LOAN AND SECURITY AGREEMENT

 

 

This LOAN AND SECURITY AGREEMENT (this “Agreement”), entered into as of April
24, 2012, between VIPER MOTORCYCLE COMPANY, a Minnesota corporation with its
chief executive offices located at 2458 West Tech Lane, Auburn, Alabama 36832
(the “Borrower”), and PRECIOUS CAPITAL LLC, a Delaware limited liability company
(together with any successors or assigns, herein the “Lender”), with an address
of 152 West 57th Street, 54th Floor, New York, New York 10019.

 

FOR VALUE RECEIVED, and in consideration of the granting by Lender of financial
accommodations to or for the benefit of Borrower, including without limitation
respecting the Obligations (as hereinafter defined), Borrower represents and
agrees with Lender, as of the date hereof and as of the date of each loan,
credit and/or other financial accommodation, as follows:

 

1. THE LOAN

 

1.1 Loan. Subject to the terms and conditions of this Agreement, Lender hereby
agrees to make a loan to or for the benefit of Borrower, on and after the date
hereof, in one or more advances of principal hereunder not to exceed, in the
aggregate, $6,000,000 (each, an “Advance”). All principal advanced hereunder is
hereinafter referred to collectively as the “Loan”. The Loan shall be evidenced
by that certain Promissory Note, dated as of the date hereof (the “Note”), given
by Borrower to the order of Lender, in the maximum face amount of
US$6,000,000.00. This Agreement, the Note, and any and all other documents,
amendments or renewals executed and delivered by any Person in connection with
any of the foregoing, including any guaranties of any obligation of Borrower are
collectively hereinafter referred to as the “Loan Documents”.

 

1.2 Credit Account. An account shall be opened on the books of Lender which
shall be designated on Lender’s books and records as Borrower’s “Credit Account”
in which account a record will be kept of the Loan, all Advances thereunder, and
all payments thereon and other appropriate debits and credits as provided by
this Agreement.

 

1.3 Interest; Maturity. Interest respecting the outstanding principal balance of
the Loan will be charged to Borrower from time to time outstanding at the rate
specified in this Agreement. Interest on the Loan will be based on the actual
number of days elapsed in a given calendar month and an assumed 360-day year.
All outstanding principal and accrued and unpaid interest thereon shall be due
and payable on the Maturity Date (as hereinafter defined).

 

1.4 Certain Definitions. For purposes of this agreement, the following terms
shall have the following meanings:

 

(a)“Advance Conditions” shall mean each of the following:

 

(i)the satisfaction of the Closing Conditions (provided that the execution and
delivery by the Lender of this Agreement shall be conclusive evidence that the
Closing Conditions have been satisfied or waived by Lender);

 

 

 

 

(ii)each of the representations, warranties, and covenants contained herein
shall be true and correct in all respects;

 

(iii)no default or event that, by virtue of the giving of notice or the passage
of time, could become an Event of Default (as hereinafter defined) hereunder,
shall have then occurred hereunder or under any other Loan Document;

 

(iv)No circumstance exists which may, in the reasonable determination of Lender,
be expected to have a Material Adverse Effect (as hereinafter defined);

 

(v)Borrower shall not be subject to any lawsuit, proceeding, investigation, or
other action, nor shall any such lawsuit, proceeding, investigation, or other
action have been threatened against Borrower, which may result, in the Lender’s
reasonable determination, in a Material Adverse Effect;

 

(vi)The Templar Group LLC shall have been paid all sums then due and owing to it
by Borrower in connection with this Agreement and the Loan, which payment shall
be made in accordance with the terms of that certain Services Agreement, dated
as of November 29, 2011, by and between Parent and The Templar Group LLC;

 

(vii)Lender shall have received searches from each office in which any
Intellectual Property is registered, or in which any lien on any Intellectual
Property is perfected by filing, showing that Borrower and each Surety have good
and valid title to such Intellectual Property free and clear of any liens or
encumbrances (other than as may be held by the holder of Permitted
Indebtedness);

 

(viii)Borrower shall have delivered or caused to be delivered to Lender, with
respect to any real estate owned or (if Lender so requires) leased by Borrower,
(i) a mortgage or deed of trust, as applicable, in form and substance
satisfactory to Lender, executed by the title holder thereof, (ii) an ALTA
lender’s title insurance policy issued by a title insurer reasonably
satisfactory to Lender in form and substance and in amounts reasonably
satisfactory to Lender insuring Lender’s first priority lien on such real
estate, free and clear of all defects and encumbrances except for Permitted
Liens, (iii) a current ALTA survey, certified to Lender by a licensed surveyor,
in form and substance satisfactory to Lender, (iv) a certificate, in form and
substance acceptable to Lender, to Lender from a national certification agency
acceptable to Lender, certifying that such real estate is not located in a
special flood hazard area, (v) an opinion from counsel licensed to practice in
the jurisdiction in which such real estate is located, in form and substance
reasonable acceptable to Lender, that the applicable mortgage is in proper form
for recording and, when so recorded, will perfect the Lender’s lien in and to
such real property; and (vi) in the case of real estate that consists of a
leasehold estate, such estoppel letters, consents and waivers from the landlords
and non-disturbance agreements from any holders of mortgages or deeds of trust
on such real estate as may be requested by Lender, all of which shall be in form
and substance satisfactory to Lender; and

 

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(ix)Lender shall have received, to the extent not previously received, one or
more subordination agreements, in form and substance satisfactory to Lender in
its sole discretion, from the holder of any Permitted Indebtedness (as
hereinafter defined).

 

(b)“Affiliate” means with respect to any Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For purposes hereof, “control” means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.

 

(c)“Balancing Formula” shall mean the sum of:

 

(i)sixty-one percent (61%) of the IP Value; plus

 

(ii)sixty percent (60%) of the PMFR Liquidation Value; plus

 

(iii)sixty percent (60%) of the PMFR Inventory Cost Price; plus

 

(iv)sixty percent (60%) of the Future Liquidation Value; plus

 

(v)sixty percent (60%) of the Future Inventory Cost Price; plus

 

(vi)sixty percent (60%) of the Inventory Cost Price; plus

 

(vii)sixty percent (60%) of the Motorcycle Liquidation Value; plus

 

(viii)sixty percent (60%) of the Melling Hellcat Liquidation Value; plus

 

(ix)seventy-five percent (75%) of the Dealer Revenue Value.

 

(d)“Borrowing Base Certificate” shall mean a certificate in the form attached
hereto as Exhibit 1.4(d).

 

(e)“Capital Budget” shall mean the pro-forma budget for capital and operating
expenses prepared by Borrower and submitted to and approved by Lender pursuant
to Section 4.18 hereof.

 

(f)“Capital Event” shall mean either (i) any person or group (within the meaning
of Sections 13(d) and 14(d) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) becomes the “beneficial owner” (as defined in Rules
13d-3 and 13d-5 adopted under the Exchange Act), directly or indirectly, of more
than fifty-one percent (51%) of the issued and outstanding ownership interests
in Parent, or (ii) any person or group becomes the beneficial owner, directly or
indirectly, of more than fifty-one percent (51%) of the issued and outstanding
ownership interests in Borrower, or (iii) the issuance of authorized but
unissued shares of ownership interests in Borrower or Parent.

 

(g)“Closing Conditions” shall mean each of the following:

 

(i)Borrower shall have executed and delivered this Agreement to Lender;

 

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(ii)Borrower shall have executed and delivered to Lender the Note and a Security
Agreement, each in form and substance satisfactory to Lender in its sole
discretion;

 

(iii)Parent shall have delivered (or caused to be delivered) to Lender the
Delivered Shares;

 

(iv)Parent shall have executed and delivered to Lender a Guaranty and a Security
Agreement, each in form and substance satisfactory to Lender in its sole
discretion, granting Lender a first priority perfected security interest in all
of Parent’s assets;

 

(v)John R. Silseth (“JRS”) and Timothy C. Kling (“TCK”) shall each have
delivered to Lender a Guaranty and Indemnity (the “Guaranty”) in form and
substance satisfactory to Lender in its sole discretion;

 

(vi)Borrower and Parent shall have delivered to Lender all UCC-1 and other
financing statements in favor of Lender pursuant to this Agreement, which shall
be in a recordable form satisfactory to Lender, in its sole and absolute
discretion, and Lender shall have received evidence satisfactory to it that,
upon the filing and recording of such financing statements, Lender shall have a
valid and perfected first priority security interest in the Collateral (as
hereinafter defined) subject only to Permitted Liens;

 

(vii)Borrower shall have opened the Security Accounts (as hereinafter defined)
with the Account Bank (as hereinafter defined);

 

(viii)Borrower and Account Bank shall have executed and delivered to Lender one
or more deposit account control agreements or other agreements with respect to
the Security Accounts as Lender may require, in each case in form and substance
satisfactory to Lender in its sole discretion;

 

(ix)Lender shall have received, in form and substance satisfactory to it, all
releases, terminations and such other documents as it may request to evidence
and effectuate the termination by any other lender of its respective financing
arrangements with Borrower (other than Permitted Indebtedness) and the
termination and release by such lender of any interest in and to any assets and
properties of Borrower, duly authorized, executed and delivered by such lender,
including, without limitation, (i) UCC termination statements for all UCC
financing statements previously filed by it or its predecessors, as secured
party, and Borrower or any of its Affiliates, as debtor and (ii) satisfactions
and discharges of any mortgages, deeds of trust or deeds to secure debt by
Borrower or any of its Affiliates in favor of any such lender, in form
acceptable for recording with the appropriate governmental authority; and

 

(x)The Templar Group LLC shall have been paid all sums then due and owing to it
by Borrower in connection with this Agreement and the Loan, which payment shall
be made in accordance with the terms of the Parent’s agreement with The Templar
Group LLC.

 

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(h)“Closing Costs” shall mean Borrower’s demonstrable third-party out-of-pocket
costs and expenses incurred in connection with the entry by Borrower into this
Agreement and the Loan Documents.

 

(i)“Dealer Revenue Value” shall mean the aggregate present value of (i) Eligible
Accounts Receivable, less (ii) the Inventory Cost Price associated with the
Inventory that is the subject of such Eligible Accounts Receivable, and in all
cases utilizing an annual discount rate equal to twenty-four percent (24%), as
determined by Lender from time to time. On the date hereof, “Dealer Revenue
Value” shall equal $1,690,000.00.

 

(j)“Deferred Interest” shall mean interest on the outstanding principal balance
of the Loan from time to time at a rate per annum equal to nine and ninety-six
one-hundredths percent (9.96%), which shall, to the extent not paid monthly
pursuant to Section 1.8(f)(iv), below, be added to the then outstanding
principal balance of the Loan.

 

(k)“Delivered Shares” shall mean a number of shares of common stock of Parent
equivalent to twenty percent (20%) of the aggregate issued and equitable
outstanding ownership interests in Parent on a fully diluted basis.

