrower and (in addition to Borrower) includes,
without limitation, co-makers, endorsers, guarantors, pledgors, hypothecators,
mortgagors, and any other Person who agrees, conditionally or otherwise, to
assure such other Obligor’s creditors or any of them against loss; “Person”
means an individual or entity of any kind, including, without limitation, any
association, company, cooperative, corporation, partnership, trust, governmental
body, or any other form or kind of entity; “Prime Rate” means the fluctuating
rate per annum which is publicly announced from time to time by Bank as being
its so-called “prime rate” or “base rate” thereafter in effect, with each change
in the Prime Rate automatically, immediately, and without notice changing the
Prime Rate thereafter applicable hereunder, it being acknowledged that the Prime
Rate is not necessarily the lowest rate of interest then available from Bank on
fluctuating-rate loans; “Proceeding” means any assignment for the benefit of
creditors, any case in bankruptcy, any marshalling of any Obligor’s assets for
the benefit of creditors, any moratorium on the payment of debts, or any
proceeding under any law relating to conservatorship, insolvency, liquidation,
receivership, trusteeship, or any similar event, condition, or other thing;
“Related Writing” means this Note and any indenture, note, guaranty, assignment,
mortgage, security agreement, subordination agreement, notice, financial
statement, legal opinion, certificate, or other writing of any kind pursuant to
which all or any part of the Bank Debt of Borrower is issued, which evidences or
secures all or any part of the Bank Debt of Borrower, which governs the relative
rights and priorities of Bank and one or more other Persons to payments made by,
or the property of, any Obligor, which is delivered to Bank pursuant to another
such writing, or which is otherwise delivered to Bank by or on behalf of any
Person (or any employee, officer, auditor, counsel, or agent of any Person) in
respect of or in connection with all or any part of the Bank Debt of Borrower;
“Reporting Person” means each Obligor and each member of any “Reporting Group”
as defined in any addendum to this Note; and the foregoing definitions shall be
applicable to the respective plurals of the foregoing defined terms.

5. Events of Default. It shall be an “Event of Default” if (a) all or any part
of the Bank Debt of any Obligor shall not be paid in full promptly when due
(whether by lapse of time, acceleration, or otherwise); (b) any representation,
warranty, or other statement made by any Person (other than Bank) in any Related
Writing shall be untrue or incomplete in any respect when made; (c) any Person
(other than Bank) shall repudiate or shall fail or omit to perform or observe
any agreement contained in this Note or in any other Related Writing that is on
that Person’s part to

3

be complied with; (d) any indebtedness (other than any evidenced by this Note)
of any Obligor shall not be paid when due, or there shall occur any event,
condition, or other thing which gives (or which with the lapse of any applicable
grace period, the giving of notice, or both would give) any creditor the right
to accelerate or which automatically accelerates the maturity of any such
indebtedness; (e) Bank shall not receive (in addition to any information
described in any addendum to this Note) without expense to Bank, (i) forthwith
upon each request of Bank made upon Borrower therefor, (A) such information in
writing regarding each Reporting Person’s financial condition, properties,
business operations, if any, and pension plans, if any, prepared, in the case of
financial information, in accordance with generally accepted accounting
principles consistently applied and otherwise in form and detail satisfactory to
Bank or (B) written permission, in form and substance satisfactory to Bank, from
each Reporting Person to inspect (or to have inspected by one or more Persons
selected by Bank) the properties and records of that Reporting Person and to
make copies and extracts from those records or (ii) prompt written notice
whenever Borrower (or any director, employee, officer, or agent of Borrower)
knows or has reason to know that any Event of Default has occurred; (f) any
judgment shall be entered against any Obligor in any judicial or administrative
tribunal or before any arbitrator or mediator; (g) any Obligor shall fail or
omit to comply with any applicable law, rule, regulation, or order in any
material respect; (h) any proceeds of the loan evidenced by this Note shall be
used for any purpose that is not in the ordinary course of Borrower’s business;
(i) any property in which any Obligor now has or hereafter acquires any rights
or which now or hereafter secures any Bank Debt shall be or become encumbered by
any mortgage, security interest, or other lien, except any mortgage, security
interest, or other lien consented to by Bank; (j) any Obligor shall at any time
or over any period of time sell, lease, or otherwise dispose of all or any
material part of that Obligor’s assets, except for inventory sold in the
ordinary course of business and other assets sold, leased, or otherwise disposed
of with the consent of Bank; (k) any Obligor shall cease to exist or shall be
dissolved, become legally incapacitated, or die; (l) any Proceeding shall be
commenced with respect to any Obligor; (m) there shall occur or commence to
exist any event, condition, or other thing that constitutes an “Event of
Default” as defined in any addendum to this Note; (n) there shall occur any
event, condition, or other thing that has, or, in Bank’s judgment, is likely to
have, a material adverse effect on the financial condition, properties, or
business operations of any Obligor or on Bank’s ability to enforce or exercise
any agreement or right arising under, out of, or in connection with any Related
Writing; or (o) the holder of this Note shall, in good faith, believe that the
prospect of payment or performance of any obligation evidenced by this Note is
impaired.

6. Effects of Default. If any Event of Default (other than the commencement of
any Proceeding with respect to Borrower) shall occur, then, and in each such
case, notwithstanding any provision or inference to the contrary, Bank shall
have the right in its discretion, by giving written notice to Borrower, to
declare this Note to be due, whereupon the entire unpaid principal balance of
this Note (if not already due) shall immediately become due and payable in
full.  If any Proceeding shall be commenced with respect to Borrower, then,
notwithstanding any provision or inference to the contrary, automatically,
without presentment, protest, or notice of dishonor, all of which are waived by
all makers and all endorsers of this Note, now or hereafter existing, the entire
unpaid principal balance of this Note (if not already due) shall immediately
become due and payable in full.

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7. Late Charges. If any principal of or interest on this Note is not paid within
ten (10) days after its due date, then, and in each such case, Bank shall have
the right to assess a late charge, payable by Borrower on demand, in an amount
equal to the greater of Twenty and 00/100 Dollars ($20.00) or five percent (5%)
of the amount not timely paid.

8. No Setoff. Borrower hereby waives any and all now existing or hereafter
arising rights to recoup or offset any obligation of Borrower under or in
connection with this Note or any Related Writing against any claim or right of
Borrower against Bank.

9. Indemnity: Administration and Enforcement. Borrower will reimburse Bank, on
Bank’s demand from time to time, for any and all fees, costs, and expenses
(including, without limitation, the fees and disbursements of legal counsel)
incurred by Bank in administering this Note or in protecting, enforcing, or
attempting to protect or enforce its rights under this Note. If any amount
(other than any principal of this Note and any interest and late charges) owing
under this Note is not paid when due, then, and in each such case, Borrower
shall pay, on Bank’s demand, interest on that amount from the due date thereof
until paid in full at a fluctuating rate equal to four percent (4%) per annum
plus the Prime Rate.

10. Waivers; Remedies; Application of Payments. Bank may from time to time in
its discretion grant waivers and consents in respect of this Note or any other
Related Writing or assent to amendments thereof, but no such waiver, consent, or
amendment shall be binding upon Bank unless set forth in a writing (which
writing shall be narrowly construed) signed by Bank. No course of dealing in
respect of, nor any omission or delay in the exercise of, any right, power, or
privilege by Bank shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any further or other exercise thereof or of
any other, as each such right, power, or privilege may be exercised either
independently or concurrently with others and as often and in such order as Bank
may deem expedient. Without limiting the generality of the foregoing, neither
Bank’s acceptance of one or more late payments or charges nor Bank’s acceptance
of interest on overdue amounts at the respective rates applicable thereto shall
constitute a waiver of any right of Bank. Each right, power, or privilege
specified or referred to in this Note is in addition to and not in limitation of
any other rights, powers, and privileges that Bank may otherwise have or acquire
by operation of law, by other contract, or otherwise. Bank shall be entitled to
equitable remedies with respect to each breach or anticipatory repudiation of
any provision of this Note, and Borrower hereby waives any defense which might
be asserted to bar any such equitable remedy. Bank shall have the right to apply
payments in respect of the indebtedness evidenced by this Note with such
allocation to the respective parts thereof and the respective due dates thereof
as Bank in its sole discretion may from time to time deem advisable.