 

(l)“Eligible Accounts Receivable” shall mean Borrower’s “Accounts” (as defined
in the UCC), Parent’s Accounts, and, following Borrower’s acquisition of any
future company, any Accounts of future company, except for any Account:

 

(i)for which the applicable Account debtor (each, herein an “Account Debtor”)
has not been instructed to remit payment directly to either “Lockbox” (as
hereinafter defined)

 

(ii)which is more than one hundred twenty (120) days past the invoice date
(unless Lender otherwise consents in writing on a case-by-case basis);

 

(iii)for which more than fifty percent (50%) of all Accounts owed by the
applicable Account Debtor are more than ninety (90) days past the due date;

 

(iv)for which the applicable Account Debtor has had any Account written off by
Borrower or Parent within the immediately preceding ninety (90) day period;

 

(v)that is the obligation of a particular Account Debtor located in a foreign
country, to the extent that the Lender, in its sole discretion, has notified
Borrower of the identity of such particular Account Debtor;

 

(vi)that is the obligation of an Account Debtor that is the United States
government or a political subdivision thereof, or any state or municipality or
department, agency or instrumentality thereof unless Lender, in its sole
discretion, has agreed to the contrary and Borrower or Parent, if requested by
Lender, has complied in a manner acceptable to Lender with the Federal
Assignment of Claims Act of 1940 or any applicable state statute or municipal
ordinance of similar purpose and effect, with respect to such obligation;

 

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(vii)as to which any proceedings or actions known to Borrower or Parent (or to
Lender) are threatened or pending against the Account Debtor with respect to
such Account which could reasonably be expected to have a material adverse
change in any such Account Debtor’s financial condition (including, without
limitation, any bankruptcy, dissolution, liquidation, reorganization or similar
proceeding);

 

(viii)that consists of progress billings (such that the obligation of the
Account Debtors with respect to such Account is conditioned upon Borrower’s or
Parent’s satisfactory completion of any further performance under the agreement
giving rise thereto), bill and hold invoices or retainage invoices, except as to
bill and hold invoices, if Lender shall have received an agreement from the
Account Debtor, in form and substance satisfactory to Lender, confirming the
unconditional obligation of the Account Debtor to take the goods related thereto
and pay such invoice;

 

(ix)to the extent any defense, counterclaim, setoff or dispute is asserted as to
such Account;

 

(x)to the extent such Account is evidenced by a judgment, “instrument” or
“chattel paper” (each as defined by the UCC);

 

(xi)as to which Lender’s lien therein is not a first priority perfected security
interest, or as to which the goods giving rise thereto are not, and were not at
the time of the applicable sale, subject to a first priority perfected security
interest in favor of Lender;

 

(xii)that (i) is not owned by Borrower or Parent or (ii) is subject to any
right, claim, lien or other interest of any other Person, other than liens in
favor of Lender or the holder of any Permitted Indebtedness;

 

(xiii)upon which (i) Borrower’s or Parent’s right to receive payment is not
absolute or is contingent upon the fulfillment of any condition whatsoever
(including any Account that arises from a sale on consignment, guaranteed sale,
sale and return, sale on approval or other terms under which payment by the
Account Debtor may be conditioned or contingent) or (ii) Borrower or Parent is
not able to bring suit or otherwise enforce its remedies against the Account
Debtor through judicial process;

 

(xiv)that does not arise from the actual and bona fide sale and delivery of
goods or the performance of services by Borrower or Parent in the ordinary
course of business, which transactions are completed in accordance with the
terms and provisions contained in any documents related thereto;

 

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(xv)to the extent constituting the obligation of an Account Debtor in respect of
interest, service or similar charges or fees;

 

(xvi)that is reissued in respect of partial payment, including without
limitation debit memos and charge backs;

 

(xvii)that arises in connection with cash on delivery or other cash sales;

 

(xviii)as to which any of the representations or warranties pertaining to such
Account set forth in any Loan Document is untrue; and

 

(xix)with respect to which an invoice, acceptable to Lender in form and
substance, has not been sent to the applicable Account Debtor.

 

(m)“Eligible Inventory” means all “Inventory” (as defined in Article 9 of the
UCC) of Borrower and Parent, except for any Inventory:

 

(i)that consists of work-in-process or raw materials (in each case except as may
be approved by Lender on a case-by-case basis);

 

(ii)that in Lender’s reasonable determination or in the determination of
Borrower’s or Parent’s management (as applicable) is excess, obsolete,
unsaleable, shopworn, seconds, damaged or unfit for sale;

 

(iii)that is not of a type held for sale by Borrower or Parent in the ordinary
course of business;

 

(iv)as to which Lender’s security interest therein is not a first priority
perfected security interest (subject to Permitted Indebtedness);

 

(v)that is not owned by Borrower or Parent free and clear of all liens and
rights of any other Person (including the rights of a purchaser that has made
progress payments and the rights of a surety that has issued a bond to assure
performance with respect to that inventory), except the liens in favor of Lender
or the holder of any Permitted Indebtedness;

 

(vi)that is located on premises leased by Borrower or Parent, or stored with a
bailee, warehouseman, processor or similar Person, unless (a) Lender has given
its prior consent thereto or (b) a lien waiver and collateral access agreement,
in form and substance satisfactory to Lender has been delivered to Lender,
together with any and all duly authorized UCC financing statements required by
Lender naming such Person as debtor, Borrower or Parent as secured creditor and
Lender as assignee;

 

(vii)that is placed on consignment, is in transit, is outside the possession or
control of Borrower or Parent (other than as described in the preceding clause
(vi)) or is in possession of Borrower or Parent on a sale-on-approval or
sale-on-return basis or subject to any other repurchase or return agreement;

 

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(viii)that is manufactured, assembled or otherwise produced in violation of the
Fair Labor Standards Act and subject to the “hot goods” provisions contained in
Title 25 U.S.C. 215(a)(i);

 

(ix)that is not covered by casualty insurance acceptable to Lender;

 

(x)that consists of display items, samples or packing or shipping materials,
packaging, or manufacturing supplies;

 

(xi)that consists of goods which have been returned by the buyer;

 

(xii)that consists of any costs associated with “freight-in” charges;

 

(xiii)as to which any of the representations or warranties pertaining to such
inventory set forth in any Loan Document is untrue;

 

(xiv)that is covered by a negotiable document of title, unless such document has
been delivered to Lender;

 

(xv)that is bill and hold inventory;

 

(xvi)that is located outside the United States of America; and

 

(xvii)that is otherwise unacceptable to Lender in its reasonable credit
judgment.

 

(n)“Intellectual Property” shall mean, with respect to any Person, all patents,
trademarks, trade names, trade styles, trade dress, service marks, logos and
other business identifiers, copyrights, technology, know-how and processes,
computer hardware and software and all applications and licenses therefor, used
in or necessary for the conduct of business by such Person.

 

(o)“Inventory Cost Price” shall the actual cost incurred by Borrower or Parent
in connection with the acquisition or manufacture by Borrower or Parent of any
Eligible Inventory owned by Borrower or Parent as determined by Lender from time
to time. On the date hereof, “Inventory Cost Price” shall mean $600,000.00.

 

(p)“Ilmor IP” shall mean Borrower’s interest in the “Intellectual Property” as
defined in that certain Motorcycle Engine Manufacture and Supply Agreement,
dated as of January 4, 2010, by and between Borrower and Ilmor Engineering,
Inc., a Michigan corporation.

 

(q)omitted

 

(r)omitted

 

(s)omitted

 

(t)omitted

 

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(u)“Lockup Expenses” shall mean tax and other liabilities of JRS and TCK arising
out of certain restrictions on shares of Parent owned by them as determined by
Lender in its sole discretion.

 

(v)“Melling Hellcat Liquidation Value” shall mean $300,000.00.

 

(w)“Motorcycle Liquidation Value” shall mean $240,000.00.

 

(x)“Parent” shall mean Viper Powersports, Inc., a Nevada corporation, and the
sole owner of one hundred percent (100%) of the issued and outstanding ownership
interests in Borrower.

 

(y)“Payment Date” shall mean the first Business Day of each calendar month
during the term of this Agreement commencing with the second full calendar month
occurring subsequent to the date of this Agreement (for example, if this
Agreement were dated November 5, 2012, then the first Payment Date would be the
first Business Day occurring during the month of January 2013).

 

(z)“Permitted Indebtedness” shall mean the debt issued by Borrower and held on
the date hereof by the Industrial Board of the City of Auburn, Alabama.

 

(aa)“PMFR” shall mean Precision Metal Fab Racing, an unincorporated business
proprietorship based in Shakopee, Minnesota.

 

(bb)“PMFR Inventory Cost Price” shall mean the actual cost incurred by PMFR in
connection with the acquisition or manufacture by PMFR of any Eligible Inventory
owned by PMFR as determined by Lender from time to time. On the date hereof,
“PMFR Inventory Cost Price” shall mean $600,000.00.

 

(cc)“PMFR Liquidation Value” shall mean $300,000.

 

(dd)“Prepaid Interest” shall mean an amount equal to $375,000.00, which shall be
drawn in connection with the first Advance hereunder and paid over to Lender in
prepayment of Regular Interest due and owing on the Loan from time to time.

 

(ee)“Regular Interest” shall mean interest on the outstanding principal balance
of the Loan from time to time at a rate per annum equal to fifteen percent
(15%).

 

(ff)“Subsidiaries” shall mean, collectively or individually as the case may
require, PMFR and any subsidiary acquired by Borrower during the term of the
Loan.

 

(gg)“Van Den Berg Indebtedness” shall mean the indebtedness of Borrower to
Robert Van Den Berg, which indebtedness is being satisfied in full in connection
with the first Advance hereunder.

 

(hh)“Venture Bank Indebtedness” shall mean the indebtedness of Borrower to
Venture Bank, which indebtedness is being satisfied in full in connection with
the first Advance hereunder.

 

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(ii)“Warehoused Motorcycles” shall mean, collectively, the ten (10) completed
motorcycles owned by Borrower and warehoused at 2458 West Tech Lane, Auburn,
Alabama.

 

(jj)“Working Capital” shall mean any expenditure made by or on behalf of
Borrower pursuant to the Capital Budget.

 

1.5 Advances, Payments, and Prepayments.

 

(a)Credit Line.

 

(i)Lender shall establish a line of credit under the Loan (the “Credit Line”)
pursuant to which Borrower may request, from time to time, Advances by
submitting to Lender a request for Advance in the form attached hereto as
Exhibit 1.5(a)(i) (a “Request for Advance”) and a Borrowing Base Certificate.

 

(ii)Upon satisfaction of the Advance Conditions with respect to a request for an
Advance under the Credit Line hereunder, Lender shall fund such Advance to the
Controlled Account (as hereinafter defined), and shall disburse sums on deposit
in the Controlled Account in accordance with the applicable Advance request.

 

(iii)The first Advance hereunder shall be in an amount equal to $_____________.

 

(iv)Lender hereby covenants and agrees that an amount equal to $2,500,000.00 is
committed to Borrower under the Credit Line, provided that such amount shall not
be construed as the maximum amount that may be drawn under the Credit Line.
Subsequent to the first Advance hereunder, Borrower may from time to time
request that Lender make one or more further Advances under the Credit Line by
submitting a Request for Advance and a Borrowing Base Certificate, and upon
receipt of such request, and upon the satisfaction of the Advance Conditions,
the Lender shall make such an Advance to Borrower, provided, however, that from
and after the date on which Lender has made Advances under the Credit Line of,
in the aggregate, not less than $2,500,000.00, any subsequent Advance under the
Credit Line, to the extent (but only to the extent) that such Advance would
cause the aggregate amount of Advances made by Lender under the Credit Line to
exceed $2,500,000.00, shall be in the sole and absolute discretion of Lender
(i.e., if a requested Advance would cause the aggregate amount of Advances made
under the Credit Line to equal $2,600,000.00, then only the last $100,000.00 of
such requested Advance shall be in the Lender’s sole and absolute discretion),
notwithstanding the satisfaction of the Advance Conditions or the submission of
a Request for Advance or a Borrowing Base Certificate.

 

(v)At no time shall the outstanding principal balance of all Advances under the
Credit Line exceed the Balancing Formula.

 

(b)No Advance may be requested by Borrower after the date that is twenty-four
(24) months from the date of this Agreement.