11. Other Provisions. The provisions of this Note shall bind Borrower and
Borrower’s successors and assigns and benefit Bank and its successors and
assigns, including each subsequent holder, if any, of this Note. Except for
Borrower and Bank and their respective successors and assigns, there are no
intended beneficiaries of this Note or the loan evidenced by this Note. The
provisions of sections 6 through 15, both inclusive, shall survive the payment
in full of the principal of and interest on this Note. The captions to the
sections and subsections of this Note are inserted for convenience only and
shall be ignored in interpreting the provisions thereof. Each reference to a
section includes a reference to all subsections thereof (i.e., those having the
same character or characters to the left of the decimal point) except where the
context clearly

5

does not so permit. If any provision in this Note shall be or become illegal or
unenforceable in any case, then that provision shall be deemed modified in that
case so as to be legal and enforceable to the maximum extent permitted by law
while most nearly preserving its original intent, and in any case the illegality
or unenforceability of that provision shall affect neither that provision in any
other case nor any other provision. All fees, interest, and premiums for any
given period shall accrue on the first day thereof but not on the last day
thereof (unless the last day is the first day) and in each case shall be
computed on the basis of a 360-day year and the actual number of days in the
period. In no event shall interest accrue at a higher rate than the maximum
rate, if any, permitted by law. Bank shall have the right to furnish to its
Affiliates, and to such other Persons as Bank shall deem advisable for the
conduct of its business, information concerning the business, financial
condition, and property of Borrower, the amount of the Bank Debt of Borrower,
and the terms, conditions, and other provisions applicable to the respective
parts thereof. This Note shall be governed by the law State of Ohio.

12. Integration. This Note and, to the extent consistent with this Note, the
other Related Writings, set forth the entire agreement of Borrower and Bank as
to the subject matter of this Note, and may not be contradicted by evidence of
any agreement or statement unless made in a writing (which writing shall be
narrowly construed) signed by Bank contemporaneously with or after the execution
and delivery of this Note. Without limiting the generality of the foregoing,
Borrower hereby acknowledges that Bank has not based, conditioned, or offered to
base or condition the credit hereby evidenced or any charges, fees, interest
rates, or premiums applicable thereto upon Borrower’s agreement to obtain any
other credit, property, or service other than any loan, discount, deposit, or
trust service from Bank. In the event and to the extent of any conflict between
the terms hereof and the terms of any exhibit, schedule, addendum, allonge,
modification or amendment hereto, the terms of such exhibit, schedule, addendum,
allonge, modification or amendment shall control.

13. Notices and Other Communications. Each notice, demand, or other
communication, whether or not received, shall be deemed to have been given to
Borrower whenever Bank shall have mailed a writing to that effect by certified
or registered mail to Borrower at Borrower’s mailing address (or any other
address of which Borrower shall have given Bank notice after the execution and
delivery of this Note); however, no other method of giving actual notice to
Borrower is hereby precluded. Borrower hereby irrevocably accepts Borrower’s
appointment as each Obligor’s agent for the purpose of receiving any notice,
demand, or other communication to be given by Bank to each such Obligor pursuant
to any Related Writing. Bank shall be entitled to assume that any knowledge
possessed by any Obligor other than Borrower is possessed by Borrower. Each
communication to be given to Bank shall be in writing unless this Note expressly
permits that communication to be made orally, and in any case shall be given to
Bank at Bank’s banking office (or any other address of which Bank shall have
given notice to Borrower after the execution and delivery this Note). Borrower
hereby assumes all risk arising out of or in connection with each oral
communication given by Borrower and each communication given or attempted by
Borrower in contravention of this section. Bank shall be entitled to rely on
each communication believed in good faith by Bank to be genuine.

14. Warrant of Attorney. Borrower hereby authorizes any attorney at law at any
time or times to appear in any state or federal court of record in the United
States of America after all or any part of the obligations evidenced by this
Note shall have become due, whether by lapse of time,

6

acceleration, or otherwise, and in each case to waive the issuance and service
of process, to present to the court this Note and any other writing (if any)
evidencing the obligation or obligations in question, to admit the due date
thereof and the nonpayment thereof when due, to confess judgment against
Borrower in favor of Bank for the full amount then appearing due, together with
interest and costs of suit, and thereupon to release all errors and waive all
rights of appeal and any stay of execution. The foregoing warrant of attorney
shall survive any judgment, it being understood that should any judgment against
Borrower be vacated for any reason, Bank may nevertheless utilize the foregoing
warrant of attorney in thereafter obtaining one or more additional judgments
against Borrower.

15. Jurisdiction and Venue; Waiver of Jury Trial. Any action, claim,
counterclaim, crossclaim, proceeding, or suit, whether at law or in equity,
whether sounding in tort, contract, or otherwise at any time arising under or in
connection with this Note or any other Related Writing, the administration,
enforcement, or negotiation of this Note or any other Related Writing or the
performance of any obligation in respect of this Note or any other Related
Writing (each such action, claim, counterclaim, crossclaim, proceeding, or suit,
an “Action”) may be brought in any federal or state court located in the city in
which Bank’s banking office is located. Borrower hereby unconditionally submits
to the jurisdiction of any such court with respect to each such Action and
hereby waives any objection Borrower may now or hereafter have to the venue of
any such Action brought in any such court.

BORROWER HEREBY, AND EACH HOLDER OF THIS NOTE, BY TAKING POSSESSION THEREOF,
KNOWINGLY AND VOLUNTARILY WAIVES JURY TRIAL IN RESPECT OF ANY ACTION.

 

BORROWER: Northern Technologies
Holding Company, LLC

 

 

 

 

 

 

 

By:

First American Exchange Company, LLC

 

Its:

Member

 

 

 

 

 

 

 

By:

/s/ Steven P. Katkov

 

 

--------------------------------------------------------------------------------

 

Printed Name: Steven P. Katkov

 

Title:

Vice President

STATE OF MINNESOTA

COUNTY OF RAMSEY, SS:

The foregoing instrument was acknowledged before me on May 3, 2006, by Steven P.
Katkov, the Vice President of First American Exchange Company, LLC, the Member
of Northern Technologies Holding Company, LLC, a Minnesota limited liability
company, on behalf of the Minnesota limited liability company.

 

/s/ Jodean Ives Fritz

 

--------------------------------------------------------------------------------

 

Notary Public, Commission Expires: 1/31/2009

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WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.

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EXHIBIT A

(ATTACH AMORTIZATION SCHEDULE)

9

COMMERCIAL NOTE ADDENDUM (OHIO)

Amount

City, State

Date

$1,275,000.00

 

May 3, 2006

This Commercial Note Addendum (this “Addendum”) is made by Northern Technologies
Holding Company, LLC (“Borrower”), a Minnesota limited liability company, and,
at the place and as of the date first set forth above.

Borrower has executed and delivered to National City Bank (“Bank”) a promissory
note of even date herewith in the face amount set forth above and captioned
Commercial Note: Term Single Advance.

This Addendum is hereby made a part of the note described above and that note is
hereby supplemented by adding the following Events of Default thereto:

1A. Borrower’s Information. It shall be an Event of Default if Bank shall not
receive:

 

(a) as soon as available, and in any event within 60 days after each
quarter-annual fiscal period of each of Borrower’s fiscal years, the Reporting
Group’s balance sheet as at the end of the period and the Reporting Group’s
statements of cash flow, income, and surplus reconciliation for Borrower’s then
current fiscal year to date, prepared for Borrower alone, and on comparative
basis with the prior year, in accordance with GAAP, and in form and detail
satisfactory to Bank, and

 

 

 

(b) as soon as available, and in any event within 120 days after the end of each
of Borrower’s fiscal years, a complete copy of an annual report (including,
without limitation, all financial statements therein and notes thereto) of the
Reporting Group for that year, prepared in the manner described in the preceding
clause (a), (i) certified, without qualification as to GAAP, as having been
audited by independent certified public accountants selected by Borrower and
satisfactory to Bank, and (ii) accompanied by a copy of any management report,
letter, or similar writing furnished to any member of the Reporting Group by
those accountants.