 

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(c)With respect to the first Advance under the Loan, Borrower may only use the
proceeds of such Advance (i) to consummate Borrower’s acquisition of PMFR for an
amount not to exceed $640,000.00, (ii) to consummate the Borrower’s acquisition
of the Ilmor IP for an amount not to exceed $330,000.00, (iii) to purchase
Equipment for the manufacture of Eligible Inventory for an amount not to exceed
$300,000.00, (iv) to complete two paint booths and certain tooling requirements
at the Borrower’s Auburn, Alabama, factory, as set forth on the Capital Budget,
for an amount not to exceed $150,000.00, (v) to repay in full the Van Den Berg
Indebtedness in an amount not to exceed $80,000.00, (vi) to repay in full the
Venture Bank Indebtedness in an amount not to exceed $200,000.00, (vii) to pay
the brokerage commission due and owing to The Templar Group LLC in an amount not
to exceed $180,000.00, (viii) to pay certain demonstrated expenses of Riggs
Capital in an amount not to exceed $24,000.00, (ix) to reimburse JRS and TCK for
their Lockup Expenses in an amount not to exceed $48,000.00, (x) for certain
immediate expenditures as set forth in the Capital Budget in an amount not to
exceed $128,000.00, (xi) for Prepaid Interest, and (xii) for payment of
Borrower’s expenses incurred in connection with the closing of the transaction
evidenced hereby (subject to Lender’s prior reasonable approval) and of Lender’s
expenses incurred to date and to anticipated be incurred following the date
hereof. Borrower may use the proceeds of any Advance (other than the first
Advance) under the Loan for purposes of consummating, subject to Lender’s prior
written approval in all respects, an acquisition of a future company.

 

(d)With respect to each Advance under the Loan other than the first Advance,
Borrower may only use the proceeds of such Advance for Working Capital.

 

(e)Lender shall fund each Advance hereunder to the Controlled Account or (with
Lender’s prior written approval) to such other account or Person as Borrower may
instruct, and Lender shall disburse sums on deposit in the Controlled Account in
accordance with the Capital Budget.

 

(f)On each Payment Date during the term of the Loan, Borrower shall make a
payment to Lender of Regular Interest on the outstanding principal balance of
the Loan, in arrears.

 

(g)The entire outstanding principal balance of the Loan, together with all
accrued and unpaid interest thereon, shall be due and payable on the date which
is thirty-six (36) months from the date of this Agreement (such date, the
“Maturity Date”).

 

(h)Subject to the applicable conditions precedent to the making of any Advance
hereunder, including, without limitation, the right of Lender hereunder, if
applicable, to make a particular Advance in its sole and absolute discretion, no
Advance (other than the first Advance hereunder) shall be made sooner than
fifteen (15) Business Days subsequent to the date on which Lender receives the
request for such Advance from Borrower.

 

(i)Borrower may prepay outstanding principal on the Loan, in whole or in part,
at any time, provided that any such prepayment shall be on not less than two (2)
weeks’ notice to Lender.

 

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(j)If, as a result of a Capital Event, any principal amount of the Loan is
prepaid, then such principal shall be applied in prepayment of the most recently
advanced principal hereunder, and such prepayment shall be accompanied by (i) a
prepayment premium equal to fifteen percent (15%) of the amount of principal so
prepaid, and (ii) Regular Interest that would have accrued on such amount of
principal, but for such prepayment, through the date which is the earlier of (i)
two (2) years from the date on which such principal was advanced hereunder and
(ii) the Maturity Date.

 

(k)Any principal prepaid or repaid on the Loan as a result of Borrower’s cure of
a Balancing Default (as hereinafter defined) may be re-borrowed during the
period of time for which Advances may be requested and made hereunder, and to
the extent any such principal is prepaid or repaid, the Lender shall re-advance
such prepaid or repaid principal under the Loan upon submission by Borrower of a
Request for Advance and a Borrowing Base Certificate, provided that each of the
other applicable conditions precedent as set forth herein for such Advance are
met, and notwithstanding that any such readvance, as an “Advance” hereunder,
would otherwise be able to be declined by Lender in its sole and absolute
discretion.

 

(l)At no time shall the outstanding principal balance of the Loan exceed
$6,000,000.00.

 

1.6 Advances in Lender’s Sole Discretion; Limitation on Liability. Each Advance
(other than in connection with the first $2,500,000 drawn under the Credit Line
hereunder) shall be in Lender’s sole and absolute discretion. Lender shall have
no obligation hereunder to make any Advance other than the first $2,500,000
drawn under the Credit Line. Lender’s failure in its sole and absolute
discretion to make any Advance hereunder shall not impact the repayment of any
Advance previously made, which shall be in all instances in accordance with the
terms and provisions of this Agreement. It is the intention of the parties
hereto that, other than with respect to the first $2,500,000 advanced hereunder,
the credit facility evidenced hereby and by the Loan Documents shall be entirely
discretionary. Borrower hereby acknowledges and agrees that the credit facility
evidenced by this Agreement, and any Advance made or to be made hereunder (other
than with respect to the first $2,500,000 advanced hereunder), are entirely
within the sole and absolute discretion of Lender. Borrower, for itself and on
behalf of its past, present and future representatives, partners, operators,
members, shareholders, officers, directors, agents, employees, servants,
Affiliates, related companies, successors and assigns, hereby releases and
forever discharges Lender from and against any and all liability, claims, causes
of action, losses, costs, and damages (of whatever kind and nature, whether
direct or indirect, foreseeable or unforeseeable, in law or in equity, whether
known or unknown, whether or not concealed or hidden, or otherwise) that
Borrower (or any representative, partner, operator, member, shareholder,
officer, director, agent, employee, servant, Affiliate, related company,
successor or assign of Borrower) may have had, may now have or may incur arising
out of or in any way connected to the Loan or as a result of Lender’s action or
inaction in compliance with the terms of this Section 1.6. The terms and
provisions of this Section 1.6 shall survive the termination of this Agreement
and the repayment in full of the Loan.

 

1.7 Monthly Statement. At the option of Lender, at the end of each month, Lender
will render to Borrower a statement of the Credit Account, showing all
applicable credits and debits. Each statement shall be for informational
purposes only and shall not be deemed binding on Lender.

 

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1.8 Deposit Accounts.

 

(a)Reference is hereby made to (i) that certain Deposit Account Control
Agreement (Blocked Account) (regarding Account No. 026726836 (which account is
herein referred to as the “Controlled Account”)) by and among Borrower, Lender,
and Bank of The West (the “Account Bank”) (the “Controlled Account Agreement”),
and (ii) that certain Deposit Account Control Agreement (Contingency) (regarding
Account No. 026664243 (which account is herein referred to as the “Operating
Account” and, together with the Controlled Account, herein the “Security
Accounts”)) by and among Borrower, Lender, and Account Bank (the “Operating
Account Agreement”) (the foregoing items (i) and (ii), herein the “DACA”), each
dated on or about the date hereof. Pursuant to the DACA, the Account Bank has
acknowledged Lender’s security interest in all funds or sums of money on deposit
from time to time in the “Accounts” (as defined in each agreement constituting
the DACA and herein so-called, comprising, inter alia, the Controlled Account
and the Operating Account).

 

(b)Borrower and has established with the Account Bank the Security Accounts.

 

(c)In order to further secure the performance by Borrower of its obligations
hereunder and under the Note, Borrower hereby acknowledges and confirms that:
(i) the Account Bank has acknowledged the security interest of Lender in the
Security Accounts, and all funds, checks, drafts, certificates, instruments and
other investments or deposits therein and all other financial assets credited
thereto shall constitute collateral to secure the payment of the Loan; (ii)
Borrower shall not have any right to make withdrawals from the Controlled
Account; and (iii) to the extent any Security Account contains any Financial
Assets (as that term is defined in Section 2.2(b) herein), such Financial Assets
shall be maintained as Investment Property (as that term is defined in the UCC).

 

(d)Deposits into the Security Accounts. Each Advance shall be deposited by
Lender into the Controlled Account. Borrower shall irrevocably instruct all of
its present and future Account Debtors to direct all sums payable or otherwise
due and owing to Borrower to the Controlled Account, without such payments at
any time being under the control of Borrower, Parent, or any of their respective
agents or employees. Borrower represents, warrants and covenants that it shall,
upon the request of Lender, deliver Lender such evidence as Lender may
reasonably require to evidence the fact that its Account Debtors have been
instructed by Borrower to remit such payments directly to the Controlled
Account. Borrower shall not amend, revoke or alter such instructions in any way
which would interfere with payments by Account Debtors being transmitted
directly into the Controlled Account, and any such amendment, revocation or
alteration shall constitute an immediate Event of Default hereunder. Without
limiting the foregoing, within one (1) week after receipt of the same by
Borrower or Parent or any agent or Person acting on behalf of Borrower or
Parent, Borrower or Parent or such agent shall directly deposit (or cause to be
deposited) all such payments received by Borrower or Parent or such agent from
any Account Debtor into the Controlled Account, and Borrower or Parent or any
such agent or Person’s failure to do so shall constitute an immediate Event of
Default hereunder. If Borrower, Parent, or any such agent does receive any such
payments from any Account Debtor, then Borrower, Parent, and such agent agree
not to commingle any such payments with other funds of Borrower or Parent, and
Borrower, Parent, and such agent agree that it is holding such payments in an
express trust for the benefit of Lender until such payments are deposited into
the Controlled Account.

 

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(e)Disbursements from the Operating Account. So long as no Event of Default has
occurred, Borrower may disburse sums on deposit from time to time in the
Operating Account for any lawful purpose.

 

(f)Disbursements from the Controlled Account. So long as no Event of Default has
occurred, Lender shall disburse sums on deposit from time to time in the
Controlled in the following order of priority:

 

(i)First, to Lender, in payment of sums, other than principal or interest, due
and owing to Lender hereunder;

 

(ii)Second, to Lender, in payment of Regular Interest then due and owing
hereunder, provided that if there are insufficient sums in the Controlled
Account to pay such Regular Interest in full then the unpaid portion of such
Regular Interest shall be added to the outstanding principal balance of the
Loan;

 

(iii)Third, to Borrower, for use in connection with the then-current monthly
expenditures set forth on the Capital Budget;

 

(iv)Fourth, to Lender, in payment of Deferred Interest then due and owing
hereunder,

 

(v)Fifth, to Lender, in prepayment of the principal balance of the Loan; and

 

(vi)Thereafter, to the Operating Account, to be used by Borrower for any lawful
purpose.

 

(g)Lender’s Right to Control. Upon the occurrence of (a) an Event of Default, or
(b) a Balancing Default, the Lender shall be immediately entitled to provide the
Account Bank with a “Notice of Exclusive Control” (as defined in the Operating
Account Agreement).

 

1.9 Rebalancing. In the event that, at any time and from time to time, the
outstanding principal balance of the Loan exceeds the Balancing Formula (such
event, herein a “Balancing Default”), then in each such event Borrower or Parent
shall either (a) deposit an amount into one or more of the Security Accounts,
and/or (b) prepay a portion of the Loan, in each case in an amount sufficient to
cure the Balancing Default. Borrower’s and Parent’s failure to cure a Balancing
Default as aforesaid within ten (10) Business Days following notice from Lender
to the Borrower that a Balancing Default exists, which notice may be made via
telephone, electronic mail, facsimile or overnight delivery, shall constitute an
Event of Default hereunder. Lender shall have the right to test for the
occurrence of a Balancing Default on a weekly basis and, in connection with any
such test, may require the Borrower to provide updated information, at
Borrower’s sole cost and expense, for any item of Collateral for which a
valuation was previously obtained in connection with the Loan and which previous
valuation is more than six (6) months old.

 

-14-

 

 

1.10 Regarding the Delivered Shares.

 

(a)Lender is acquiring the Delivered Shares for investment purposes only and not
with a view to or for resale in connection with any distribution or public
offering thereof within the meaning of the Securities Act of 1933, as amended
(the “Securities Act”).

 

(b)Lender understands and acknowledges that the Delivered Shares will not be
registered under the Securities Act or qualified under any state securities laws
in reliance upon one or more exemptions from registration or qualification under
the Securities Act and such state securities laws, and that Parent’s reliance
upon such exemptions is predicated upon Lender’s representations set forth in
this Section 1.10. Lender understands and acknowledges that resale of any of the
Delivered Shares may be restricted indefinitely unless they are subsequently
registered under the Securities Act and qualified under state law or an
exemption from such registration and such qualification is available.

 

(c)Lender will not dispose of any of the Delivered Shares, other than in
conjunction with an effective registration statement or based upon an exemption
from registration under the Securities Act and registration or qualification
under applicable state securities laws; provided, however, Lender may assign the
Delivered Shares to any Affiliate without the prior written consent of Parent.

 

(d)Lender is an “accredited investor” within the meaning of Rule 501 promulgated
by the United States Securities and Exchange Commission under Regulation D of
the Securities Act.

 

(e)Lender has not received any general solicitation or general advertising (in
each case within the meaning of Rule 502 of Regulation D under the Securities
Act) in connection with the offer of the Delivered Shares.

 

(f)Lender has not paid and will not be obligated to pay any fee, commission or
similar payment to any finder, broker or other intermediary in connection with
this Agreement or the transactions contemplated hereby.

 

(g)Notwithstanding the foregoing, during the term of the Loan, neither Lender
nor any Affiliate of Lender shall sell or otherwise dispose of any of the
Delivered Shares.

 

2. GRANT OF SECURITY INTEREST

 

2.1 Grant of Security Interest. In consideration of Lender’s extending credit
and other financial accommodations to or for the benefit of Borrower, Borrower
hereby grants to Lender a security interest in, a lien on and pledge and
assignment of the Collateral (as hereinafter defined), including, without
limitation, all claims against third parties (including Account Debtors) arising
out of or related to the Collateral. The security interest granted by this
Agreement is given to and shall be held by Lender as security for the payment
and performance of all Obligations (as hereinafter defined), including, without
limitation, all amounts outstanding pursuant to the Loan Documents.

 

-15-

 

 

2.2 Definitions. The following definitions shall apply:

 

(a)“Collateral” shall mean all of Borrower’s present and future right, title and
interest in, to and under the following described property (unless otherwise
defined herein, each capitalized term used herein shall have the meaning given
to it in the UCC (as hereinafter defined)):

 

(i)all now existing and hereafter acquired or arising Accounts, Goods, General
Intangibles, Payment Intangibles, Financial Assets, Deposit Accounts (including,
without limitation, the Security Accounts), Chattel Paper (including, without
limitation, Electronic Chattel Paper), Documents, Instruments, Software,
Investment Property, Letters of Credit, Letter-of-Credit Rights, Commercial Tort
Claims, money, Equipment, Inventory, Fixtures, and Supporting Obligations,
together with all products of and Accessions to any of the foregoing and all
Proceeds of any of the foregoing (including without limitation all insurance
policies and proceeds thereof);

 

(ii)to the extent, if any, not included in clause (i) above, each and every
other item of personal property and fixtures, whether now existing or hereafter
arising or acquired, including, without limitation, all licenses, contracts and
agreements, and all collateral for the payment or performance of any contract or
agreement, together with all products and Proceeds (including all insurance
policies and proceeds) of any Accessions to any of the foregoing; and

 

(iii)all present and future business records and information relating to any of
the foregoing, including computer tapes and other storage media containing the
same and computer programs and software (including without limitation, source
code, object code and related manuals and documentation and all licenses to use
such software) for accessing and manipulating such information.

 

(b)“Financial Assets” shall mean any security for an obligation of a person or a
share participation or other interest in a person or in property or an
enterprise of a person which is, or is of a type, dealt in or traded on
financial markets, or which is recognized in any area which it is issued or
dealt in as a medium for investment, or any property that is held by a
securities intermediary for another person in investment property if the
securities intermediary has expressly agreed with the other person that the
property is to be treated as a financial asset.

 

(c)“Material Adverse Effect” shall mean materially adversely affecting the
operations or financial performance of Borrower taken as a whole.

 

(d)“Obligation(s)” shall mean, without limitation, all loans, advances,
indebtedness, notes, liabilities and amounts, liquidated or unliquidated, owing
by Borrower to Lender at any time, of each and every kind, nature and
description, whether arising under this Agreement or otherwise, and whether
secured or unsecured, direct or indirect (that is, whether the same are due
directly by Borrower to Lender; or are due indirectly by Borrower to Lender as
endorser, guarantor or other surety, or as borrower of obligations due third
persons which have been endorsed or assigned to Lender, or otherwise), absolute
or contingent, due or to become due, now existing or hereafter arising or
contracted, including, without limitation, payment when due of all amounts
outstanding respecting any of the Loan Documents. Said term shall also include
all interest and other charges chargeable to Borrower or due from Borrower to
Lender from time to time and all fees, costs and expenses referred to in this
Agreement.

 

-16-

 

 

(e)“Person” or “party” shall mean individuals, partnerships, corporations,
limited liability companies and all other entities.

 

(f)“UCC” shall mean the Uniform Commercial Code in effect in the State of New
York from time to time.

 

All words and terms used in this Agreement other than those specifically defined
herein shall have the meanings accorded to them in the UCC, and if not defined
therein, then according to their normal and customary use with the industry.
Definitions referenced or used herein are for interpretation of this Agreement
and the Loan Documents only and any such reference to any jurisdiction other
than the State of New York shall have no impact on jurisdiction or venue, with
total jurisdiction and venue being reserved to the State of New York.

 

2.3 Ordinary Course of Business. Lender hereby authorizes and permits Borrower
to receive from the Account Debtors all amounts due as proceeds of the
Collateral at Borrower’s own cost and expense, and also liability, if any; and
Lender may, following an Event of Default which has not been cured or waived by
Lender or on the Maturity Date, terminate all or any part of the authority and
permission herein or elsewhere in this Agreement granted to Borrower with
reference to the Collateral. Prior to the occurrence of an Event of Default, all
proceeds of and collections of Collateral may be utilized by Borrower for any
lawful purpose to the extent not prohibited by the terms of this Agreement or
any other Loan Document. From and after an Event of Default which has not been
cured or waived by Lender, all proceeds of and collections of the Collateral
shall be held in trust by Borrower for Lender and shall not be commingled with
Borrower’s other funds or deposited in any bank account of Borrower other than
the Controlled Account; and, from and after an Event of Default which has not
been cured or waived by Lender, Borrower agrees to deliver to Lender on the
dates of receipt thereof by Borrower, duly endorsed to Lender or to bearer, or
assigned to Lender, as may be appropriate, all proceeds of the Collateral in the
identical form received by Borrower.

 

2.4 Allowances. Borrower may grant such allowances or other adjustments to
Account Debtors (exclusive of extending the time for payment of or forgiving any
item which, during an Event of Default, shall not be done without first
obtaining Lender’s written consent in each instance) as Borrower may reasonably
deem to accord with sound business practice and its ordinary course of business
dealings, in each case subject to the terms, provisions, and covenants contained
herein.

 

2.5 Records. Borrower shall deliver to Lender from time to time promptly at its
request all invoices, original documents of title, contracts, chattel paper,
instruments and any other writings relating thereto, and other evidence of
performance of contracts, or evidence of the rendering of services; and Borrower
will deliver to Lender promptly at Lender’s request from time to time additional
copies of any or all of such papers or writings, and such other information with
respect to any of the Collateral and such schedules of accounts and such other
writings as Lender may in its sole discretion deem to be necessary or effectual
to evidence any loan hereunder or Lender’s security interest in the Collateral.

 

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2.6 Legends. Borrower shall promptly make, stamp or record such entries or
legends on Borrower’s books and records or on any of the Collateral (including,
without limitation, chattel paper or electronic chattel paper) as Lender shall
request from time to time, to indicate and disclose that Lender has a security
interest in such Collateral. Such books and records may be maintained in
electronic form (in compliance with the requirements of the Electronic
Transactions Laws) and the entries or legends indicating or disclosing Lender’s
security interest shall be made electronically on any such electronic records.

 

2.7 Search Reports. Lender shall receive prior to the date of this Agreement
search results under all names used by Borrower and any guarantor during the
prior five (5) years, from the jurisdiction of Borrower’s formation and the
jurisdiction of guarantor’s formation and/or chief executive office and/or
address of primary residence. The search results shall confirm that the security
interest in the Collateral granted Lender hereunder is prior to all other
security interests in favor of any other Person, subject only to Permitted Liens
(as hereinafter defined).

 

3. REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants to Lender that the following are, and after
giving effect to the transactions contemplated by this Agreement and the other
Loan Documents will be, true, correct and complete:

 

3.1 Organization and Qualification. Borrower is a duly formed and existing
corporation under the laws of the State of Minnesota with the exact legal name
set forth in the first paragraph of this Agreement. Borrower is duly qualified
to conduct business in all jurisdictions necessary to the conduct of its
business. Borrower is in good standing under the laws of the State of Minnesota
and such other jurisdictions, has the power to own its property and conduct its
business as now conducted and as currently proposed to be conducted.

 

3.2 Subsidiaries. Except as set forth on Schedule 3.2 attached hereto, Borrower
has no subsidiaries, and Borrower has never consolidated, merged or acquired
substantially all of the assets of any other entity or person.

 

3.3 Corporate Records. Borrower’s articles of incorporation have been duly filed
and its articles of incorporation and bylaws are in proper order. All
outstanding ownership evidence issued by Borrower was and is properly issued and
all books and records of Borrower, including but not limited to its minute
books, operating agreement, and books of account, are accurate and up to date
and will be so maintained.

 

3.4 Title to Properties; Absence of Liens. Borrower has good and clear record
and marketable title to all of its properties and assets, and all of its
properties and assets, including the Collateral (as defined herein) to the
extent owned by Borrower, are free and clear of all mortgages, liens, pledges,
charges, encumbrances and setoffs, other than the security interest therein
granted to Lender hereby and the encumbrances and security interest as set forth
on Schedule 3.4 hereto, if any (“Permitted Liens”).

 

-18-

 

 

3.5 Places of Business. Borrower’s principal place of business and chief
executive office are correctly stated in the preamble to this Agreement, and
Borrower shall, during the term of this Agreement, keep Lender currently and
accurately informed in writing of each of its other places of business, and
shall not change the location of any such principal place of business or open or
close, move or change any existing or new place of business without giving
Lender at least thirty (30) days prior written notice thereof.

 

3.6 Valid Obligations. The execution, delivery and performance of the Loan
Documents have been duly authorized by all necessary action and the Loan
Documents represent the legal, valid and binding obligation of Borrower and are
fully enforceable according to their terms, except as limited by laws relating
to the enforcement of creditors’ rights.

 

3.7 Conflicts. There is no provision in Borrower’s organizational or charter
documents, if any, or in any indenture, contract or agreement to which Borrower
is a party which prohibits, limits or restricts the execution, delivery or
performance of its obligations under the Loan Documents.

 

3.8 Approvals. The execution, delivery and performance of the Loan Documents do
not require any approval of or filing with any governmental agency or authority
or any other Person.

 

3.9 Litigation. There are no actions, suits or proceedings pending or to the
knowledge of Borrower threatened against Borrower which would be reasonably
expected to materially adversely affect the ability of Borrower to conduct its
business or to pay or perform the Obligations.

 

3.10 Accounts and Contract Rights. All Accounts arise out of legally enforceable
and existing contracts, and represent unconditional and undisputed bona fide
indebtedness by an Account Debtor, and are not and will not be subject to any
discount (other than in the ordinary course of the Business).