 

 

 

(c) concurrently with each delivery of financial statements described above in
this section 1A, a compliance certificate signed by Borrower’s chief financial
officer (or other officer acceptable to Bank) and otherwise in form and
substance satisfactory to Bank (i) certifying that to the best of that officer’s
knowledge and belief, (A) those financial statements have been prepared in
accordance with GAAP and fairly present in all material respects the financial
condition and results of operations of the Reporting Group, if any, in
accordance with GAAP subject, in the case of interim financial statements, to
routine year-end adjustments and (B) no Event of Default then exists or if any
does, a brief description of the Event of Default and Borrower’s intentions in
respect thereof and (ii) setting forth calculations with respect to each
subsection of section 2.

2. Financial Standards. It shall be an Event of Default if Borrower shall fail
to comply with the following:

1

 

Debt Service Coverage. Borrower shall not, as of the last day of any Debt
Service Coverage Measurement Period, commencing with the Debt Service Coverage
Measurement Period ending on December 31, 2006, suffer or permit the ratio of
the aggregate of (a) the Reporting Group’s Net Income for that period, plus (b)
the Reporting Group’s interest expense for that period, plus (c) the Reporting
Group’s federal, state, and local income taxes, if any, for that period, plus
(d) the Reporting Group’s depreciation and amortization charges for that period
to the aggregate of (i) the Reporting Group’s interest expense for that period,
plus (ii) the Reporting Group’s unfunded investments (net after trade-ins, if
any) in fixed and capital assets and leasehold improvements during that period,
plus (iii) all Dividends/withdrawals (other than any made to one or more other
members of the Reporting Group) paid by members of the Reporting Group during
that period, plus (iv) an amount equal to the aggregate of all payments required
to be made on Funded Debt by members of the Reporting Group during the period of
twelve (12) consecutive months next succeeding the Debt Service Coverage
Measurement Period in question to be less than 1.0:1.0.

 

 

 

Each “Debt Service Coverage Measurement Period” shall be a period of a fiscal
year of Borrower.

3. Mergers and Equity Investments. It shall be an Event of Default if any member
of the Reporting Group shall, without having first obtained Bank’s consent, (a)
be a party to any merger or consolidation, (b) purchase or otherwise acquire all
or substantially all of the assets and business of any corporation or other
business enterprise, (c) create, acquire, or have any Subsidiary, or make or
keep any investment in any stocks or other equity securities of any kind, except
any existing investment or Subsidiary fully disclosed in the Most Recent
Financial Statements or any future investment in the stocks or other equity
securities of any such Subsidiary, (d) be or become a party to any joint venture
or partnership, except any existing joint venture or partnership fully disclosed
in the Most Recent Financial Statements, (e) sell or otherwise transfer any
equity interest in any Subsidiary of that member to any other Person, except if
and to the extent the sale or other transfer is required under applicable law
solely for the purpose of qualifying directors, or (f) issue, if that member is
a direct Subsidiary of any other member of the Reporting Group, any equity
interest, except if and to the extent the issuance is to such other member or is
required under applicable law solely for the purpose of qualifying directors.