 

3.11 Title to Collateral. At the date hereof Borrower is (and as to Collateral
that Borrower may acquire after the date hereof, will be) the lawful owner of
its assets constituting the Collateral, and the Collateral and each item thereof
is, will be and shall continue to be free of all restrictions, liens,
encumbrances or other rights, title or interests (other than the security
interest therein granted to Lender hereby), credits, defenses, recoupments,
set-offs or counterclaims whatsoever, other than the Permitted Liens. Borrower
has and will have full power and authority to grant to Lender a security
interest in the Collateral and Borrower has not transferred, assigned, sold,
pledged, encumbered, subjected to lien or granted any security interest in, and
will not transfer, assign, sell, pledge, encumber, subject to lien or grant any
security interest in any of the Collateral (or any of Borrower’s right, title or
interest therein), to any person other than Lender or the holder of a Permitted
Lien. No part of Borrower’s Collateral (or the validity or enforceability of
Lender’s security interest therein) is or shall be contingent upon the
fulfillment of any agreement or condition whatsoever. Borrower will warrant and
defend Lender’s right to and interest in the Collateral against all claims and
demands of all persons whatsoever.

 

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3.12 Third Parties. No Lender shall be deemed to have assumed any liability or
responsibility to Borrower or any third person for the correctness, validity or
genuineness of any instruments or documents that may be released or endorsed to
Borrower by any Lender (which shall automatically be deemed to be without
recourse to such Lender in any event) or for the existence, character, quantity,
quality, condition, value or delivery of any goods purporting to be represented
by any such documents; and Lender, by accepting such security interest in the
Collateral owned by Borrower, or by releasing any Collateral to Borrower, shall
not be deemed to have assumed any obligation or liability to any Account Debtor
or to any other third party, and Borrower agrees to indemnify and defend Lender
and hold it harmless in respect to any claim or proceeding arising out of any
matter referred to in this paragraph.

 

3.13 Taxes. Borrower has filed, or will file, all Federal, state and other tax
returns required to be filed (except for such returns for which current and
valid extensions have been filed), and all taxes, assessments and other
governmental charges due from Borrower have been fully paid. Borrower has
established on its books reserves adequate for the payment of all Federal, state
and other tax liabilities (if any).

 

3.14 Use of Proceeds. No portion of any principal advanced under the Loan is to
be used for (i) the purpose of purchasing or carrying any “margin security” or
“margin stock” as such terms are used in Regulations U and X of the Board of
Governors of the United States Federal Reserve System, 12 C.F.R. 221 and 224,
(ii) primarily personal, family or household purposes, or (iii) for any purpose
other than the conduct of the Borrower’s business in the ordinary course. The
Collateral is not used or acquired primarily for personal, family or household
purposes.

 

3.15 Compliance with Law. Borrower is in compliance with all applicable laws.

 

3.16 Disclosure. This Agreement (together with all exhibits and schedules
hereto), the other Loan Documents and the other agreements, certificates and
other documents furnished to Lender by or on behalf of Borrower do not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which they were made, not misleading. There is
no fact known to Borrower which has not been disclosed to Lender in writing
which could reasonably be expected to have a Material Adverse Effect.

 

4. AFFIRMATIVE COVENANTS

 

4.1 Payments and Performance. Borrower will duly and punctually pay all
Obligations becoming due to Lender and will duly and punctually perform all
Obligations on its part to be done or performed under this Agreement.

 

4.2 Books and Records; Inspection. Borrower will at all times keep proper books
of account in which full, true and correct entries will be made of its
transactions in accordance with its standard practices, consistently applied.
Borrower will at all reasonable times, and on reasonable advance notice, make
its books, records, and accounting practices and procedures available in its
offices for a field inspection and examination by Lender and/or Lender’s
representatives and will permit inspection of the Collateral and all of its
properties by Lender and/or Lender’s representatives (a “Field Inspection”).
Lender may, at its option, require a Field Inspection not more than one (1) time
in any calendar quarter, unless an Event of Default shall occur which has not
been cured or waived by Lender, in which case Lender shall be permitted to
require a Field Inspection as frequently as Lender deems necessary. All costs
and expenses incurred by Lender in connection with any Field Inspection shall be
borne by Borrower. Borrower will from time to time furnish Lender with such
information and statements as Lender may request in its sole discretion with
respect to the Obligations or Lender’s security interest in the Collateral.
Borrower shall, during the term of this Agreement, keep Lender currently and
accurately informed in writing of each location where Borrower’s records
relating to its accounts and contract rights are kept, and shall not remove such
records to another state without giving Lender at least thirty (30) days prior
written notice thereof.

 

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4.3 Financial Statements and Diligence Reporting.

 

(a)Borrower will furnish to Lender:

 

(i)real-time, online access to information concerning sums on deposit (including
credits and debits) in the Security Accounts;

 

(ii)not less frequently than weekly, a written report on all Accounts then held
by Borrower, which report shall include, for each Account, (i) the outstanding
principal balance, (ii) a consolidated aging report for all Accounts (in
increments of 30 days), (iii) Borrower’s applicable Account number, and (iv)
from time to time, such other information as Lender may reasonably request;

 

(iii)not less frequently than monthly, a written report on all Accounts then
held by Borrower, which report shall include, for each Account, a current
contact name, address, and telephone number for the applicable Account Debtor;

 

(iv)not less frequently than monthly, a statement of the payments anticipated to
be made within the next ensuing month;

 

(v)as soon as available to Borrower, but in any event within forty-five (45)
days after the close of each month, a full and complete signed copy of financial
statements, which shall include a balance sheet of Borrower, as at the end of
such month, and statement of profit and loss of Borrower reflecting the results
of its operations during such month and shall be prepared by Borrower and
certified by Borrower’s chief financial officer as to correctness in accordance
with Borrower’s standard practices, consistently applied, subject to year-end
adjustments and the absence of notes;

 

(vi)as soon as available to Borrower, but in any event within sixty (60) days
after the close of each calendar quarter, a full and complete signed copy of
financial statements, which shall include a balance sheet of Borrower, as at the
end of such quarter, and statement of profit and loss of Borrower reflecting the
results of its operations during such quarter and shall be prepared by Borrower
and certified by Borrower’s chief financial officer as to correctness in
accordance with Borrower’s standard practices, consistently applied, subject to
year-end adjustments and the absence of notes;

 

-21-

 

 

(vii)within one hundred twenty (120) days after the close of each fiscal year of
Borrower, a full and complete signed copy of its audited financial statements
(which shall be audited by a firm approved by Lender in its reasonable
discretion), on a consolidated and consolidating basis, which shall include a
balance sheet of Borrower and Subsidiaries, if any, as at the end of such year,
and statement of profit and loss of Borrower and Subsidiaries, if any reflecting
the results of its operations during such year and shall be certified as to
correctness in accordance with generally accepted accounting principles,
consistently applied, subject to year-end adjustments and the absence of notes;
and

 

(viii)from time to time, such financial data and information about Borrower as
Lender may reasonably request.

 

(b)Parent will furnish to Lender:

 

(i)real-time, online access to information concerning sums on deposit (including
credits and debits) in the Security Accounts;

 

(ii)not less frequently than weekly, a written report on all Accounts then held
by Parent, which report shall include, for each Account, (i) the outstanding
principal balance, (ii) a consolidated aging report for all Accounts (in
increments of 30 days), (iii) Parent’s applicable Account number, and (iv) from
time to time, such other information as Lender may reasonably request;

 

(iii)not less frequently than monthly, a written report on all Accounts then
held by Parent, which report shall include, for each Account, a current contact
name, address, and telephone number for the applicable Account Debtor;

 

(iv)not less frequently than monthly, a statement of the payments anticipated to
be made within the next ensuing month;

 

(v)as soon as available, but in any event within five (5) days after filing the
same with the Securities Exchange Commission, Parent’s 10K, 10Q, and 8K reports;
and

 

(vi)from time to time, such financial data and information about Parent as
Lender may reasonably request.

 

All information submitted pursuant to this Section 4.3 shall be certified as
true, accurate, and complete in all material respects by Borrower.

 

4.4 Conduct of Business. Borrower will maintain its company charter and
existence in good standing and materially comply with all laws and regulations
of the State of Minnesota and of any other governmental authority which may be
applicable to it or to its conduct of its business; provided that this covenant
shall not apply to any tax, assessment or charge which is being contested in
good faith and with respect to which reserves have been established and are
being maintained.

 

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4.5 Notice to Account Debtors. Borrower agrees, following the occurrence of
Event of Default for which a cure has not been affirmatively accepted in writing
by Lender, at the request of Lender, to notify all or any of the Account Debtors
in writing of Lender’s security interest in the Collateral in whatever manner
Lender requests and, hereby authorizes Lender to notify all or any of the
Account Debtors of Lender’s security interest in the Accounts at Borrower’s
expense. Lender shall notify Borrower of its making any such direct
notifications to Account Debtors contemporaneously with the making of such
notifications, provided, that Lender’s failure to so notify Borrower of its
making of any such direct notifications shall not constitute a default
hereunder, nor entitle Borrower to any recourse or remedy against Lender, nor
invalidate the content of any such direct notifications to Account Debtors.

 

4.6 Contact with Collection Agents and Accountant. Borrower hereby authorizes
Lender to directly contact and communicate with any accountant employed by
Borrower in connection with the review and/or maintenance of Borrower’s books
and records or preparation of any financial reports delivered by or at the
request of Borrower to Lender. On the date hereof, Borrower’s accountant is
Child, Van Wagoner & Bradshaw, 5296 South Commerce Drive, Suite 300, Salt Lake
City, Utah 84107. Borrower shall provide Lender with full contact information
for any other accountant employed by Borrower.

 

4.7 Taxes. Borrower will promptly pay all real and personal property taxes,
assessments and charges and all franchise, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it or payable by
it before delinquent; provided that this covenant shall not apply to any tax
assessment or charge which is being contested in good faith and with respect to
which reserves have been established and are being maintained. Lender may, at
its option, from time to time, discharge any taxes resulting in a lien or
encumbrance on the Collateral, or other charges resulting in liens or
encumbrances on any of the Collateral, and Borrower will pay to Lender on demand
or Lender in its sole discretion may charge to Borrower all amounts so paid or
incurred by it.

 

4.8 Indemnity. Borrower shall protect, defend (by counsel selected by Lender and
reasonably acceptable to Borrower), indemnify and hold harmless Lender and
Lender’s respective officers, directors, partners, shareholders, employees,
Affiliates, agents, attorneys, lessees, successors and assigns and any
successors to any Lender’s interest in the Loan, their officers, directors,
partners, shareholders, employees, Affiliates, agents, attorneys, lessees,
successors and assigns (collectively, the “Indemnitees”) from and against all
liabilities (including sums paid in settlement of claims), losses, costs,
obligations, demands, suits, liens, damages, fines (including any sums ordered
to be paid or expended by Indemnitees by any governmental entity as a fine),
penalties or damages arising as a direct or indirect result of any of the
following with respect to Borrower, any Affiliate of Borrower, or the Loan: (a)
fraud, (b) intentional material misrepresentation, (c) failure to pay taxes, (d)
misapplication of funds (including the Loan or any sums on deposit from time to
time in the Security Accounts), (e) failure to apply funds to pay the
Obligations following an Event of Default, (f) subordinate financing incurred by
Borrower in violation of the terms of the Loan Documents or otherwise without
Lender’s consent, (g) transfer of assets, (h) gross negligence, (i) willful
misconduct, (j) court costs and attorneys’ fees, and (k) bankruptcy. In
addition, Borrower shall indemnify and hold harmless the Indemnitees from and
against any liabilities or costs incurred by any Indemnitee under the DACA.