4. Credit Extensions and Non-Equity Investments. It shall be an Event of Default
if any member of the Reporting Group shall, without having first obtained Bank’s
consent, (a) make or have outstanding at any time any advance or loan to any
Person, except any existing advance or loan fully disclosed in the Most Recent
Financial Statements or any existing or future advance made by a member of the
Reporting Group to an officer or employee of that member solely for the purpose
of paying the ordinary and necessary business expenses of that member or (b)
make or keep any investment in any notes, bonds, or other obligations of any
kind for the payment of money, except any existing investment fully disclosed in
the Most Recent Financial Statements or any existing or future investment,
maturing not more than one (1) year from the date when made, in direct
obligations of the United States of America or any agency thereof if the full
faith and credit of the United States of America is obligated thereupon, in
certificates of deposit issued by Bank, or in any other obligation that carries
the highest quality rating of any nationally-recognized rating agency, or (c) be
or become a guarantor of any kind, except any existing guaranty fully disclosed
in the Most Recent Financial Statements or any existing or future endorsement of
a check or other medium of payment for deposit or collection, or any similar
transaction in the ordinary course of business.

2

5. Borrowings. It shall be an Event of Default if any member of the Reporting
Group shall, without having first obtained Bank’s consent, create, assume, or
have outstanding at any time any Debt, except any existing Debt fully disclosed
in the Most Recent Financial Statements, any existing or future Bank Debt, any
existing or future Subordinated Debt, or any existing or future Debt secured by
any mortgage, security interest, or other lien expressly consented to by Bank.

6. Banking Relationship.  Borrower will maintain the majority of its depository
and disbursement business with Bank.

7. Definitions. As used in this Addendum, except where the context clearly
requires otherwise, “Bank Debt” means, collectively, all Debt to Bank, whether
incurred directly to Bank or acquired by it by purchase, pledge, or otherwise,
and whether participated to or from Bank in whole or in part; “Debt” means,
collectively, all obligations of the Person or Persons in question, including,
without limitation, every such obligation whether owing by one such Person alone
or with one or more other Persons in a joint, several, or joint and several
capacity, whether now owing or hereafter arising, whether owing absolutely or
contingently, whether created by lease, loan, overdraft, guaranty of payment, or
other contract, or by quasi-contract, tort, statute, other operation of law, or
otherwise; “Dividend” means a payment made, liability incurred, or other
consideration given by any Person (other than any stock dividend or stock split
payable solely in capital stock of that Person) for the purchase, acquisition,
redemption or retirement of any capital stock of that Person or as a dividend,
return of capital, or other distribution in respect of that Person’s capital
stock; “Funded Debt” means all indebtedness for borrowed money, purchase money
indebtedness and with respect to capitalized lease obligations, including each
renewal or extension, if any, in whole or in part; “GAAP” means generally
accepted accounting principles applied in a manner consistent with those used in
preparation of the Most Recent Financial Statements; “Most Recent Financial
Statements” means the financial statements included in the Reporting Group’s
most recent annual report delivered to Bank on or before the date of this
Addendum; “Net Income” means net income as determined in accordance with GAAP,
after taxes, if any, and after extraordinary items, but without giving effect to
any gain resulting from any reappraisal or write-up of any asset; “Person” means
an individual or entity of any kind, including, without limitation, any
association, company, cooperative, corporation, partnership, trust, governmental
body, or any other form or kind of entity; “Reporting Group” means (I) Borrower
alone, if all of the financial statements hereinbefore selected are prepared for
Borrower alone, in which case all determinations referred to in section 2 shall
be for Borrower alone and in accordance with GAAP; (II) Borrower and each
Subsidiary of Borrower, if any of the financial statements hereinbefore selected
are prepared on a consolidated basis, in which case all determinations referred
to in section 2 shall be on a consolidated basis and in accordance with GMP, and
(III) Borrower and each other Person whose assets, liabilities, income, cash
flow, and shareholders’ equity are reported on a combined basis with those of
Borrower, if any of the financial statements hereinbefore selected are prepared
on a combined basis, in which case all determinations referred to in section 2
shall be on a combined basis and in accordance with GMP; “Subordinated”, as
applied to any liability of any Person, means a liability which at the time in
question is subordinated (by a writing in form and substance satisfactory to
Bank) in