 

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4.9 Insurance. Borrower will maintain (or cause to be maintained) in force
insurance on Borrower’s properties against risks customarily insured against by
companies engaged in businesses similar to that of Borrower containing such
terms and written by such companies as may be satisfactory to Lender, such
insurance to be payable to Lender as its interest may appear in the event of
loss and to cause Lender to be named as insured pursuant to a standard loss
payee clause; no loss shall be adjusted thereunder without Lender’s approval;
and all such policies shall provide that they may not be canceled without first
giving at least thirty (30) days’ written notice of cancellation to Lender;
provided, however, that if the policy does not provide at least thirty (30)
days’ written notice of cancellation to Lender, then Borrower shall, within five
(5) days of the date of premium payment by Borrower, provide evidence to Lender
that the premiums on any policy of insurance required to be maintained hereunder
have been paid in full on or prior to the date on which such premium was due to
the insurer. In the event that Borrower fails to provide evidence of such
insurance, Lender may, at is option, secure such insurance and charge the cost
thereof to Borrower. At the option of Lender, all insurance proceeds received
shall be applied as a payment on account of the Obligations. From and after the
occurrence of an Event of Default which has not been cured or waived by Lender,
Lender is authorized to cancel any insurance maintained hereunder and apply any
returned or unearned premiums, all of which are hereby assigned to Lender, as a
payment on account of the Obligations.

 

4.10 Notification of Default. Within five (5) Business Days of becoming aware of
the existence of any condition or event which constitutes an Event of Default,
or any condition or event which would upon notice or lapse of time, or both,
constitute an Event of Default, Borrower shall give Lender written notice
thereof specifying the nature and duration thereof and the action being or
proposed to be taken with respect thereto.

 

4.11 Notification of Litigation. Borrower will promptly notify Lender in writing
of any litigation or of any investigative proceedings of a governmental agency
or authority commenced or threatened against it which would or might reasonably
be expected to have a Material Adverse Effect, or which would cause the
potential liability of Borrower under such litigation, when aggregated with all
other active litigation, to exceed US$50,000.00, unless the potential liability
of Borrower under such litigation is covered by a policy of insurance acceptable
to Lender and Lender has been provided evidence satisfactory to Lender that such
insurance coverage is in full force and effect. Without limiting the foregoing,
within two (2) Business Days of Borrower obtaining knowledge of the existence
thereof, Borrower shall notify Lender of any investigation, audit, hearing,
compliance inquiry, enforcement action, or any other type of communication from
any regulatory or other governmental authority (including, without limitation,
any attorney general), and shall immediately forward to Lender, on receipt
thereof by Borrower, a certified copy of any written communication or
correspondence concerning the foregoing.

 

4.12 Pension Plans. With respect to any pension or benefit plan maintained by
Borrower, or to which Borrower contributes (“Plan”), the benefits under which
are guarantied, in whole or in part, by the Pension Benefit Guaranty Corporation
created by the Employee Retirement Income Security Act of 1974, P.L. 93-406, or
any governmental authority succeeding to any or all of the functions of the
Pension Benefit Guaranty Corporation (“Pension Benefit Guaranty Corporation”),
Borrower will (a) fund each Plan as required by the provisions of Section 412 of
the Internal Revenue Code of 1986, as amended; (b) cause each Plan to pay all
benefits when due; (c) furnish Lender (i) promptly with a copy of any notice of
each Plan’s termination sent to the Pension Benefit Guaranty Corporation and
(ii) no later than the date of submission to the Department of Labor or to the
Internal Revenue Service, as the case may be, a copy of any request for waiver
from the funding standards or extension of the amortization periods required by
Section 412 of the Internal Revenue Code of 1986, as amended; and (d) subscribe
to any contingent liability insurance provided by the Pension Benefit Guaranty
Corporation to protect against employer liability upon termination of a
guarantied pension plan, if available to Borrower.

 

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4.13 Compliance. Borrower shall comply with all applicable requirements of
governmental authorities having jurisdiction over Borrower, including, without
limitation, the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, the
Employment Retirement Income Security Act of 1974, and those relating to money
laundering and terrorism, in each case as amended from time to time, and the
rules and regulations promulgated thereunder.

 

4.14 Defense of Claims. Borrower shall diligently defend any investigation,
audit, hearing, inquiry, proceeding, administrative action, or other action or
claim related to the origination of, or Borrower’s ownership of, any Accounts,
where Borrower’s liability, if such action or claim is adversely determined,
could reasonably be expected to exceed $50,000.

 

4.15 Organizational Documents. Borrower shall comply in all respects with
Borrower’s certificate of incorporation (or equivalent formation document) and
Borrower’s bylaws (or equivalent operating document).

 

4.16 Location of Collateral. Borrower shall, during the term of this Agreement,
keep Lender currently and accurately informed in writing of each location where
any Collateral, or where any of Borrower’s records relating to its Collateral,
including Accounts, respectively, are kept, and shall not remove such Collateral
or records or any of them to another location without giving Lender at least
thirty (30) days prior written notice thereof; provided that the foregoing
notice requirement shall not apply to Inventory to the extent such Inventory is
in the process of being moved or transported in the ordinary course of business.

 

4.17 Notification of Damage. Borrower will immediately notify Lender of any
material loss or damage to, or material diminution in or any occurrence that
would materially and adversely affect the value of any Collateral.

 

4.18 Capital Budget. With this Agreement Borrower is delivering to Lender
Borrower’s Capital Budget for the period from May 1, 2012, to April 30, 2012,
which is dated as of the date hereof, signed by the Borrower’s Chief Financial
Officer, and approved by the Lender. On or prior to the date which is thirty
(30) days from the date of this Agreement, and on each one month anniversary
thereafter during the term of the Loan, Borrower shall submit to Lender, for
Lender’s review and approval, a pro forma Capital Budget for the one-year period
immediately succeeding the date of such submission, which pro forma, upon
approval by the Lender, shall be deemed the “Capital Budget” hereunder for the
applicable time period.

 

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4.19 Maintenance of Property and Collateral. Borrower will keep all property
useful and necessary in its business, including, without limitation, the
Collateral, in good working order and condition, ordinary wear and tear
excepted.

 

4.20 Regarding Certain Collateral. Borrower will keep, or cause to be kept, the
Melling Hellcat owned by JRS with serial number SDLCB129WB002 (the “Hellcat”),
at Borrower’s facility or in a warehouse and shall, at Lender’s request, deliver
to Lender such bailee agreements and warehouseman’s waivers as Lender may
request. If at any time the Hellcat becomes subject to a certificate of title,
Borrower shall deliver such certificate of title to Lender, together with any
such endorsements or notations thereon as Lender may require to evidence and
perfect Lender’s security interest in the Hellcat.

 

5. NEGATIVE COVENANTS

 

5.1 Limitations on Indebtedness. Borrower shall not, without the prior written
consent of Lender in each instance, issue any evidence of indebtedness or
create, assume, guarantee, become contingently liable for, or suffer to exist
indebtedness in addition to indebtedness to Lender, other than Permitted
Indebtedness and customary unsecured trade payables incurred in the ordinary
course of business provided the same are not evidenced by a promissory note, are
paid within sixty (60) days of the date incurred, and are limited, in the
aggregate, to an amount equal to two percent (2%) of the maximum principal
amount of the Loan.

 

5.2 Loans or Advances. Other than the Accounts, Borrower shall not make any
loans or advances to any individual, firm or corporation, including without
limitation its officers and employees; provided, however, that Borrower may make
advances to its employees, including its officers, with respect to expenses
incurred or to be incurred by such employees in the ordinary course of business
which expenses are reimbursable by Borrower.

 

5.3 Investments. Borrower shall not make investments in, or advances to, any
Person, other than the Accounts. Except for Accounts, Borrower will not purchase
or otherwise invest in or hold securities, non-operating real estate or other
non-operating assets or purchase all or substantially all the assets of any
entity other than in connection with an acquisition approved by Lender in
writing, which approval shall not be unreasonable withheld, conditioned, or
delayed.

 

5.4 Merger. Borrower will not, without the prior written consent of the Lender
in the Lender’s sole discretion in each instance, merge or consolidate or be
merged or consolidated with or into any other entity, unless prior to or
concurrently therewith Lender is paid in full for all Obligations under the Loan
Documents.

 

5.5 Capital Expenditures. Except as may be set forth from time to time in the
Capital Budget, Borrower shall not, directly or indirectly, make or commit to
make capital expenditures by lease, purchase, or otherwise, except in the
ordinary and usual course of business for the purpose of replacing machinery,
equipment or other personal property which, as a consequence of wear,
duplication or obsolescence, is no longer used or necessary in Borrower’s
business.

 

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5.6 Sale of Assets. Borrower shall not sell, lease or otherwise dispose of any
of its assets except in the ordinary and usual course of business, unless prior
to or concurrently therewith Lender is paid in full for all Obligations under
the Loan Documents (subject to any notice period or restriction contained herein
regarding Borrower’s right to prepay the Loan) or except for the purpose of
replacing machinery, equipment or other personal property which, as a
consequence of wear, duplication or obsolescence, is no longer used or necessary
in Borrower’s business, provided that fair cash consideration is received
therefor. Borrower shall not sell, transfer, convey, encumber, or otherwise
alienate any of its right, title, or interest in or to any Collateral.

 

5.7 Restriction on Liens. Borrower shall not grant any security interest in, or
mortgage of, its respective properties or assets including the Collateral, other
than Permitted Liens or such liens as are in favor of Lender. Borrower shall not
agree with any person other than Lender to not grant any security interest in,
or mortgage of, any of its properties or assets including the Collateral.

 

5.8 Other Business. Borrower shall not engage in any business other than the
business in which it is engaged on the date hereof.

 

5.9 Change of Name. Borrower shall not change its legal name or the state or
jurisdiction of its organization, without giving Lender at least thirty (30)
days’ prior written notice thereof.

 

5.10 Organizational Documents. Borrower shall not modify, alter, amend, or
restate in any way Borrower’s certificate of incorporation (or equivalent
formation document) nor Borrower’s bylaws (or equivalent operating document)
without the prior written consent of Lender in each instance.

 

5.11 Conduct of Business. Borrower shall not, without the prior consent of
Lender in each instance, enter into any agreement regarding the acquisition of,
disposition of, collections on, or the hiring or instructing of collection
agents with respect to, any Accounts.