3

favor of the prior payment in full of that Person’s Debt to Bank; “Subsidiary”
means a corporation or other business entity if shares constituting a majority
of its outstanding capital stock (or other form of ownership) or constituting a
majority of the voting power in any election of directors (or shares
constituting both majorities) are (or upon the exercise of any outstanding
warrants, options or other rights would be) owned directly or indirectly at the
time in question by the corporation in question or another Subsidiary of that
corporation or any combination of the foregoing; “Tangible Net Worth” means, as
to any Person, the excess (as determined in accordance with GAAP) of the net
book value (after deducting all applicable valuation reserves and without any
consideration to any re-appraisal or write-up of assets) of that Person’s
tangible assets (i.e., all assets other than intangibles such as patents, costs
of businesses over net assets acquired, good will, and treasury shares) over
that Person’s Debt; and the foregoing definitions shall be applicable to the
respective plurals of the foregoing defined terms. Any accounting term used in
Addendum shall have the meaning ascribed thereto by GAAP as in effect on the
date hereof, subject, however, to such modification, if any, as may be provided
in this Addendum or in the note hereby supplemented.

 

BORROWER: Northern Technologies
Holding Company, LLC

 

 

 

 

 

 

 

By:

First American Exchange Company, LLC

 

Its:

Member

 

 

 

 

 

 

 

By:

/s/ Steven P. Katkov

 

 

--------------------------------------------------------------------------------

 

Printed Name: Steven P. Katkov

 

Title:

Vice President

STATE OF MINNESOTA

COUNTY OF RAMSEY, SS:

The foregoing instrument was acknowledged before me on May 3, 2006, by Steven P.
Katkov, the Vice President of First American Exchange Company, LLC, the Member
of Northern Technologies Holding Company, LLC, a Minnesota limited liability
company, on behalf of the Minnesota limited liability company.

 

/s/ Jodean Ives Fritz

 

--------------------------------------------------------------------------------

 

Notary Public, Commission Expires: 1/31/2009

WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.

4

FUNDING COST RECOVERY CHARGE ADDENDUM Ohio

Amount

City, State

Date

$1,275,000.00

 

May 3, 2006

This Funding Cost Recovery Charge Addendum (this “Addendum”) is made by Northern
Technologies Holding Company, LLC (“Borrower”) at the place and as of the date
first set forth above.

Borrower has executed and delivered to NATIONAL CITY BANK (“Bank”) a promissory
note (the “Note”) of even date herewith in the face amount set forth above and
captioned Commercial Note: Term Single Advance.

This Addendum is hereby made a part of the Note and the Note is hereby
supplemented by adding the following provisions thereto:

“Reinvestment Rate” means, on the Determination Date, the “bond equivalent
yield” interpolated from the most actively traded U.S. Treasury Bills, U.S.
Treasury Notes and/or U.S. Treasury Bonds to a term equal to the principal
weighted average time (as measured in years from the date of calculation and
rounded to the nearest 1/10th of a year) that all principal payments subject to
early repayment are scheduled to be outstanding and bear interest at a fixed
rate under the Note.

“Cost of Funds” means Bank’s cost of funds as determined by Bank in the exercise
of its sole discretion and quoted to Borrower upon request.

“Funding Cost” means Bank’s original Cost of Funds used in determining the fixed
rate in effect, or scheduled to be in effect, at the time of prepayment or
acceleration, as applicable.

“Funding Cost Recovery Charge” is calculated as follows:

Step 1.

For each period that bears interest, or is scheduled to bear interest, at a
fixed rate, multiply the difference between the Funding Cost and the
Reinvestment Rate by the principal amount originally scheduled to be outstanding
in each period (giving effect to any change thereto as a result of any prior
prepayment for which a Funding Cost Recovery Charge has been determined pursuant
to the terms of this Addendum), but either (a) will not be outstanding due to
early repayment, in the case of a prepayment, or (b) has been accelerated so
that such amount scheduled to be outstanding is already due, and multiply the
result by the number of days in that period divided by 360; provided, however,
that in no event shall any Funding Cost Recovery Charge hereunder be calculated
for any period for which the Funding Cost has not yet been determined.