 

6. DEFAULT

 

6.1 Default. An “Event of Default” shall mean the occurrence of one or more of
any of the following events:

 

(a)(i) failure to pay principal or interest hereunder when due, whether at
maturity, by acceleration or otherwise, or (ii) failure to pay, within (10)
Business Days of the date due (as used herein, “Business Day” shall mean any day
other than a Saturday, Sunday, Day of Observance, or day which is or shall be in
the State of New York a legal holiday or a day on which banking institutions are
required or authorized to close, and the term “Day of Observance” shall mean
each of Rosh Hashanah (both days), Yom Kippur, Succoth (first two (2) days),
Shmini Atzereth, Simchas Torah, Passover (first two (2) days and last two (2)
days) and Shavuoth (both days)), any other amounts due hereunder; or

 

(b)the default by Borrower of any of the terms or provisions of Sections 3.4,
3.11, 4.9, 4.16, 5.1, 5.6, 5.7, or 5.9 hereof;

 

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(c)default of any other liability, obligation or undertaking of Borrower or any
guarantor or other surety for the Loan, hereunder or under any other Loan
Document or otherwise, which failure continues for ten (10) Business Days’ after
its occurrence (provided that if such default is not reasonably susceptible of
cure within said ten (10) Business Day period, and Borrower commences a cure of
such default within said ten (10) Business Day period, and thereafter diligently
pursues such cure, then an Event of Default shall only occur if such failure
continues for thirty (30) days after its occurrence; or

 

(d)if any statement, representation or warranty heretofore, now or hereafter
made by Borrower or any Affiliate of Borrower in connection with this Agreement
or in any supporting financial statement of Borrower shall be determined to have
been intentionally false in any material respect when made; or

 

(e)the liquidation, termination or dissolution of Borrower or any Affiliate of
Borrower, or the merger or consolidation of any such organization into another
entity, or its ceasing to carry on actively its present business or the
appointment of a receiver for its property; or

 

(f)the institution by or against any of Borrower or any guarantor of or surety
for the Loan of any insolvency proceedings, whether under the United States
Bankruptcy Code 11 USC §101 et seq. or any other law, in which Borrower or any
guarantor of or surety for the Loan is alleged to be insolvent or unable to pay
its debts as they mature, or the making by Borrower or any guarantor of or
surety for the Loan of an assignment for the benefit of creditors or the
granting by Borrower or any guarantor of or surety for the Loan of a trust
mortgage for the benefit of creditors and, if such proceeding is instituted
against Borrower or any guarantor of or surety for the Loan, such proceeding
shall not have been dismissed in sixty (60) days; or

 

(g)the service upon any Lender of a writ in which any Lender is named as trustee
of Borrower or of any guarantor of or surety for the Loan; or

 

(h)a judgment or judgments for the payment of money shall be rendered in excess
of US$50,000.00 against Borrower or any guarantor of or surety for the Loan, and
any such judgment shall remain unsatisfied and in effect for any period of
thirty (30) consecutive days without a stay of execution; or

 

(i)the occurrence of any fact or circumstance which, in Lender’s reasonable
discretion, may be reasonably expected to cause a Material Adverse Effect, which
fact or circumstance is not cured within ten (10) Business Days following
written notice thereof from Lender to Borrower; or

 

(j)any levy, lien (including mechanics lien), seizure, attachment, execution or
similar process shall be issued or levied on any material portion of the
property of Borrower or on any Collateral, and such lien or levy shall not be
removed within sixty (60) days; or

 

(k)any event occurs which constitutes an “Event of Default” under the express
terms of Section 1.8(d) or 1.9 hereof.

 

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6.2 Acceleration.

 

(a)If an Event of Default under Section 6.1(f) shall have occurred, all
Obligations shall become immediately due and payable without notice or demand.
If any other Event of Default shall have occurred which, to the extent capable,
has not been cured or waived by Lender, at the election of Lender, all
Obligations shall become immediately due and payable without notice or demand.

 

(b)Lender is hereby authorized, at its election, after an Event of Default shall
have occurred which has not been cured or waived by Lender, without any further
demand or notice except to such extent as notice may be required by applicable
law, to take possession and/or sell or otherwise dispose of all or any of the
Collateral at public or private sale; and Lender may also exercise any and all
other rights and remedies of a secured party under the UCC or which are
otherwise accorded to it in equity or at law, all as Lender may determine, and
such exercise of rights in compliance with the requirements of law will not be
considered adversely to affect the commercial reasonableness of any sale or
other disposition of the Collateral. If notice of a sale or other action by
Lender is required by applicable law, unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Borrower agrees that ten (10) days’ written notice to
Borrower, or the shortest period of written notice permitted by such law,
whichever is smaller, shall be sufficient notice; and that to the extent
permitted by law, Lender, its officers, attorneys and agents may bid and become
purchasers at any such sale, if public, and may purchase at any private sale any
of the Collateral that is of a type customarily sold on a recognized market or
which is the subject of widely distributed standard price quotations. Any sale
(public or private) shall be without warranty and free from any right of
redemption, which Borrower shall waive and release after default upon Lender’s
request therefor, and may be free of any warranties as to the Collateral if
Lender shall so decide. No purchaser at any sale (public or private) shall be
responsible for the application of the purchase money. Any balance of the net
proceeds of sale remaining after paying all Obligations of Borrower to Lender
shall be returned to such other party as may be legally entitled thereto; and if
there is a deficiency, Borrower shall be responsible for the same, with
interest. Upon demand by Lender, Borrower shall assemble the Collateral and make
it available to Lender at a place designated by Lender which is reasonably
convenient to Lender and Borrower. Borrower hereby acknowledges that Lender has
extended credit and other financial accommodations to Borrower upon reliance of
Borrower’s granting Lender the rights and remedies contained in this Agreement
including without limitation the right to take immediate possession of the
Collateral upon the occurrence of an Event of Default which has not been cured
or waived by Lender and Borrower hereby acknowledges that Lender is entitled to
such equitable and injunctive relief to enforce any of its rights and remedies
hereunder and Borrower hereby waives any defense to such equitable or injunctive
relief based upon any allegation of the absence of irreparable harm to Lender.

 

(c)No Lender shall be required to marshal any present or future security for
(including but not limited to this Agreement and the Collateral subject to the
security interest created hereby), or guarantees of, the Obligations or any of
them, or to resort to such security or guarantees in any particular order; and
all of its rights hereunder and in respect of such securities and guarantees
shall be cumulative and in addition to all other rights, however existing or
arising. To the extent that it lawfully may, Borrower hereby agrees that it will
not invoke any law relating to the marshalling of collateral which might cause
delay in or impede the enforcement of Lender’s rights under this Agreement or
under any other instrument evidencing any of the Obligations or under which any
of the Obligations is outstanding or by which any of the Obligations is secured
or guaranteed, and to the extent that it lawfully may do so, Borrower hereby
irrevocably waives the benefits of all such laws. Except as otherwise provided
by applicable law, Lender shall have no duty as to the collection or protection
of the Collateral or any income thereon, nor as to the preservation of rights
against prior parties, nor as to the preservation of any rights pertaining
thereto beyond the safe custody thereof.

 

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6.3 Power of Attorney. Borrower hereby irrevocably constitutes and appoints
Lender as Borrower’s true and lawful attorney, with full power of substitution,
at the sole cost and expense of Borrower but for the sole benefit of Lender,
upon the occurrence of an Event of Default which has not been cured or waived by
Lender, to convert the Collateral into cash, including, without limitation,
completing the manufacture or processing of work in process, and the sale
(either public or private) of all or any portion or portions of the Collateral
(subject to the notice and other terms provided in Section 6.2, above); to
enforce collection of the Collateral, either in its own name or in the name of
Borrower, including, without limitation, executing releases or waivers,
compromising or settling with any Account Debtors and prosecuting, defending,
compromising or releasing any action relating to the Collateral; to receive,
open and dispose of all mail addressed to Borrower and to take therefrom any
remittances or proceeds of Collateral in which Lender has a security interest;
to notify applicable postal authorities to change the address for delivery of
mail addressed to Borrower to such address as Lender shall designate; to endorse
the name of Borrower in favor of Lender upon any and all checks, drafts, money
orders, notes, acceptances or other instruments of the same or different nature;
to sign and endorse the name of Borrower on and to receive as secured party any
of the Collateral, any invoices, freight or express receipts, or bills of
lading, storage receipts, warehouse receipts, or other documents of title of the
same or different nature relating to the Collateral; to sign the name of
Borrower on any notice of the Account Debtors or on verification of the
Collateral; and to sign, if necessary, and file or record on behalf of Borrower
any financing or other statement in order to perfect or protect Lender’s
security interest. Lender shall not be obliged to do any of the acts or exercise
any of the powers hereinabove authorized, but if Lender elects to do any such
act or exercise any such power, it shall not be accountable for more than it
actually receives as a result of such exercise of power, and it shall not be
entitled to collect more than an amount equal to the then outstanding
Obligations, and any sums received in excess of the then-outstanding Obligations
shall be returned to Borrower, and it shall not be responsible to Borrower or to
any other party (and shall be and is hereby indemnified by Borrower against any
such responsibility to any other party) except in the event that such Lender has
been determined, with finality, by a court of competent jurisdiction, that such
Lender has committed gross negligence or willful misconduct. All powers
conferred upon Lender by this Agreement, being coupled with an interest, shall
be irrevocable so long as any Obligation of Borrower or any surety to Lender
shall remain unpaid or Lender are obligated under this Agreement to extend any
credit to Borrower.

 

6.4 Nonexclusive Remedies. All of Lender’s rights and remedies not only under
the provisions of this Agreement but also under any other agreement or
transaction shall be cumulative and not alternative or exclusive, and may be
exercised by Lender at such time or times and in such order of preference as
Lender in its sole discretion may determine.

 

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7. MISCELLANEOUS

 

7.1 Waivers. Borrower waives notice of intent to accelerate, notice of
acceleration, notice of nonpayment, demand, presentment, protest or notice of
protest of the Obligations, and all other notices, consents to any renewals or
extensions of time of payment thereof, and generally waives any and all
suretyship defenses and defenses in the nature thereof.

 

7.2 Severability. If any provision of this Agreement or portion of such
provision or the application thereof to any person or circumstance shall to any
extent be held invalid or unenforceable, the remainder of this Agreement (or the
remainder of such provision) and the application thereof to other persons or
circumstances shall not be affected thereby.

 

7.3 Set-Off. Borrower hereby grants to Lender a continuing lien and security
interest in any and all deposits or other sums at any time credited by or due
from Lender (or any of its banking or lending affiliates, or any bank acting as
a participant under any loan arrangement between Lender and Borrower, or any
third party acting on Lender’s behalf, including the Account Bank (collectively,
the “Lender Affiliates”)) to Borrower and any cash, securities, instruments or
other property of Borrower in the possession of Lender or any Lender Affiliate,
whether for safekeeping or otherwise, or in transit to or from Lender or any
Lender Affiliate (regardless of the reason Lender or Lender Affiliates had
received the same or whether Lender or Lender Affiliates has conditionally
released the same) as security for the full and punctual payment and performance
of all of the liabilities and obligations of Borrower to Lender or any Lender
Affiliate and such deposits and other sums may be applied or set off against
such liabilities and obligations of Borrower to Lender or any Lender Affiliate
as are then due and unpaid, whether or not demand has been made and whether or
not other collateral is then available to Lender or any Lender Affiliate.

 

7.4 Indemnification. Borrower shall protect, defend (by counsel selected by
Lender), indemnify and hold harmless Lender and Lender’s officers, directors,
partners, shareholders, employees, Affiliates, agents, attorneys, lessees,
successors and assigns and any successors to any Lender’s interest in the Loan,
their officers, directors, partners, shareholders, employees, Affiliates,
agents, attorneys, lessees, successors and assigns (collectively, the
“Indemnitees”) from and against all liabilities (including sums paid in
settlement of claims), claims brought or threatened against any Lender (as well
as from reasonable attorneys’ fees and expenses in connection therewith),
losses, costs, obligations, demands, suits, liens, damages, fines (including any
sums ordered to be paid or expended by Indemnitees by any governmental entity as
a fine, penalty or damages) arising as a direct or indirect result of Borrower’s
failure to perform any of the agreements, terms or conditions of this Agreement
or the Loan Documents required to be performed by Borrower, or for the breach by
Borrower of any representation, warranty, or covenant contained herein or in any
other Loan Document (including, without limitation any third party claims
arising therefrom), except for any claim for which a Lender has been determined,
with finality, by a court of competent jurisdiction, that such Lender has
committed gross negligence or willful misconduct. The indemnification provided
by this Section 7.4 shall survive payment of the Obligations, any termination of
this Agreement, and/or release or discharge executed by Lender in favor of
Borrower.

 

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7.5 Costs and Expenses. Borrower shall pay to Lender any and all costs and
expenses (including, without limitation, reasonable attorneys’ fees, and
disbursements, court costs, litigation and other expenses) incurred or paid by
Lender in establishing, maintaining, protecting or enforcing any of Lender’s
rights or the Obligations, including, without limitation, any and all such costs
and expenses incurred or paid by Lender in defending Lender’s security interest
in, title or right to the Collateral or in collecting or attempting to collect
or enforcing or attempting to enforce payment of the Obligations. Each of the
costs and expenses incurred by Lender hereunder and payable by Borrower shall be
deemed evidenced by and added to the outstanding principal balance of the Note.