 

 

Step 2.

Calculate the present value of each number obtained in Step 1 in accordance with
standard financial practice using a discount rate equal to the Reinvestment
Rate.

5

Loan No: 98076

MORTGAGE
(Continued)

--------------------------------------------------------------------------------

Step 3.

Sum all the numbers obtained in Step 2 to arrive at the Funding Cost Recovery
Charge.

The calculation is detailed mathematically as follows:

Funding Cost Recovery Charge

=

SIGMA (FC - RR) x Prin i-1 x (Daysi /360)

 

 

 

  i=1                    (1+ RR/PF)i

 

Where:

 

 

SIGMA

= Sigma. The sum from i = 1 to i = n. For each payment date i, perform the
operations to the right of the sigma sign until i=n. Then sum the results.

 

 

i

= 1,2,3 ... n where each number represents a scheduled future payment date for
which the principal bears interest, or is scheduled to bear interest, at a fixed
rate. The first scheduled payment date subsequent to the early prepayment date
or the acceleration date, as applicable, is designated i = 1, the following
payment date i = 2 and so on until i = n.

 

 

n

= Number of remaining payment dates relating to periods bearing interest, or
scheduled to bear interest, at a fixed rate.

 

 

FC

= Funding Cost

 

 

RR

= Reinvestment Rate

 

 

Prini

= Principal amount originally scheduled to be outstanding on given date i but
will not be outstanding due to early repayment or acceleration. When i = 1 then
Prini-1 is equal to the principal amount subject to early repayment on the date
of prepayment or acceleration, as applicable.

 

 

Daysi

= Number of days from payment date (i - 1) to payment date L When i = 1, Days;
is equal to the number of days from the later of the date of prepayment,
acceleration, or the fixed rate start date, as applicable to payment date i = 1.

 

 

PF

= Payment Frequency. The number of scheduled loan payments per year. [i.e. for
monthly payments PF=12, for quarterly payments PF=4, etc.]

Bank’s determination of the Funding Cost Recovery Charge shall be conclusive
absent obvious error. Any prepayment shall be applied to any installments due on
the Note in the inverse order of their respective due dates. Borrower
acknowledges and agrees that the Funding Cost Recovery Charge (a) constitutes
liquidated damages, (b) is a reasonable method of determining Bank’s loss in the
event all or any part of any principal of the Note is paid in whole or in part
or accelerated before its original due date, and (c) is not a penalty.

6

Loan No: 98076

MORTGAGE
(Continued)

--------------------------------------------------------------------------------

BORROWER, BY SIGNING BELOW, HEREBY ACKNOWLEDGES THAT BORROWER HAS BEEN GIVEN A
FULL OPPORTUNITY TO REVIEW THIS ADDENDUM AND CONSULT WITH BORROWER’S LEGAL
COUNSEL, ACCOUNTANTS AND/OR FINANCIAL PROFESSIONALS AS TO THE EFFECT AND
CONSEQUENCES OF THIS ADDENDUM AND, HAVING HAD AN OPPORTUNITY TO DO SO, HEREBY
AGREES TO BE BOUND BY ITS TERMS.

 

BORROWER: Northern Technologies Holding
Company, LLC

 

 

 

 

 

 

 

By:

First American Exchange Company, LLC

 

Its:

Member

 

 

 

 

 

 

 

By:

/s/ Steven P. Katkov

 

 

--------------------------------------------------------------------------------

 

Printed Name: Steven P. Katkov

 

Title:

Vice President

STATE OF MINNESOTA

COUNTY OF RAMSEY, SS:

The foregoing instrument was acknowledged before me on May 3, 2006, by Steven P.
Katkov, the Vice President of First American Exchange Company, LLC, the Member
of Northern Technologies Holding Company, LLC, a Minnesota limited liability
company, on behalf of the Minnesota limited liability company.

 

/s/ Jodean Ives Fritz

 

--------------------------------------------------------------------------------

 

Notary Public, Commission Expires: 1/31/2009

7