 

7.6 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.

 

7.7 Complete Agreement. This Agreement and the other Loan Documents constitute
the entire agreement and understanding between and among the parties hereto
relating to the subject matter hereof, and supersedes, all prior proposals,
negotiations, agreements and understandings among the parties hereto with
respect to such subject matter.

 

7.8 Binding Effect of Agreement. This Agreement shall be binding upon and inure
to the benefit of the respective heirs, executors, administrators, legal
representatives, successors and assigns of the parties hereto, and shall remain
in full force and effect (and Lender shall be entitled to rely thereon) until
all commitments of Lender hereunder are terminated and all Obligations hereunder
are fully paid. Lender may transfer and assign this Agreement and deliver the
Collateral to the assignee, who shall thereupon have all of the rights of such
Lender; and Lender shall then be relieved and discharged of any responsibility
or liability with respect to this Agreement, and the Collateral. Borrower may
not assign or transfer any of its rights or obligations under this Agreement.
Except as expressly provided herein or in the other Loan Documents, nothing,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, any rights, remedies, obligations or liabilities under or by
reason of this Agreement or the other Loan Documents.

 

7.9 Further Assurances. Borrower will from time to time execute and deliver to
Lender, and take or cause to be taken, all such other or further action as
Lender may reasonably request in order to effect and confirm or vest more
securely in Lender all rights contemplated by this Agreement and the other Loan
Documents or to vest more fully in or assure to Lender the security interest in
the Collateral granted to Lender by this Agreement or to comply with applicable
statute or law and to facilitate the collection of the Collateral (including,
without limitation, the endorsement of promissory notes and instruments and
notifications to obligors on the Collateral). To the extent permitted by
applicable law, Borrower authorizes Lender to file financing statements,
continuation statements or amendments without Borrower’s signature appearing
thereon, and any such financing statements, continuation statements or
amendments may be signed by Lender on behalf of Borrower, if necessary, and may
be filed at any time in any jurisdiction. Lender may at any time and from time
to time file financing statements, continuation statements, debentures,
mortgages, and any other documents allowed under the laws of the State of Nevada
or any other applicable jurisdiction, and amendments thereto which contain any
information required by the laws of the State of Nevada or any other applicable
jurisdiction for the sufficiency or filing office acceptance of any financing
statement, continuation statement or amendment, including whether Borrower is an
organization, the type of organization and any organization identification
number issued to Borrower. Borrower agrees to furnish any such information to
Lender promptly upon request. In addition, Borrower shall at any time and from
time to time take such steps as Lender may reasonably request for Lender (i) to
obtain an acknowledgement, in form and substance satisfactory to Lender, of any
bailee having possession of any of the Collateral that the bailee holds such
Collateral for Lender, (ii) to obtain possession and control of any Collateral
comprised of deposit accounts, electronic chattel paper, letter of credit rights
or investment property, with any agreements establishing control to be in form
and substance satisfactory to Lender, and (iii) otherwise to insure the
continued perfection and priority of Lender’s security interest in any of the
Collateral and the preservation of its rights therein. Borrower hereby
constitutes Lender its attorney-in-fact to execute, if necessary, and file all
filings required or so requested for the foregoing purposes, all acts of such
attorney being hereby ratified and confirmed; and such power, being coupled with
an interest, shall be irrevocable until this Agreement terminates in accordance
with its terms, all Obligations are paid in full and the Collateral is released.

 

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7.10 Amendments and Waivers. This Agreement may not be amended, or the
obligations of the parties hereto modified, except in a writing executed by all
of the parties. No delay or omission on the part of any Lender in exercising any
right hereunder shall operate as a waiver of such right or any other right and
waiver on any one or more occasions shall not be construed as a bar to or waiver
of any right or remedy of such Lender on any future occasion.

 

7.11 Terms of Agreement. This Agreement shall continue in full force and effect
so long as any Obligations or obligation of Borrower to Lender shall be
outstanding, or Lender shall have any obligation to extend any financial
accommodation hereunder, and is supplementary to each and every other agreement
between Borrower and Lender and shall not be so construed as to limit or
otherwise derogate from any of the rights or remedies of Lender or any of the
liabilities, obligations or undertakings of Borrower under any such agreement,
nor shall any contemporaneous or subsequent agreement between Borrower and
Lender be construed to limit or otherwise derogate from any of the rights or
remedies of any Lender or any of the liabilities, obligations or undertakings of
Borrower hereunder, unless such other agreement specifically refers to this
Agreement and expressly so provides.

 

7.12 Notices. Any notice under or pursuant to this Agreement shall be a signed
writing or other authenticated record. Any such notice shall be deemed duly
received and effective (i) if delivered in hand or by telecopier to, or received
by, any officer or agent of Borrower or Lender, upon such delivery or receipt,
or (ii) if sent by overnight courier, on the next business day after being so
sent, or (iii) if mailed by registered or certified mail, return receipt
requested, postage prepaid, and properly addressed to Borrower or Lender, two
(2) business days after being so mailed. A party’s proper address is that set
forth for such party in this Agreement or such address as that party may from
time to time hereafter designate by notice to the other party. As of the date
hereof, any notice under any Loan Document shall be transmitted to the following
address:

 

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If to Borrower: Viper Motorcycle Company   2458 West Tech Lane   Auburn,
Alabama  36832   Attention:  John Silseth   Telecopier:  (334) 887-4446 If to
Lender: Precious Capital LLC   152 West 57th Street, 4th Floor   New York, New
York  10019   Attention:  Ari Hirt   Telecopier:    (212) 581-0002

  

7.13 Governing Law. This Agreement, and all transactions thereunder or pursuant
thereto shall be governed as to interpretation, validity, effect, rights, duties
and remedies of the parties thereunder and in all other respects by the domestic
laws of the State of New York without reference or giving effect to any choice
of law or conflicts of law principles thereof.

 

7.14 Reproductions. This Agreement and all documents which have been or may be
hereinafter furnished by Borrower to Lender may be reproduced by Lender by any
photographic, photostatic, microfilm, xerographic or similar process, and any
such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made in the regular course of
business).

 

7.15 Venue. Borrower and Lender each irrevocably submits to the exclusive
jurisdiction of any Federal or state court sitting in the City, County, and
State of New York, over any suit, action or proceeding arising out of or
relating to this Agreement. Borrower and Lender irrevocably waive, to the
fullest extent it may effectively do so under applicable law, any objection it
may now or hereafter have to the laying of the venue of any such suit, action or
proceeding brought in any such court sitting in the City, County, and State of
New York and any claim that the same has been brought in an inconvenient forum.
Borrower and Lender each acknowledge that any appeals from those Courts may have
to be heard by a court located outside of the State of New York. Borrower and
Lender hereby consent to any and all process which may be served in any such
suit, action or proceeding, (i) by mailing a copy thereof by registered or
certified mail, postage prepaid, return receipt requested, to the party’s
address shown in this Agreement or as notified to a Lender and (ii) by serving
the same upon Borrower in any other manner otherwise permitted by law, and
agrees that such service shall in every respect be deemed effective service upon
Borrower, and furthermore. Nothing contained in this section shall change venue
and jurisdiction under this agrement, the Loan Documents, or any action related
to the agreement, Loan Documents or transactions contemplated thereby, and at
all time the venue and juridiction shall be exclusively in the State of New
York.

 

7.16 JURY WAIVER. BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY, AND AFTER AN OPPORTUNITY TO CONSULT WITH LEGAL COUNSEL, (A) TO
THE FULLEST EXTENT ALLOWED BY THE LAWS OF THE STATE OF NEW YORK, WAIVE ANY AND
ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING IN CONNECTION WITH
THIS AGREEMENT, THE OBLIGATIONS, ALL MATTERS CONTEMPLATED HEREBY AND DOCUMENTS
EXECUTED IN CONNECTION HEREWITH AND (B) AGREE NOT TO SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE, OR HAS NOT
BEEN, WAIVED. BORROWER CERTIFIES THAT NEITHER LENDER NOR ANY OF ITS
REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
LENDER WOULD NOT IN THE EVENT OF ANY SUCH PROCEEDING SEEK TO ENFORCE THIS WAIVER
OF RIGHT TO TRIAL BY JURY.

 

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7.17 No Partnership. Nothing contained in this Agreement or the other Loan
Documents shall be deemed to create an equity investment in Borrower on the part
of Lender or a partnership between Lender and Borrower, it being the intent of
the parties hereto that only the relationship of lender and borrower shall exist
with respect to the Loan. Borrower agrees that it shall report this transaction
for income tax purposes, and file all related tax returns, in a manner
consistent with the form of this transaction as a loan.

 

7.18 Lender is not in Control; Lender-Creditor Relationship.

 

(a)None of the covenants or other provisions contained in this Agreement or any
of the other Loan Documents shall, or shall be deemed to, give Lender the right
or power to exercise control over the affairs or management of Borrower, the
power of Lender being limited to the right to exercise the remedies provided for
in this Agreement and the other Loan Documents and applicable law.

 

(b)The relationship between Lender, on the one hand, and Borrower and any
guarantor of or surety for the Loan, on the other hand, is solely that of
creditor and debtor. Lender shall not have (or be deemed to have) any fiduciary
relationship or duty to any of Borrower or any guarantor of or surety for the
Loan, arising out of or in connection with, and there is no agency or joint
venture relationship between Lender, on the one hand, and Borrower or any
guarantor of or surety for the Loan, on the other hand, by virtue of, any Loan
Document or any transaction contemplated therein.

 

7.19 Attorneys Fees. In the event of any dispute between the parties to this
Agreement, the prevailing party in any litigation resulting from such dispute
shall be entitled to collect, inter alia, its reasonable attorneys’ fees and
out-of-pocket expenses.

 

7.20 Certification. The individual(s) signing this Agreement on behalf of
Borrower, by their respective signatures hereon, hereby certify for the benefit
of Lender, that all information submitted to Lender in connection with the
underwriting of the Loan is true and correct in all material respects on and as
of the date of this Agreement.

 

7.21 Publicity. Except as may be required by applicable law, none of the parties
hereto shall issue a publicity release or announcement or otherwise make any
public disclosure concerning this Agreement or the transactions contemplated
hereby, without prior approval by the other parties hereto. If any announcement
is required by law to be made by any party hereto, prior to making such
announcement such party will deliver a draft of such announcement to the other
parties and shall give the other parties an opportunity to comment thereon.
Notwithstanding the foregoing, Lender, any Lender or any of their respective
Affiliates may (i) disclose a general description of transactions arising under
the Loan Documents for advertising, marketing or other similar purposes, and
(ii) use Borrower’s name, logo or other indicia germane to such party in
connection with such advertising, marketing or other similar purposes, and, in
each case, may post such information on its website.

 

[NO FURTHER TEXT ON THIS PAGE]

 

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Executed as of April __, 2012.

 

  BORROWER:           VIPER MOTORCYCLE COMPANY, a Minnesota corporation        
          By:         Name:        Title:   

 

 

PARENT:

 

THE UNDERSIGNED PARENT HEREBY APPROVES AND CONSENTS TO THE FOREGOING LOAN
AGREEMENT AND AGREES TO BE BOUND BY THE PROVISIONS THEREOF APPLICABLE TO IT.

 

VIPER POWERSPORTS, INC., a Nevada corporation

 

 

By:       Name:      Title:   

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

 

 

 

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

 

ACCEPTED:

 

PRECIOUS CAPITAL LLC, a Delaware limited liability company

 

 

By:       Name:      Title: