Exhibit 10.34

 

 

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LOAN AND PLEDGE AGREEMENT

 

between

 

ENERGY RECOVERY, INC.

 

as Borrower,

 

and

 

CITIBANK, N.A.

 

as Lender,

 

Dated as of January 27, 2017

 

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TABLE OF CONTENTS

    

 

    Page

ARTICLE I. DEFINITIONS

1

SECTION 1.1

General Definitions 1

SECTION 1.2

Accounting Terms and Determinations 9

SECTION 1.3

Other Terms; Headings 9      

ARTICLE II. THE CREDIT FACILITIES

10

SECTION 2.1

The Revolving Credit Loan 10

SECTION 2.2

Procedure for Borrowing; Notices of Borrowing;  

 

Notices of Continuation 11

SECTION 2.3

Overadvances; Mandatory Prepayments; Optional Prepayments 12

 

   

SECTION 2.4

Maintenance of Loan Account; Statements of Account 13

SECTION 2.5

Payment Procedures 13

SECTION 2.6

Application of Proceeds 13

SECTION 2.7

Letters of Credit 13

SECTION 2.8

Bank Products 14      

ARTICLE III. SECURITY INTEREST

14

SECTION 3.1

Grant of Security Interest 14

SECTION 3.2

Perfection of Security Interest 14

SECTION 3.3

Voting Rights and Trading Authority 15

SECTION 3.4

Interest, Dividends and Other Distributions 15

SECTION 3.5

Additions of Pledged Collateral 15      

ARTICLE IV. INTEREST, FEES AND EXPENSES

15

SECTION 4.1

Interest 16

SECTION 4.2

Interest After Event of Default 16

SECTION 4.3

Letter of Credit Fee 16

SECTION 4.4

Unused Line Fee 16

SECTION 4.5

Closing Fee 16

SECTION 4.6

Calculations 16

SECTION 4.7

Indemnification in Certain Events 16

SECTION 4.8

Taxes 17      

ARTICLE V. CONDITIONS TO LENDING

18

SECTION 5.1

Conditions to Initial Advance or Letter of Credit 18

SECTION 5.2

Conditions Precedent to Each Advance and Each Letter of Credit 19      

ARTICLE VI. REPRESENTATIONS AND WARRANTIES

19

SECTION 6.1

Representations and Warranties of Borrower; Reliance by Lender 19

 

 

 
 

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ARTICLE VII. COVENANTS OF BORROWER 22

SECTION 7.1

Affirmative Covenants 22

SECTION 7.2

Negative Covenants 24      

ARTICLE VIII. EVENTS OF DEFAULT

26

SECTION 8.1

Events of Default 26

SECTION 8.2

Acceleration and Termination 27

SECTION 8.3

Cash Collateralization 27

SECTION 8.4

Remedies as a Secured Party 27

SECTION 8.5

Other Remedies 28

SECTION 8.6

No Marshalling; Deficiencies; Remedies Cumulative 28

SECTION 8.7

Waivers 28

SECTION 8.8

Lender Appointed Attorney-in-Fact 29

SECTION 8.9

Lender’s Duty 29

SECTION 8.10

Further Assurances 29      

ARTICLE IX. GENERAL PROVISIONS

29

SECTION 9.1

Notices 29

SECTION 9.2

Delays; Partial Exercise of Remedies 30

SECTION 9.3

Right of Setoff 30

SECTION 9.4

Indemnification; Reimbursement of Expenses of Collection 30

SECTION 9.5

Amendments, Waivers and Consents 31

SECTION 9.6

Nonliability of Lender 31

SECTION 9.7

Assignments and Participations 31

SECTION 9.8

Counterparts; Telecopied Signatures 32

SECTION 9.9

Severability 32

SECTION 9.10

Maximum Rate 32

SECTION 9.11

Entire Agreement; Successors and Assigns;  

 

Interpretation 33

SECTION 9.12

LIMITATION OF LIABILITY 33

SECTION 9.13

GOVERNING LAW 33

SECTION 9.14

SUBMISSION TO JURISDICTION 33

SECTION 9.15

JURY TRIAL 34

SECTION 9.16

Publicity 34

SECTION 9.17

No Third Party Beneficiaries 34

SECTION 9.18

Confidentiality 34

SECTION 9.19

Patriot Act Notice  35

 

EXHIBITS:

 

EXHIBIT A Pledged Account

EXHIBIT B Form of Borrowing Base Certificate

EXHIBIT C Form of Notice of Borrowing

EXHIBIT C-I Form of Notice of Continuation

EXHIBIT D Amendment to Agreement re: New Collateral

 

 

 
 

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LOAN AND PLEDGE AGREEMENT

 

THIS LOAN AND PLEDGE AGREEMENT is dated as of January [27], 2017 (the “Closing
Date”) by and between (i) ENERGY RECOVERY, INC., a Delaware corporation
(“Borrower”), and (ii) CITIBANK, N.A., a national banking association
(“Citibank” or “Lender”).

 

RECITALS:

 

WHEREAS, upon the terms and subject to the conditions set forth herein, Lender
is willing to make available to Borrower a committed revolving credit line in
the amount of Sixteen Million Dollars ($16,000,000) and an uncommitted revolving
credit line in the amount of Four Million Dollars ($4,000,000) in each case for
the account of Borrower to be used by Borrower in the ordinary course of
business;

 

WHEREAS, Borrower owns, and may own in the future, certain marketable securities
(the “Securities”) which are held in or will be transferred to certain
securities account(s) described on Exhibit A attached hereto (as amended from
time to time together with any successor or replacement account and all
subaccounts therein, collectively, the “Pledged Account”) maintained with
Lender;

 

WHEREAS, Lender has required as a condition to, among other things, issuing the
Revolving Credit Loans (including any Letters of Credit thereunder), and in
order to secure the prompt and complete payment, observance and performance of
all of the Obligations, that Borrower execute and deliver this Agreement to
Lender.

 

NOW, THEREFORE, in respect of the foregoing premises and other valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, Borrower and Lender, each intending to be legally bound, hereby
agree as follows:

 

ARTICLE I.
DEFINITIONS

 

SECTION 1.1      General Definitions. As used herein, the following terms shall
have the meanings herein specified (to be equally applicable to both the
singular and plural forms of the terms defined):

 

“Act” has the meaning specified in Section 6.1(i).

 

“Adjusted Base Rate” shall mean the Base Rate plus the difference, if a positive
number, or minus the difference, if a negative number, (in each case expressed
as a percentage) between (a) the LIBOR Rate on the date the LIBOR Rate was last
applicable to the Advances, and (b) the Base Rate on the date that the LIBOR
Rate was last applicable to the Advances; provided that in no event shall
“Adjusted Base Rate” exceed the Base Rate plus 1.0%.

 

“Advance” means a loan or advance of funds made by Lender to Borrower under the
Revolving Credit Loan.

 

 

 
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“Affiliate” means, as to any Person, any other Person who directly or indirectly
controls, is under common control with, is controlled by or is a director,
officer, manager or general partner of such Person. As used in this definition,
“control” (including its correlative meanings, “controlled by” and “under common
control with”) means possession, directly or indirectly, of the power to direct
or cause the direction of management or policies (whether through ownership of
voting securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person who owns directly or
indirectly twenty percent (20.0%) or more of the securities having ordinary
voting power for the election of the members of the board of directors or other
governing body of a corporation or twenty percent (20.0%) or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such
corporation, partnership or other Person.

 

“Agreement” means this Loan and Pledge Agreement, as amended, restated,
supplemented or otherwise modified from time to time.

 

“Authorized Officer” means, with respect to Borrower, the Chief Executive
Officer, President, Chief Financial Officer, Corporate Controller, Treasurer or
Assistant Treasurer of Borrower, or such other individuals, designated by
written notice to Lender from Borrower, authorized to execute notices, reports
and other documents on behalf of Borrower required hereunder.

 

“Bank Product” means any of the following products, services or facilities
extended to Borrower by Lender or any of its Affiliates; (a) Cash Management
Services; (b) products under any interest rate protection agreement, foreign
currency exchange agreement, commodity price protection agreement or other
interest or currency exchange rate or commodity price hedging agreement;
(c) commercial credit card and merchant card services; and (d) leases, insurance
and other banking products or services as may be requested by Borrower.

 

“Bank Product Reserve” means the aggregate amount of reserves reasonably
established by the Lender from time to time in its discretion in respect of Bank
Products.

 

“Bankruptcy Code” means Title 11 of the United States Code entitled
“Bankruptcy,” as that title may be amended, restated or supplemented from time
to time, or any successor statute.

 

“Base Rate” means a fluctuating annual rate of interest in effect from time to
time that for any day shall be equal to the rate of interest for such day
announced publicly by Citibank in New York, New York, as Citibank’s base rate
(which Borrower acknowledges and agrees is announced by such bank and used by
Lender for reference purposes only and may not represent the lowest or best rate
available to any of the customers of such bank or Lender).

 

“Borrowing” has the meaning specified in Section 2.2(a).

 

 

 
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“Borrowing Base” means the sum of the amounts determined by multiplying the
aggregate fair market value of each type of Collateral held in the Pledged
Account which is an Eligible Asset below by the corresponding Loanable Value
percentage specified below:

  

Type of Collateral

 

Loanable Value

 

Cash, cash equivalents, and certificates of deposit held at Citibank with
maturities less than 5 years, or money market or mutual funds whose investments
are limited to those types of investments described above

    100 %

US Federal government debt instruments (US treasury bills, notes and bonds)

    90 %

US Federal government agency debt instruments

    85 %

State, Municipal and Corporate Bonds which are rated greater or equal to BBB

    70 %

NYSE traded equities

    70 %

NYSE MKT (formerly American Stock Exchange) traded equities

    60 %

NASDAQ traded equities

    50 %

 

For purposes of this Agreement, the “fair market value” of any of the Eligible
Assets at any given time shall mean the fair value of such property at such
time, as reasonably determined by Lender from public information sources.

 

“Borrowing Base Certificate” has the meaning specified in Section 7.1(e)(iii),
the form of which is annexed hereto as Exhibit B.

 

“Borrowing Date” means the date on which a Borrowing is obtained.

 

“BSA” has the meaning specified in Section 6.1(n).

 

“Business Day” shall mean any day (a) during which Citibank is open for business
in New York, New York, other than any Saturday or Sunday and (b) during which
dealings in United States dollars are carried on by Citibank in the London
interbank market.

 

“Cash Management Services” means any services provided from time to time by the
Lender or any of its Affiliates to Borrower in connection with operating,
collections, payroll, trust, or other depository or disbursement accounts,
including automated clearinghouse, e-payable, electronic funds transfer, wire
transfer, controlled disbursement, overdraft, depository, information reporting,
lockbox and stop payment services.

 

“Change of Control” means that any Person or two or more Persons acting in
concert shall have acquired beneficial ownership, directly or indirectly, of
voting stock in Borrower (or other securities convertible into such stock)
representing more than 50% of the combined voting power of all voting stock of
Borrower entitled (without regard to the occurrence of any contingency) to vote
for the election of members of the board of directors of Borrower.

 

 

 
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“Claims” has the meaning specified in Section 9.4(a).

 

“Closing Date” means the date of execution and delivery of this Agreement.

 

“Code” has the meaning specified in Section 1.3.

 

“Collateral” has the meaning specified in Section 3.1.

 

“Committed Facility” has the meaning specified in 2.1(a).

 

“Continuation” has the meaning specified in Section 2.2(b).

 

“Default” means any of the events specified in Section 8.1, whether or not any
of the requirements for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.

 

“Dollars” and the sign “$” means freely transferable lawful currency of the
United States of America.

 

“Eligible Assets” equity collateral, debt collateral, and U.S. Treasury or U.S.
government-guaranteed obligations which are 100% owned by Borrower in which
Lender shall have a first priority perfected security interest and (a) with
respect to equity collateral (e.g., common stock), meets the following criteria:
(1) the Loanable Value of a single issuer shall not be greater than 5 days’
average daily trading volume for the last 6 months; (2) must have a share price
of at least $5.00; (3) no equity position can represent 5% or more of total
shares outstanding of any single issuer; (4) may be sold on a daily basis by
Lender on any Business Day without restriction or volume limitation; and (5) the
Loanable Value of the common stock of any single issuer shall not comprise more
than 25% of the aggregate Loanable Value of all Eligible Assets, and (b) with
respect to debt collateral (e.g., notes or bonds) other than U.S Treasury or U.S
government-guaranteed obligations, meets the following criteria: (1) issue size
must be $300 million or more; (2) pledged amount not more than $25 million or 2%
of outstanding issue, whichever is less; (3) issue must be rated BBB or higher
by Standard & Poor’s Rating Service, a division of McGraw-Hill, Inc., Baa by
Moody’s Investor Services, Inc., or other equivalent rating by a rating agency
acceptable to Lender; and (4) sale of the securities by Lender may not be
subject to any restriction; and (5) the Loanable Value of notes or bonds issued
by a single issuer shall not comprise, at any time, more than 25% of the
aggregate Loanable Value of all Eligible Assets at such time.

 

“Event of Default” means the occurrence of any of the events specified in
Section 8.1.

 

“Financial Statements” means the balance sheets, profit and loss statements,
statements of cash flow, and statements of changes in intercompany accounts, if
any, for the period specified, prepared in accordance with GAAP and consistent
with prior practices.

 

 

 
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“GAAP” means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board that are applicable to the circumstances as
of the date of determination.

 

“Governmental Authority” means any nation or government, any state or other
political subdivision thereof or any entity exercising executive, legislative,
judicial, regulatory or administrative functions thereof or pertaining thereto.

 

“Highest Lawful Rate” has the meaning specified in Section 9.10.

 

“Indebtedness” means, with respect to any Person, as of the date of
determination thereof (without duplication of the same obligation under any
other clause hereof), (i) all obligations of such Person for borrowed money of
any kind or nature, including funded and unfunded debt, (ii) all obligations of
such Person under hedging agreements or arrangements therefor, regardless of
whether the same is evidenced by any note, debenture, bond or other instrument,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services (other than current trade accounts payable under normal
trade terms and accrued expenses and which are incurred in the ordinary course
of business that are not overdue for a period greater than six months or that
are contested in good faith), (iv) all obligations of such Person to acquire or
for the acquisition or use of any fixed asset, including capitalized lease
obligations (other than, in any such case, any portion thereof representing
interest or deemed interest or payments in respect of taxes, insurance,
maintenance or service), or improvements which are payable over a period longer
than one year, regardless of the term thereof or the Person or Persons to whom
the same are payable, (v) all Indebtedness of others secured by (or for which
the holder of such Indebtedness has an existing right to be secured) a Lien on
any asset of such Person whether or not the Indebtedness is assumed by such
Person, (vii) all Indebtedness of any other Person but only to the extent
guaranteed by such Person, (viii) all obligations of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreements in the event of default are
limited to repossession or sale of such property), (ix) all unconditional and
noncontingent obligations of such Person to purchase, redeem, retire, defease or
otherwise acquire for value any equity interests of such Person, valued, in the
case of redeemable preferred stock, at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends and (x) all
reimbursement or other obligations of such Person in respect of letters of
credit, bankers acceptances, surety bonds, performance bonds or similar
instruments issued or accepted by banks or other financial institutions for the
account of such Person, whether or not matured.

 

“Indemnified Party” has the meaning specified in Section 9.4(a).

 

“Information” has the meaning specified in Section 9.18.

 

“Insolvency Event” means, with respect to any Person, the occurrence of any of
the following: (i) such Person shall be adjudicated insolvent or bankrupt or
institutes proceedings under the Bankruptcy Code or otherwise to be adjudicated
insolvent or bankrupt, or shall generally fail to pay or admit in writing its
inability to pay its debts as they become due, (ii) such Person shall seek
dissolution or reorganization or the appointment of a receiver, trustee,
custodian or liquidator for it or a substantial portion of its property, assets
or business or to effect a plan or other arrangement with its creditors, (iii)
such Person shall make a general assignment for the benefit of its creditors, or
consent to or acquiesce in the appointment of a receiver, trustee, custodian or
liquidator for a substantial portion of its property, assets or business, (iv)
such Person shall file a voluntary petition under, or shall seek the entry of an
order for relief under, any bankruptcy, insolvency or similar law, including the
Bankruptcy Code, (v) such Person shall take any corporate, company or similar
act in furtherance of any of the foregoing, or (vi) such Person, or a
substantial portion of its property, assets or business, shall become the
subject of an involuntary proceeding or petition for (A) its dissolution or
reorganization or (B) the appointment of a receiver, trustee, custodian or
liquidator, and (I) such proceeding shall not be dismissed or stayed within
forty-five (45) days or (II) such receiver, trustee, custodian or liquidator
shall be appointed, provided, however, that Lender shall have no obligation to
make any Advance or issue any Letters of Credit during the pendency of any
forty-five (45) day period described in clause (I).

 

 

 
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“Interest Period” means the period commencing on the date of a Borrowing or a
Continuation and ending one (1) or three (3) months thereafter as selected by
Borrower; provided, however, that (i) Borrower may not select any Interest
Period that ends after the Termination Date; (ii) whenever the last day of an
Interest Period would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on the next
succeeding Business Day, except that, if such extension would cause the last day
of such Interest Period to occur in the next following calendar month, then the
last day of such Interest Period shall occur on the next preceding Business Day;
and (iii) if there is no corresponding date of the month that is one (1) or
three (3) months, as the case may be, after the first day of an Interest Period,
such Interest Period shall end on the last Business Day of such first or third
month, as the case may be.

 

“Internal Revenue Code” means the Internal Revenue Code of 1986, any amendments
thereto, any successor statute and any regulations and guidelines promulgated
thereunder.

 

“Internal Revenue Service” or “IRS” means the United States Internal Revenue
Service and any successor agency.

 

“L/C Exposure” means, at any time, the sum of (a) the undrawn amount outstanding
under the Letters of Credit at such time plus (b) the amount of all drawings
made on the Letters of Credit that have not yet been reimbursed by Borrower.

 

“Letters of Credit” means all letters of credit issued for the account of
Borrower under Section 2.8, and all amendments, renewals, extensions or
replacements thereof.

 

“LIBOR Rate” means, for any Interest Period, the rate per annum equal to the
British Bankers Association LIBOR Rate (“BBA LIBOR”), as it appears in the ICE
Benchmark Administration’s Secure Financial Transaction Protocol service or
through a third-party redistributor of such information, which shall note an
average ICE Benchmark Administration Limited Fixing for US Dollar (or another
commercially available source providing quotations of BBA LIBOR as designated by
Lender from time to time) at approximately 11:00 a.m. (London time) two Business
Days prior to the commencement of such Interest Period, for U.S. dollar deposits
(for delivery on the first day of such Interest Period) with a term equivalent
to such Interest Period. If such rate is not available at such time for any
reason, then the “LIBOR Rate” for such Interest Period shall be the rate per
annum determined by Lender to be the rate at which U.S. dollar deposits with a
term equivalent to such Interest Period would be offered by Citibank in London,
England to major banks in the London or other offshore interbank market at
approximately 11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period. If the Board of Governors of the Federal
Reserve System (or any successor) imposes a LIBOR Reserve Percentage with
respect to LIBOR deposits, then, the LIBOR Rate shall be the foregoing rate
divided by 1 minus the LIBOR Reserve Percentage.

 

 

 
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“LIBOR Reserve Percentage” means the reserve percentage applicable during such
Interest Period under regulations issued from time to time by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for Lender with respect to
liabilities or assets consisting of or including eurocurrency liabilities having
a term equal to such Interest Period.

 

“Lien” means any lien, claim, charge, pledge, security interest, assignment,
hypothecation, deed of trust, mortgage, lease, conditional sale, retention of
title or other preferential arrangement having substantially the same economic
effect as any of the foregoing, whether voluntary or imposed by law.

 

“Loan Account” has the meaning specified in Section 2.4.

 

“Loanable Value” has the meaning specified in the definition of Borrowing Base.

 

“Loan Documents” means this Agreement, the Note, the Letters of Credit, the
Standby Letter of Credit Agreement, and all documents and instruments to be
delivered by Borrower under or in connection with this Agreement, as each of the
same may be amended, supplemented or otherwise modified from time to time.

 

“Margin” means one and one-half percent (1.5%).

 

“Material Adverse Effect” shall mean a material adverse effect on the business,
operations, assets, liabilities or condition (financial or otherwise) of
Borrower.

 

“Note” means that certain Note dated as of the date hereof in the principal
amount of $20,000,000 made by Borrower and payable to the order of Lender, as
amended, restated, supplemented or otherwise modified from time to time.

 

“Notice of Borrowing” has the meaning specified in Section 2.2(a).

 

“Notice of Continuation” has the meaning specified in Section 2.2(b).

 

“Obligations” means and includes all loans, advances, debts, liabilities,
obligations, covenants and duties owing by Borrower to Lender or any of its
Affiliates of any kind or nature, present or future, whether or not evidenced by
any note, guaranty or other instrument, which may arise under, out of, or in
connection with, the Revolving Credit Loan, the Advances, the Letters of Credit,
this Agreement, the Note, the Standby Letter of Credit Agreement, or the other
Loan Documents, and also includes all obligations and liabilities under any Bank
Products, in each case whether direct or indirect (including those acquired by
assignment, purchase, discount or otherwise), whether absolute or contingent,
due or to become due, now existing or hereafter arising, and however acquired.
The term “Obligations” includes, without limitation, all interest (including
interest accruing on or after an Insolvency Event, whether or not such interest
constitutes an allowed claim), charges, reasonable and actual expenses, fees,
attorneys’ fees and disbursements, and any other sum chargeable to Borrower
under this Agreement, the Note and the other Loan Documents.

 

 

 
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“OFAC” has the meaning specified in Section 6.1(n).

 

“Other Taxes” has the meaning specified in Section 4.7(b).

 

“Overadvance” has the meaning specified in Section 2.3(a).

 

“Patriot Act” has the meaning specified in Section 6.1(n).

 

“Paid in Full” or “Payment in Full” (or words of similar import) means (i) the
full cash payment of the Obligations, including any interest, fees and other
charges accruing during an Insolvency Event (whether or not allowed in the
proceeding), other than those described in clause (ii) below, contingent
indemnification Obligations to the extent no claim giving rise thereto has been
asserted, (ii) with respect to any Obligations consisting of the undrawn portion
of the Letters of Credit, the depositing of cash with Lender as security for the
payment of such Obligations in an amount equal to 105% of the aggregate undrawn
amount of the Letters of Credit, and (iii) the full termination of any and all
commitments of Lender to make loans or honor other requests of Borrower for the
extension of credit.

 

“Permitted Debt” is defined in Section 7.2(e).

 

“Permitted Liens” is defined in Section 7.2(f).

 

“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, unincorporated organization, joint
stock company, association, corporation, institution, entity, party or
government (including any division, agency or department thereof) or any other
legal entity, whether acting in an individual, fiduciary or other capacity, and,
as applicable, the successors, heirs and assigns of each.

 

“Pledged Account” is defined in the Recitals and described on Exhibit A attached
hereto.

 

“Pledged Interests” is defined in Section 3.1.

 

“Requirement of Law” means any law, treaty, rule, regulation, order or
determination of an arbitrator, court or other Governmental Authority or any
franchise, license, or permit.

 

“Revolving Credit Loan” has the meaning specified in Section 2.1(a).

 

 

 
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“Securities” is defined in the Recitals.

 

“Securities Act” has the meaning specified in Section 6.1(a).

 

“Solvent” means, when used with respect to any Person, that as of the date as to
which such Person’s solvency is to be measured such person is not “insolvent” as
defined in the Code and: (i) the fair saleable value of its assets is in excess
of (A) the total amount of its liabilities (including contingent, subordinated,
absolute, fixed, matured, unmatured, liquidated and unliquidated liabilities)
reasonably anticipated to be incurred, and (B) the amount that will be required
to pay the probable liability of such Person on its debts as such debts become
absolute and matured; (ii) it has sufficient capital to conduct its business;
and (iii) it is able to meet its debts as they mature.

 

“Standby Letter of Credit Agreement” means the standard Citibank Agreement for
Standby Letter of Credit by and between Lender, as issuer and Borrower, as
applicant, regarding the issuance of the Letters of Credit, as amended,
restated, supplemented or otherwise modified from time to time.

 

“Taxes” has the meaning specified in Section 4.7(a).

 

“Termination Date” means March 31, 2018.

 

SECTION 1.2     Accounting Terms and Determinations. Unless otherwise defined or
specified herein, all accounting terms used in this Agreement shall be construed
in accordance with GAAP, applied on a basis consistent in all material respects
with the Financial Statements delivered to Lender on or before the Closing Date.
The Financial Statements required to be delivered hereunder from and after the
Closing Date, and all financial records, shall be maintained in accordance with
GAAP; provided, however, that interim financial statements or reports (but
excluding for the avoidance of doubt, annual audited financial statements and
reports) shall be deemed in compliance with GAAP despite the absence of
footnotes and hedge accounting adjustments, reclassification of operating leases
as Capital Leases as a result of changes in GAAP and other fiscal yearend
adjustments as required by GAAP.

 

SECTION 1.3     Other Terms; Headings. Unless otherwise defined herein, terms
used herein that are defined in the Uniform Commercial Code, from time to time
in effect in the State of New York (the “Code”), shall have the meanings given
in the Code. An Event of Default shall “continue” or be “continuing” unless and
until such Event of Default has been waived or cured within any grace period
specified therefor under Section 8.1. The headings and the Table of Contents are
for convenience only and shall not affect the meaning or construction of any
provision of this Agreement. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
“include”, “includes” and “including” shall be deemed to be followed by the
phrase “without limitation”. The word “will” shall be construed to have the same
meaning and effect as the word “shall”. Unless the context requires otherwise
(i) any definition of or reference to any agreement, instrument or other
document herein or in any other Loan Document shall be construed as referring to
such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein or in any other Loan
Document), (ii) any reference herein to any Person shall be construed to include
such Person’s successors and assigns, (iii) the words “herein”, “hereof” and
“hereunder”, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (iv) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement, (v) time of day means time of day New York, New York, except as
otherwise expressly provided, and (vi) the “discretion” of Lender means the sole
and absolute discretion of Lender. No provision of any Loan Documents shall be
construed against any party by reason of such party having, or being deemed to
have, drafted the provision.

 

 

 
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ARTICLE II.
THE CREDIT FACILITIES

 

SECTION 2.1     The Revolving Credit Loan. Lender agrees, as more fully
described in this Agreement and subject to the terms and conditions hereto, to
provide for revolving lines of credit to Borrower (collectively, the “Revolving
Credit Loan”) for which Borrower may borrow and request Letters of Credit
against the Eligible Assets held from time to time in the Pledged Account
maintained with Lender.

 

(a)     Committed Facility. Lender agrees, subject to the terms and conditions
hereof, to provide a committed line of credit (the “Committed Facility”) to
Borrower to make Advances or to issue for the account of Borrower Letters of
Credit of a tenor and containing such terms as may be reasonably acceptable to
Lender. Subject to Sections 2.2 and 2.3 below, Lender shall make such Advances
and issue such Letters of Credit, from time to time from the Closing Date to but
excluding the Termination Date, in an aggregate outstanding amount not to exceed
Sixteen Million Dollars ($16,000,000.00); provided that Lender shall not make
any Advance nor issue any Letter of Credit if the making of such Advance and/or
issuance of such Letter of Credit, together with the aggregate principal amount
of all Advances then outstanding, the then outstanding L/C Exposure, and the
amount of any Bank Product Reserve will exceed the Borrowing Base.

 

(b)     Fully Discretionary, Uncommitted Facility. In addition to the Committed
Facility described above, Lender also agrees, subject to the terms and
conditions hereof, to provide a discretionary line of credit to Borrower to make
Advance or issue for the account of Borrower Letters of Credit of a tenor and
containing such other terms as may be reasonably acceptable to Lender. Lender
may, in its sole and exclusive discretion in each instance, make such Advances
and issue such Letters of Credit, from time to time from the Closing Date to but
excluding the Termination Date, in an aggregate outstanding face not to exceed
Four Million Dollars ($4,000,000.00); provided that, Lender shall not make any
Advance nor issue any Letter of Credit if the making of such Advance and/or
issuance of such Letter of Credit, together with the aggregate principal amount
of all Advances then outstanding, the then outstanding L/C Exposure, and the
amount of any Bank Product Reserve will exceed the Borrowing Base.

 

(c)     Borrower hereby unconditionally promises to pay all Obligations as and
when due hereunder.

 

(d)     The Revolving Credit Loan shall be evidenced by the Note.

 

 

 
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(e)     All Advances shall be payable in full, with all interest accrued
thereon, on the Termination Date. Borrower may borrow, repay and re-borrow the
Advances, in whole or in part, in accordance with the terms hereof prior to the
Termination Date.

 

SECTION 2.2     Procedure for Borrowing; Notices of Borrowing; Notices of
Continuation.

 

(a)     Each Advance under the Revolving Credit Loan (each, a “Borrowing”) shall
be made on notice, given not later than 12:00 Noon (New York time) on the third
Business Day prior to the date of the proposed Borrowing. Unless otherwise
agreed in writing by Lender, each such notice of a Borrowing shall be by
telephone, confirmed immediately in writing (by telecopier, e-mail or otherwise
as permitted hereunder), substantially in the form of Exhibit C (a “Notice of
Borrowing”), specifying therein the requested (i) date of such Borrowing, (ii)
aggregate principal amount of such Borrowing, and (iii) the Interest Period.
Each Borrowing shall be in an amount equal to One Million Dollars ($1,000,000)
or a whole multiple of Five Hundred Thousand Dollars ($500,000) in excess
thereof.

 

(b)     Borrower shall elect to maintain such Borrowing or any portion thereof
by selecting a new Interest Period for such Borrowing, which new Interest Period
shall commence on the last day of the Interest Period then ending. Each
selection of a new Interest Period (a “Continuation”) shall be made by notice
given not later than 12:00 Noon (New York time) on the third Business Day prior
to the date of any such Continuation by Borrower to Lender. Unless otherwise
agreed in writing by Lender, such notice by Borrower of a Continuation shall be
by telephone, confirmed immediately in writing (by telecopier, e-mail or
otherwise as permitted hereunder), substantially in the form of Exhibit C-I (a
“Notice of Continuation”), specifying whether the Advance subject to the
requested Continuation comprises part (or all) of the Revolving Credit Loan and
the requested (i) date of such Continuation, (ii) Interest Period and (iii)
aggregate amount of the Advance subject to such Continuation, which shall comply
with all limitations on the Advances hereunder. Unless, on or before 12:00 Noon
(New York time) of the third Business Day prior to the expiration of an Interest
Period, Lender shall have received a Notice of Continuation from Borrower for
the entire Borrowing outstanding during such Interest Period, any amount of such
Advance comprising such Borrowing remaining outstanding at the end of such
Interest Period (or any unpaid portion of such Advance not covered by a timely
Notice of Continuation) shall, upon the expiration of such Interest Period, be
continued for the same Interest Period.

 

(c)     Anything in subsection (b) above to the contrary notwithstanding,

 

(i)     if, at least one (1) Business Day before the date of any requested
Borrowing or Continuation, the introduction of or any change in or in the
interpretation of any law or regulation makes it unlawful, or any central bank
or other Governmental Authority asserts that it is unlawful, for Lender or any
of its Affiliates to perform its obligations hereunder to make or maintain a
LIBOR Rate loan, Lender shall promptly give written notice of such circumstance
to Borrower, and from and after such date all Advances will accrue interest at
the Adjusted Base Rate plus the Margin;

 

 

 
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(ii)     if, at least one (1) Business Day before the first day of any Interest
Period, Lender is unable, due to circumstances outside Lender’s control, to
determine the LIBOR Rate for any requested Borrowing or Continuation, Lender
shall promptly give written notice of such circumstance to Borrower and from and
after such date all Advances will accrue interest at the Adjusted Base Rate plus
the Margin until Lender shall notify Borrower that the circumstances causing
such suspension no longer exist; and

 

(iii)     if Lender shall, at least one (1) Business Day before the date of any
requested Borrowing or Continuation notify Borrower that the LIBOR Rate will not
adequately reflect the cost to Lender of making or funding Advances for such
Borrowing, then from and after such date all Advances will accrue interest at
the Adjusted Base Rate plus the Margin until Lender shall notify Borrower that
the circumstances causing such suspension no longer exist.

 

(d)     Each Notice of Borrowing and Notice of Continuation shall be irrevocable
and binding on Borrower. Borrower agrees to indemnify Lender against any loss,
cost or expense incurred by Lender as a result of (i) default by Borrower in
making a Borrowing or Continuation after Borrower has given notice requesting
the same, (ii) default by Borrower in payment when due of the principal amount
of or interest on any Advance or (iii) the making of a payment or prepayment of
an Advance on a day which is not the last day of an Interest Period with respect
thereto, including, without limitation, any loss (including loss of anticipated
profits), cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by Lender to fund such Advance.

 

(e)     Promptly after its receipt of a Notice of Borrowing, and subject to all
other terms and conditions hereof, Lender shall make the amount of such
requested Borrowing available to Borrower in same day funds, on the Borrowing
Date requested by Borrower by wire transferring to the Borrower’s Loan Account
the amount thereof on the requested Borrowing Date.

 

SECTION 2.3     Overadvances; Mandatory Prepayments; Optional Prepayments.

 

(a)     If, at any time, the sum of the outstanding amount of the Revolving
Credit Loan plus the then outstanding L/C Exposure plus the then outstanding
Bank Product Reserve exceeds the Borrowing Base (an “Overadvance”), including,
without limitation, as a result of a decrease in the Borrowing Base, then
Borrower shall, within five (5) Business Days after written notice by Lender,
(i) make a payment, (ii) deposit in the Pledged Account or pledge additional
Collateral of a type and nature acceptable to Lender, in its reasonable
discretion, or (iii) make a combination of the payments and deposits specified
in clauses (i) and (ii) above, in an amount sufficient to cure such Overadvance.
If Borrower fails to make such payment and/or deposit in respect of the
Overadvance within such five (5) Business Day period, Lender shall have the
immediate right, without notice or other action to exercise any or all other
remedies available to Lender herein or under any other Loan Document (including,
without limitation, the liquidation of the Collateral held in the Pledged
Account; provided, however, if no Event of Default exists hereunder, other than
the failure to timely cure such Overadvance, only in an amount sufficient to
cure such Overadvance). If Borrower makes a payment to eliminate an Overadvance,
Lender shall, without effecting Borrower’s ability to borrow, repay and
re-borrow in accordance with the terms of this Agreement, apply such payment to
reduce the aggregate unpaid principal amount outstanding under the Revolving
Credit Loan.

 

 

 
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(b)     Borrower may, at any time and from time to time, prepay any outstanding
Advances, in whole or in part, upon at least two (2) days’ irrevocable written
notice by Borrower to Lender, specifying the date and amount of prepayment,
provided that to the extent any Advances are optionally prepaid on a date that
is not the last day of any Interest Period with respect thereto, such prepayment
shall be accompanied by any amounts due pursuant to Section 2.2(d). If such
notice is given, Borrower shall make such prepayment, and the payment amount
specified in such notice shall be due and payable, on the date specified therein
accompanied by the amount of accrued and unpaid interest thereon.

 

SECTION 2.4     Maintenance of Loan Account; Statements of Account. Lender shall
maintain an account on its books (the “Loan Account”) in which Borrower will be
charged with all Advances made by Lender to Borrower or for Borrower’s account,
including the Revolving Credit Loan, interest, fees, expenses and any other
Obligations. The Loan Account will be credited with all amounts received by
Lender from Borrower or for Borrower’s account. Lender shall send Borrower a
monthly statement reflecting the activity in the Loan Account.

 

SECTION 2.5     Payment Procedures. Borrower hereby authorizes Lender to charge
the Loan Account with the amount of all principal, interest, fees, expenses and
other payments due and payable hereunder and under the other Loan Documents.
Each payment by Borrower on account of principal, interest, fees or expenses
hereunder shall be made to Lender. All payments to be made by Borrower
hereunder, whether on account of principal, interest, fees or otherwise, shall
be made without setoff, deduction or counterclaim and shall be made prior to
2:00 p.m. (New York time) on the due date thereof to Lender, in immediately
available funds. Whenever any payment to be made hereunder shall be stated to be
due on a day that is not a Business Day, the payment may be made on the next
succeeding Business Day (except as specified otherwise the definition of
Interest Period) and such extension of time shall be included in the computation
of the amount of interest due hereunder.

 

SECTION 2.6     Application of Proceeds. The proceeds of the Advances and the
Letters of Credit shall be used by Borrower solely for general corporate
purposes, working capital purposes and capital expenditures. Notwithstanding
anything to the contrary herein, no proceeds of any Advance will be used (i) to
purchase or carry any margin stock (as defined in Regulation U) or to extend
credit to others for the purpose of purchasing or carrying margin stock, or (ii)
to repay any loan that was used to purchase or carry margin stock.

 

SECTION 2.7     Letters of Credit.

 

(a)     Generally. The term of any Letter of Credit shall not exceed three
hundred sixty-four (364) days from the date of issuance, subject to renewal in
accordance with the terms thereof. Lender shall issue the Letters of Credit upon
receipt of the documents, instruments, agreements and deliverables set forth in
Article V below, and any other documents, instruments, agreements and
deliverables reasonably required pursuant the terms of the Standby Letter of
Credit Agreement. Upon receipt of such requirements, Lender will issue such
Letter of Credit in accordance with its customary procedures to the beneficiary
thereof or as otherwise may be agreed by Lender and Borrower. Lender shall
furnish a copy of such Letter of Credit to Borrower promptly following the
issuance thereof.

 

 

 
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(b)     Reimbursement. Borrower shall reimburse Lender, on demand, for each
draft or other request for payment under any Letter of Credit in accordance with
the terms of the Standby Letter of Credit Agreement. Borrower’s obligations
under this Agreement and the Standby Letter of Credit Agreement to reimburse
Lender shall be absolute and unconditional under any and all circumstances and
irrespective of any set off, counterclaim or defense to payment which Borrower
may have or have had against Lender, any beneficiary of any Letter of Credit or
any other Person. Borrower hereby unconditionally promises to pay all
Obligations as and when due hereunder.

 

SECTION 2.8     Bank Products. In addition to the Advances and the Letters of
Credit, Lender may, in its sole discretion, enter into agreements with Borrower
regarding Bank Products pursuant to its standard documentation for same. Such
Bank Products shall be secured by the Collateral.

 

ARTICLE III.
SECURITY INTEREST

 

SECTION 3.1     Grant of Security Interest. Borrower hereby grants to Lender as
security for the prompt and complete payment, observance and performance of the
Obligations, a security interest in all of Borrower’s now owned or hereafter
acquired right, title and interest in (a) any and all investment property now or
hereafter delivered to Lender, any of Lender’s Affiliates or any securities
intermediary for the purposes of securing the Obligations which includes,
without limitation, the Securities and all replacements, renewals, substitutions
and proceeds thereof, (b) the Pledged Account and all cash, financial assets and
other investment property now and at any time hereafter contained therein
including, without limitation, the Securities and all replacements, renewals,
substitutions and proceeds thereof (such contents of the Pledged Account
collectively, the “Pledged Interests”), (c) all rights, privileges, authority
and powers as owner or holder of the Pledged Interests and the Pledged Account,
including all contract rights related time to time thereto, (d) all documents,
instruments or certificates representing or evidencing the Pledged Interests,
(e) all interest, dividends, distributions, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect of,
or in exchange for, the Pledged Interests, and (f) any and all proceeds of any
of the foregoing described in clauses (a)-(e) (clauses (a)-(f), being referred
to collectively as the “Collateral”). Borrower agrees to execute and deliver to
Lender from time to time upon Lender’s reasonable request such documents of
transfer as Lender may from time to time request to enable Lender to transfer in
each case after and during the continuance of an Event of Default the Pledged
Interests into its name or the name of its nominee, or to register any of the
Collateral to Lender or its nominee.

 

SECTION 3.2     Perfection of Security Interest. Borrower agrees (i) to
immediately to take all actions necessary to transfer the applicable Pledged
Interests to Lender’s account at the Depositary Trust Corporation, if
applicable, (ii) to deliver, or cause to be delivered, to Lender or Lender’s
nominee, all certificates evidencing any of the Collateral together with
appropriate transfer powers executed in blank, (iii) Lender is authorized to
record such financing statements as Lender may deem necessary or desirable to
perfect the security interests granted herein, (iv) to cause any securities
intermediary with custody of any Collateral to deliver an agreement in form and
substance reasonably satisfactory to Lender, providing Lender with “control” (as
defined in Section 9-106 of the Uniform Commercial Code as in effect in the
State of New York) of such Collateral, and (v) to take such other steps as
Lender may from time to time reasonably request to perfect and maintain Lender’s
security interest in the Collateral as a first priority security interest under
applicable law.

 

 

 
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SECTION 3.3     Voting Rights and Trading Authority. During the term of this
Agreement, as long as no Event of Default exists Borrower shall have the right
to vote and exercise trading authority with respect to the Pledged Interests
(which may, subject to Section 3.2 above, be registered on the books and records
of the applicable issuer in Borrower’s name) and to give consents, ratifications
and waivers with respect thereto. Lender shall, at the request of Borrower,
provide Borrower with appropriate proxies and any other documents necessary or
appropriate to permit Borrower to exercise the rights set forth in the preceding
sentence. During the continuance of any Event of Default, Borrower shall not be
permitted to execute any trades pertaining to the Collateral and Lender shall be
entitled, at Lender’s option and without notice from Lender to Borrower, to
exercise all trading authority and voting powers pertaining to the Collateral.
“Trading authority” as used herein shall mean, with respect to the Pledged
Account, the right of Borrower or its representatives to sell Pledged Interests
in the Pledged Account and invest the proceeds of such sale, as well as other
cash available in the Pledged Account from time to time, in marketable
securities, cash or cash equivalents, so long as no Pledged Interest is released
from the Pledged Account as a result of such sale without being replaced with
marketable securities, cash or cash equivalents with the same fair market value
as the Pledged Interest being released exclusive of commissions and transaction
costs. However, Borrower hereby acknowledges and agrees that Lender’s consent to
trading authority in no way constitutes a waiver of any of its rights under this
Agreement to require at all times that the type and amount of the Collateral in
the Pledged Accounts meet the collateral maintenance requirements set forth in
this Agreement, including Section 2.3.

 

SECTION 3.4     Interest, Dividends and Other Distributions. Until Payment in
Full, any and all interest, dividends or distributions paid in respect of any
Collateral shall be retained in the Pledged Account and any cash paid, payable
or otherwise distributed in redemption of, in exchange for, or as a return of,
Borrower’s capital investment in any Pledged Interest shall be retained in the
Pledged Account and any if any amounts or assets are received by Borrower
contrary to the provisions of this Section, such amounts or assets shall be held
in trust for the benefit of Lender, segregated from other property or funds of
Borrower, and forthwith delivered to Lender as Collateral in the same form as so
received (with any necessary endorsement). Such amounts paid directly to Lender
as described in the immediately preceding sentence shall be applied by Lender to
such Obligations as Borrower shall designate unless any of the Obligations are
otherwise due, in which case, Lender may apply such amounts to such Obligations
(or to cash collateralize such Obligations, as the case may be).

 

SECTION 3.5     Additions of Pledged Collateral. Lender may permit Borrower,
from time to time, pursuant to Section 2.3 or otherwise, to add additional
investment property of Borrower to the Collateral subject to this Agreement by
executing an amendment to this Agreement substantially in the form of Exhibit D
attached hereto and otherwise complying with Section 3.2 hereof.

 

 

 
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ARTICLE IV.
INTEREST, FEES AND EXPENSES

 

SECTION 4.1     Interest. Borrower shall pay to Lender interest on the Advances,
payable monthly in arrears on the first day of each month, commencing with the
month immediately following the Closing Date, and on the Termination Date, at a
per annum rate which is equal at all times during the Interest Period for such
Advance to (i) the LIBOR Rate for the Interest Period selected by Borrower
corresponding to such Advances, plus (ii) the Margin.

 

SECTION 4.2     Interest After Event of Default. From the date of occurrence of
any Event of Default (past any applicable notice or cure period) until such
Event of Default shall have been waived by Lender, interest on the Advances
shall be payable on demand at a rate per annum equal to the rate that would be
otherwise applicable thereto plus an additional two percent (2.0%) per annum.

 

SECTION 4.3     Letter of Credit Fee. Borrower shall pay to Lender with respect
to the Letters of Credit issued by Lender an amount equal to 0.70% per annum of
the face amount of the Letters of Credit. Such fees shall be nonrefundable and
shall be payable quarterly in arrears on the first day of each calendar quarter
(January 1, April 1, July 1 and October 1) until all Obligations are Paid in
Full. In addition to the foregoing fees, Borrower shall pay or reimburse Lender
for such normal and customary costs and expenses as are incurred or charged by
Lender to other similarly situated borrowers in issuing, effecting payment
under, amending or otherwise administering any Letter of Credit.

 

SECTION 4.4     Unused Line Fee. Borrower shall pay to the Lender on the first
day of each month, commencing with the month immediately following the Closing
Date, and on the Termination Date, in arrears, an unused line fee equal to the
product of 20/100ths of one percent (0.20%) per annum multiplied by the
difference, if positive, between (i) $16,000,000 and (ii) the average daily
balance of all Advances under the Committed Facility plus aggregate average
daily undrawn amount of all Letters of Credit issued under the Committed
Facility during the immediately preceding month or portion thereof.

 

SECTION 4.5     Closing Fee. On the Closing Date, Borrower shall pay to Lender a
non-refundable closing fee in the amount of Sixteen Thousand Dollars
($16,000.00).

 

SECTION 4.6     Calculations. All calculations of interest and fees hereunder
shall be made by Lender on the basis of a year of 360 days for the actual number
of days elapsed in the period for which such interest or fees are payable. Each
determination by Lender of an interest rate, fee or other payment hereunder
shall be conclusive and binding for all purposes, absent manifest error.

 

SECTION 4.7     Indemnification in Certain Events. If, after the Closing Date,
(i) any change in or in the interpretation of any law or regulation is
introduced including, without limitation, with respect to reserve requirements,
applicable to Lender or any other banking or financial institution from which
Lender borrows funds or obtains credit, (ii) Lender complies with any future
guideline or request from any central bank or other Governmental Authority or
(iii) Lender determines that the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof has or would have the effect described below, or Lender
complies with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, and in the case of any event set forth in this clause (iii), such
adoption, change or compliance has or would have the direct or indirect effect
of reducing the rate of return on Lender’s capital as a consequence of its
obligations hereunder to a level below that which Lender could have achieved but
for such adoption, change or compliance (taking into consideration Lender’s
policies as the case may be with respect to capital adequacy) by an amount
deemed by Lender to be material, and any of the foregoing events described in
clauses (i), (ii) and (iii) increases the cost to Lender of funding or
maintaining the Advances, or reduces the amount receivable in respect thereof by
Lender, then, Borrower shall, upon demand by Lender, within five (5) Business
Days after receipt of written notice thereof from the Bank, which notice shall
set forth the Bank’s supporting calculations in reasonable detail, pay to Lender
additional amounts sufficient to indemnify Lender against such increase in cost
or reduction in amount receivable, however, only in the event that Lender
charges or requests indemnity from all of its other similarly situated borrowers
for such amounts. In making the foregoing determination, “change in law” (or
words of similar import) shall include, regardless of the date enacted, adopted
or issued, all requests, guidelines, requirements or directives (i) under or
relating to the Dodd-Frank Wall Street Reform and Consumer Protection Act, or
(ii) promulgated pursuant to Basel III by the Bank of International Settlements,
the Basel Committee on Banking Supervision (or any similar authority) or any
other Governmental Authority.

 

 

 
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SECTION 4.8     Taxes.

 

(a)     Any and all payments by Borrower hereunder or under the Note shall be
made free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings and penalties,
interest and all other liabilities with respect thereto (“Taxes”), including any
Taxes imposed under Section 7701(l) of the Internal Revenue Code, excluding in
the case of the Lender, taxes imposed on its net income (including, without
limitation, any taxes imposed on branch profits) and franchise taxes imposed on
the Lender by any applicable jurisdiction. If Borrower shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder or under any
Advance to or for the benefit of the Lender, (A) the sum payable shall be
increased as may be necessary so that after making all required deductions of
Taxes (including deductions of Taxes applicable to additional sums payable under
this Section) the Lender receives an amount equal to the sum it would have
received had no such deductions been made, (B) Borrower shall make such
deductions and (C) Borrower shall pay the full amount so deducted to the
relevant taxation authority or other authority in accordance with applicable
law.

 

(b)     In addition, Borrower agrees to pay any present or future stamp,
documentary, excise, privilege, intangible or similar taxes or levies that arise
at any time or from time to time (i) from any payment made under any and all
Loan Documents, or (ii) from the execution or delivery by Borrower of, or from
the filing or recording or maintenance of, or otherwise with respect to the
exercise by the Lender of its rights under, any and all Loan Documents
(excluding in the case of the Lender, taxes imposed on its net income
(including, without limitation, any taxes imposed on branch profits) and
franchise taxes imposed on the Lender by any applicable jurisdiction hereinafter
referred to as “Other Taxes”).

 

 

 
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(c)     Borrower indemnifies the Lender for the full amount of (i) Taxes imposed
on or with respect to amounts payable hereunder, excluding in the case of the
Lender, taxes imposed on its net income (including, without limitation, any
taxes imposed on branch profits) and franchise taxes imposed on the Lender by
any applicable jurisdiction (ii) Other Taxes and (iii) any Taxes (other than
Taxes imposed by any jurisdiction on amounts payable under this Section) paid by
the Lender and any liability (including penalties, interest and expenses)
arising solely therefrom or with respect thereto;. excluding in the case of the
Lender, taxes imposed on its net income (including, without limitation, any
taxes imposed on branch profits) and franchise taxes imposed on the Lender by
any applicable jurisdiction.

 

(d)     Within thirty (30) days after the date of any payment of Taxes or Other
Taxes payable by Borrower hereunder, Borrower will, upon request, furnish to the
Lender the original or a certified copy of a receipt evidencing payment thereof.

 

(e)     If Lender receives any refund of any Taxes or Other Taxes paid by
Borrower hereunder, Lender shall promptly deliver the amount of such refund to
Borrower.

 

(f)     Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in this
Section 4.7 shall survive the indefeasible Payment in Full of the Obligations.

 

ARTICLE V.
CONDITIONS TO LENDING

 

SECTION 5.1     Conditions to Initial Advance or Letter of Credit. The
obligation of Lender to make the initial Advance or to issue the initial Letter
of Credit is subject to the satisfaction of the following conditions prior to or
concurrent with such initial Advance or Letter of Credit:

 

(a)     Lender shall have received the following, in form and substance
satisfactory to Lender and its counsel:

 

(i)     this Agreement duly executed by Borrower;

 

(ii)     the Note duly executed by Borrower;

 

(iii)     a Standby Letter of Credit Agreement duly executed by Borrower;

 

(iv)     Citibank’s standard Alternative Dispute Resolution Agreement duly
executed by Borrower;

 

(v)     an executed Reg U-1 Form;

 

 

 
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(vi)     a Secretary’s Certificate of Borrower attaching the organizational
documents of Borrower, along with a copy of the resolutions of the board of
directors authorizing the execution, delivery and performance of this Agreement
and the other Loan Documents, and the incumbency, names and true signatures of
the officers of Borrower authorized to sign the Loan Documents;

 

(vii)     an initial Borrowing Base Certificate; and

 

(viii)     such other agreements, instruments, documents and evidence as Lender
deems reasonably necessary in its discretion in connection with the transactions
contemplated hereby.

 

(b)     There shall be no pending or, to the knowledge of Borrower after due
inquiry, threatened litigation, proceeding, inquiry or other action (i) seeking
an injunction or other restraining order, damages or other relief with respect
to the transactions contemplated by this Agreement or the other Loan Documents
or (ii) which would have a Material Adverse Effect.

 

(c)     Borrower shall have paid the closing fee and all reasonable fees and
expenses of Lender’s counsel in connection with the negotiation, preparation,
execution and delivery of the Loan Documents, together with all other
out-of-pocket fees and expenses due as of the Closing Date pursuant to the terms
of this Agreement.

 

(d)     The Liens in favor of Lender shall have been duly perfected and shall
constitute first priority Liens, and the Collateral shall be free and clear of
all Liens.

 

Conditions Precedent to Each Advance and Each Letter of Credit. The obligation
of Lender to make any Advance or to issue any Letter of Credit is subject to the
satisfaction of the following conditions precedent:(a)     all representations
and warranties contained in this Agreement and the other Loan Documents shall be
true and correct in all material respects on and as of the date of such Advance
or Letter of Credit as if then made, other than representations and warranties
that expressly relate solely to an earlier date, in which case they shall have
been true and correct in all material respects as of such earlier date; and

 

(b)     no Default or Event of Default shall have occurred and be continuing or
would result from the issuance of the requested Advance or Letter of Credit as
of the date of such request.

 

ARTICLE VI.
REPRESENTATIONS AND WARRANTIES

 

SECTION 6.1     Representations and Warranties of Borrower; Reliance by Lender.
Borrower represents and warrants, as of the Closing Date and as of the date of
any Borrowing and the date of any issuance of a Letter of Credit, as follows:

 

(a)     Organization, Good Standing and Qualification. Borrower (i) is
incorporated or duly organized, validly existing and in good standing under the
laws of the state of its organization, (ii) has the requisite power and
authority to own its properties and assets and to transact the businesses in
which it presently is, or proposes to be, engaged and (iii) is duly qualified,
authorized to do business and in good standing in each jurisdiction where it
presently is, or proposes to be, engaged in business, except where such failure
to be so qualified or in good standing would not individually or in the
aggregate have a Material Adverse Effect.

 

 

 
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(b)     Authority. Borrower has the requisite power and authority to execute,
deliver and perform its obligations under each of the Loan Documents. Borrower
has the power and authority to grant to Lender the security interests in the
Collateral. All action necessary for the execution, delivery and performance by
Borrower of the Loan Documents has been taken.

 

(c)     Enforceability. This Agreement is and, when executed and delivered, each
other Loan Document, will be, the legal, valid and binding obligation of
Borrower enforceable in accordance with its terms, except as enforceability may
be limited by (i) bankruptcy, insolvency, fraudulent conveyance, fraudulent
transfer, reorganization, moratorium or similar laws affecting creditors’ rights
generally and (ii) general principles of equity (including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, regardless
of whether enforcement is considered in proceedings at law or in equity).

 

(d)     No Conflict. The execution, delivery and performance by Borrower of each
Loan Document do not and will not contravene (i) any of the organizational
documents of Borrower, (ii) any applicable Requirement of Law or (iii) any
material contract, agreement, license or permit of Borrower and will not result
in the imposition of any Liens upon any of Borrower’s properties, except in the
case of (ii) and (iii), for such contraventions that would not individually or
in the aggregate have a Material Adverse Effect.

 

(e)     Consents and Filings. No consent, authorization or approval of, or
filing with or other act by, Borrower, any Governmental Authority or any other
Person is required in connection with the execution, delivery, performance,
validity or enforceability of this Agreement or any other Loan Document, the
consummation of the transactions contemplated hereby or thereby or the
continuing operations of Borrower following such consummation, except those that
have been obtained or made.

 

(f)     Solvency. As of the Closing Date (after giving effect to all
transactions contemplated to occur on or before the Closing Date) and as of the
date of each Borrowing, Borrower is Solvent.

 

(g)     Accuracy and Completeness of Information. All written data, reports and
information heretofore, contemporaneously or hereafter furnished by or on behalf
of Borrower to Lender or its representatives (in each case, taken as a whole and
as modified or supplemented by other information so furnished) are or will be
true and accurate in all material respects as of the date of such data, reports
and information or as of the date of certification of such data, reports and
information and none of such data, reports and information (in each case, taken
as a whole and as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact
in response to any request by Lender. There are no facts now known to Borrower
which individually or in the aggregate would reasonably be expected to have a
Material Adverse Effect and which have not been specified herein, in the
Financial Statements, or in any certificate, opinion or other written statement
previously furnished by Borrower to Lender. Lender acknowledges that any
projections furnished by Borrower to Lender are based on underlying assumptions
which Borrower believes provide a reasonable basis for the projections contained
therein and reflect Borrower’s judgment based on present circumstances of the
most likely set of conditions and course of action for the projected period.
Lender further acknowledges that projections as to future events are not to be
viewed as facts, that the actual results during the period or periods covered by
such projections may differ from the projected results, and that such
differences may be material.

 

 

 
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(h)     No Broker’s or Finder’s Fees. No broker or finder brought about the
obtaining, making or closing of the financial accommodations afforded hereunder.
No broker’s or finder’s fees or commissions will be payable by Borrower to any
Person in connection with the transactions contemplated by this Agreement.

 

(i)     Investment Company. Borrower is not an “investment company,” or an
“affiliated person” of, or “promoter” or “principal underwriter” for, an
“investment company,” as such terms are defined in the Investment Company Act of
1940, as amended (the “Act”).

 

(j)     Margin Stock. Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (as defined in
Regulation U) and no proceeds of any credit accommodation hereunder will be used
to purchase or carry any margin stock (as defined in Regulation U) or to extend
credit to others for the purpose of purchasing or carrying any margin stock, or
to repay any loan that was used to purchase or carry any margin stock.

 

(k)     No Judgments or Litigation. Except as disclosed in the Borrower’s public
filings, no judgments, orders, writs or decrees are outstanding against
Borrower, nor is there now pending or, to Borrower’s knowledge after due
inquiry, threatened litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Borrower that (i) individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect or (ii)
purports to affect the legality, validity or enforceability of this Agreement,
the Note, any other Loan Document or the consummation of the transactions
contemplated hereby or thereby.

 

(l)     Compliance with Laws. On the Closing Date, after giving effect to the
transactions contemplated hereby, it is not in default under any Requirement of
Law applicable to Borrower that individually or in the aggregate would
reasonably be expected to have a Material Adverse Effect.

 

(m)     Rights in Collateral; Priority of Liens. All of the Collateral of
Borrower is owned by it free and clear of any and all Liens other than Liens in
favor of Lender. The Liens granted by Borrower pursuant to this Agreement
constitute valid, enforceable and perfected first priority Liens on the
Collateral.

 

(n)     Compliance with Anti-Terrorism Laws. Borrower is and will remain in full
compliance with all material laws and regulations applicable to it including,
without limitation, (i) ensuring that no Person who owns a controlling interest
in or otherwise controls Borrower is or shall be (A) listed on the Specially
Designated Nationals and Blocked Person List maintained by the Office of Foreign
Assets Control (“OFAC”), Department of the Treasury, or any other similar list
maintained by the OFAC under any authorizing statute, Executive Order or
regulation or (B) a Person designated under Section 1(b), (c) or (d) of
Executive Order No. 13224 (September 23, 2001), any related enabling legislation
or any similar Executive Order and (ii) compliance with all applicable Bank
Secrecy Act (“BSA”) laws, regulations and government guidance on BSA compliance
and on the prevention and detection of money laundering violations. Borrower
acknowledges that Lender has notified Borrower that Lender is required, under
the USA Patriot Act, 31 U.S.C. §5318 (the “Patriot Act”), to obtain, verify and
record information that identifies Borrower, including, without limitation, the
name and address of Borrower and such other information that will allow Lender
to identify Borrower in accordance with the Patriot Act.

 

 

 
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(o)     Pledged Account. Borrower is the sole, direct, legal and beneficial
owner of the Pledged Account and the only securities entitlement holder with
respect to each of the Pledged Interests which constitute securities
entitlements.

 

(p)     Voting. There are no restrictions upon the voting rights associated with
any of the Collateral. Borrower has the right, subject to the provisions of this
Agreement, (i) to vote the Pledged Interests, and (ii) to pledge and grant a
security interest in all or any part of the Collateral, free of any Lien or
other charge, encumbrance or restriction.

 

(q)     Right to Transfer. Borrower has acquired each of the Pledged Interests
in an open market transaction and all such Pledged Interests are registered
under the Securities Act of 1933, as amended (the “Securities Act”) and Borrower
has the right to transfer all or any part of the Pledged Interests, free of any
Liens.

 

(r)     No Affiliated Securities. Borrower is not the beneficial owner (as
determined in accordance with Rule 13d-3 under the Securities Exchange Act of
1934) of five percent (5%) or more of the issued and outstanding common stock of
the issuer of any of the Securities or otherwise considered an “Affiliate” (as
defined in Rule 144 promulgated under the Securities Act) of any issuer of the
Pledged Interests now or at any time during the three preceding months.

 

(s)     No Indebtedness. Borrower has no Indebtedness other than Permitted Debt.

 

(t)     No Liens. All of the assets and personal property of Borrower are owned
or leased by Borrower free and clear of any and all Liens other than Permitted
Liens.

 

All representations and warranties made by Borrower in this Agreement and in
each other Loan Document to which it is a party shall survive the execution and
delivery hereof and thereof and the closing of the transactions contemplated
hereby and thereby. Borrower acknowledges and confirms that Lender are relying
on such representations and warranties without independent inquiry in entering
into this Agreement.

 

 

 
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ARTICLE VII.
COVENANTS OF BORROWER

 

SECTION 7.1     Affirmative Covenants. Until Payment in Full:

 

(a)     Existence. Borrower shall (i) maintain its corporate existence, and (ii)
maintain in full force and effect, as is customarily maintained by companies
similarly situated, all material licenses, bonds, franchises, leases,
trademarks, qualifications and authorizations to do business, and all material
patents, contracts and other rights necessary or advisable to the conduct of its
businesses.

 

(b)     Taxes. Borrower shall pay when due, (i) all tax assessments, and other
governmental charges and levies imposed against it or any of its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon its
property; provided, however, that, unless such tax assessment, charge, levy or
claim has become a Lien on any of the property of Borrower, it need not be paid
if it is being contested in good faith, by appropriate proceedings diligently
conducted and an adequate reserve or other appropriate provision shall have been
established therefor as required in accordance with GAAP.

 

(c)     Requirements of Law. Borrower shall comply with all Requirements of Law
applicable to it, except any compliance that individually or in the aggregate
would not reasonably be expected to have a Material Adverse Effect.

 

(d)     Books and Records; Inspections. Borrower shall, maintain books and
records (including computer records and programs) of account pertaining to the
assets, liabilities and financial transactions of Borrower in such detail, form
and scope as is consistent with good business practice.

 

(e)     Financial Reporting. Borrower shall deliver to Lender the following:

 

(i)     Annual Financial Statements. As soon as available, but not later than
ninety (90) days after the end of each fiscal year, Form 10-K filed with the SEC
regarding Borrower’s annual audited and certified consolidated Financial
Statements of Borrower for or as of the end of the prior fiscal year.

 

(ii)     Quarterly Financial Statements. As soon as available, but not later
than forty-five (45) days after the end of each calendar quarter (including the
last calendar quarter), Borrower’s quarterly interim consolidated Financial
Statements of Borrower, as at the end of such quarter and for the fiscal year to
date.

 

(iii)     Investment Statements; Borrowing Base Certificate. Together with the
Financial Statements delivered in accordance with in clauses (i) and (ii), (A)
all investment statements provided to Borrower by Citi Private Bank with respect
to the Collateral and the Pledged Account and (B) a certificate signed by an
Authorized Officer of Borrower substantially in the form of Exhibit B (a
“Borrowing Base Certificate”).

 

(iv)     Other Financial Information. Promptly after the request by Lender
therefor, such additional financial statements and other related data and
information as to the business, operations, results of operations, assets,
liabilities or financial condition of Borrower as Lender may from time to time
reasonably request. Notwithstanding the foregoing, no additional financial
statements and other related data and information shall have to be delivered so
long as Borrower is a public reporting company and filing in compliance with SEC
filing requirements and complying with clauses (i), (ii) and (iii) above.

 

 

 
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(f)     Payment of Liabilities. Borrower shall pay and discharge, in the
ordinary course of business, all material obligations and liabilities (other
than tax liabilities and other governmental charges which shall be governed by
clause (b) above), except where the same may be contested in good faith by
appropriate proceedings and for which adequate reserves with respect thereto
have been established in accordance with GAAP.

 

(g)     Solvency. Borrower shall be and remain Solvent at all times.

 

(h)     Agreements Regarding Collateral:

 

(i)     Borrower represents to Lender that Borrower has made its own
arrangements for keeping informed of changes or potential changes affecting the
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of interest, dividends, reorganization or other exchanges,
tender offers and voting rights), and Borrower agrees that Lender shall have no
responsibility or liability for informing Borrower of any such changes or
potential changes or for taking any action or omitting to take any action with
respect thereto.

 

(ii)     In the event that, during the term of this Agreement, any stock
dividend, reclassification, readjustment or other change is declared or made in
the capital structure of any of the issuers of the Pledged Interests (including,
without limitation, the issuance of additional shares of capital stock of any of
such issuers), then Lender shall have a security interest in all equity and
non-equity securities issued to or acquired by Borrower by reason of any such
change or exercise with respect to any Pledged Interest, and such shares or
other securities shall become part of the Collateral.

 

(iii)     In the event that, during the term of this Agreement, subscription
warrants or any other rights or options shall be issued by any issuer of the
Pledged Interests on account of such Pledged Interests, then Lender shall have a
security interest in such warrants, rights and options, and such warrants,
rights and options shall become part of the Collateral.

 

SECTION 7.2     Negative Covenants. Until Payment in Full:

 

(a)     Sales, Etc. of Collateral. Borrower will not directly or indirectly,
sell, pledge, assign, transfer or otherwise dispose of any of the Collateral, or
otherwise create, incur, assume or suffer to exist any Lien on or with respect
to the Collateral. In furtherance of the foregoing, Borrower agrees that it will
not (a) close or attempt to close or liquidate the Pledged Account or withdraw
or transfer from the Pledged Account any cash, Securities or other financial
asset contained therein without the prior written consent of Lender, or (b)
create or permit to exist any Lien upon or with respect to any of the
Collateral, except for the security interest granted under this Agreement.

 

 

 
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(b)     Use of Proceeds. Borrower will not (i) use any portion of the proceeds
of any Advance or Letter of Credit in violation of Section 2.7 or for the
purpose of purchasing or carrying any “margin stock” (as defined in Regulation U
of the Federal Reserve Board) in any manner which violates the provisions of
Regulation T, U or X of the Federal Reserve Board or for any other purpose in
violation of any applicable statute or regulation, or of the terms and
conditions of this Agreement, or (ii) take, or permit any Person acting on its
behalf to take, any action which could reasonably be expected to cause this
Agreement or any other Loan Document to violate any regulation of the Federal
Reserve Board.

 

(c)     Accounting Changes. Borrower will not at any time make or permit any
change in accounting policies or reporting practices, except as permitted or
required by GAAP.

 

(d)     [Reserved.]

 

(e)     Indebtedness. Borrower will not, directly or indirectly, at any time
create, incur, assume or suffer to exist any Indebtedness other than the
following (collectively, “Permitted Debt”):

 

(i)     (Indebtedness under the Loan Documents;

 

(ii)     endorsement of negotiable instruments for deposit or collection in the
ordinary course of business;

 

(iii)     Indebtedness (including capitalized lease) incurred solely to finance
the acquisition of fixed or capital assets in an aggregate principal amount not
to exceed $2,500,000 at any time outstanding;

 

(iv)     obligations pursuant to cash secured letters of credit (exclusive of
the Letters of Credit provided hereunder) not to exceed $4,100,000; and

 

(v)     other unsecured Indebtedness incurred prior to the date hereof and
disclosed in Borrower’s most recently filed Form 10-K filed with the SEC.

 

(f)     Liens on Assets, Etc. Borrower will not, directly or indirectly, at any
time create, incur, assume or suffer to exist any Lien on or with respect to any
assets or personal property, other than the following (collectively, “Permitted
Liens”):

 

(i)     Liens created hereunder and by the other Loan Documents;

 

(ii)     Liens securing Indebtedness permitted by Section 7.2(d)(iii) incurred
to finance the acquisition of fixed or capital assets,

 

(iii)     Liens for taxes, assessments and other governmental charges or levies
or the claims or demands of landlords, carriers, warehousemen, mechanics,
laborers, materialmen and other like Persons arising by operation of law in the
ordinary course of business for sums which are not yet due and payable,

 

 

 
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(iv)     Liens on cash collateral securing indebtedness or guarantees of
indebtedness of the type mentioned in Section 7.2(d)(iv),

 

(v)     Liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security and other like obligations incurred in the
ordinary course of business (other than Liens imposed by ERISA),

 

(vi)     Liens arising from attachments, appeals bonds, or judgments, orders, or
decrees in circumstances not constituting an Event of Default,

 

(vii)     leases or subleases of real property granted in the ordinary course of
Borrower’s business, and leases, subleases, non-exclusive licenses or
sublicenses of personal property granted in the ordinary course of Borrower’s
business, and

 

(viii)     non-exclusive license of intellectual property granted to third
parties in the ordinary course of business, and licenses of intellectual
property that could not result in a legal transfer of title of the licensed
property that may be exclusive in respects other than territory.

 

ARTICLE VIII.
EVENTS OF DEFAULT

 

SECTION 8.1     Events of Default. The occurrence of any of the following events
shall constitute an “Event of Default”:

 

(a)     Borrower shall (i) fail to make any regularly scheduled payment of
interest or regularly scheduled fee payment within three (3) days of when due or
(ii) fail to make any other payment of principal, interest, fees, expenses or
other Obligations when payable, whether at stated maturity, by acceleration, or
otherwise; or

 

(b)     Borrower shall (i) default in the performance or observance of any
agreement, covenant, condition, provision or term contained in Section 2.3, 7.1,
7.2 or 9.4 hereof; or (ii) default in the performance or observance of any
agreement, covenant, condition, provision or term contained in this Agreement or
any other Loan Document (other than those referred to in Sections 8.1(a) and
(b)(i)) and such default continues for a period of thirty (30) days after
written notice by Lender; or

 

(c)     the occurrence of any Change of Control; or

 

(d)     any representation or warranty made by Borrower under or in connection
with any Loan Document or amendment or waiver thereof, or in any Financial
Statement, report, document or certificate delivered in connection therewith,
shall prove to have been incorrect in any material respect when made or deemed
made; or

 

(e)     any single judgment or order for the payment of money which, when taken
together with all other judgments and orders rendered against Borrower taken
together, exceeds Ten Million Dollars ($10,000,000) in the aggregate (unless
covered by insurance as to which a solvent and unaffiliated insurance company
has acknowledged coverage without a reservation of rights) shall be rendered
against Borrower and shall not be stayed, vacated, bonded or discharged within
thirty (30) days; or

 

 

 
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(f)     Borrower shall become the subject of an Insolvency Event; or

 

(g)     Borrower shall: (i) liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution); or (ii) acquire by purchase or otherwise all or any
substantial part of the business or assets of any other Person, or otherwise
enter into any transaction of merger or consolidation, unless in each case
Borrower is the surviving legal entity; or

 

(h)     the occurrence of any “Event of Default” as defined in the Standby
Letter of Credit Agreement.

 

SECTION 8.2     Acceleration and Termination. Upon the occurrence and during the
continuance of an Event of Default, Lender may take any or all of the following
actions, without prejudice to the rights of Lender to enforce its claims against
Borrower:

 

(a)     Acceleration. To declare all Obligations immediately due and payable
(except with respect to any Event of Default specified in Section 8.1(f), in
which case all Obligations shall automatically become immediately due and
payable) without presentment, demand, protest or any other action or obligation
of Lender.

 

(b)     Termination of Commitment. To declare the any commitment to lend or
issue Letters of Credit to be immediately terminated (except with respect to any
Event of Default with respect to Borrower set forth in Section 8.1(f), in which
case any such commitment shall automatically terminate) and, at all times
thereafter, any Advance made or Letter of Credit issued by Lender shall be in
Lender’s sole discretion.

 

SECTION 8.3     Cash Collateralization. Upon the occurrence and during the
continuance of any Event of Default, upon demand by Lender, Borrower shall
deposit in a cash collateral account established by or on behalf of Lender
sufficient funds to cash collateralize 105% of the L/C Exposure at such time.
During the existence of an Event of Default, amounts held in such cash
collateral account shall be under the sole dominion and control of Lender and
applied by Lender to the payment of drafts drawn under such Letters of Credit,
and the balance, if any, in such cash collateral account, after all such Letters
of Credit shall have expired or been fully drawn upon shall be applied to repay
the other Obligations. During the existence of an Event of Default, after all
such Letters of Credit shall have expired or been fully drawn upon and all
Obligations shall have been satisfied, the balance, if any, in such cash
collateral account shall be returned to Borrower or to such other Person as may
be lawfully entitled thereto.

 

SECTION 8.4     Remedies as a Secured Party. Upon the occurrence and during the
continuance of any Event of Default, Lender shall have such powers of sale and
other powers as may be conferred by applicable law with respect to the
Collateral including, without limitation, all of the rights and remedies with
respect to the Collateral of a secured party under the Uniform Commercial Code
as in effect in the State of New York. With respect to such Collateral or any
part thereof, which shall then be in, or shall thereafter come into, the
possession or custody of Lender or which Lender shall otherwise have the ability
to transfer under applicable law, Lender may, in its sole discretion, without
notice, upon the occurrence and during the continuance of any Event of Default,
sell or cause the same to be sold at any broker’s board or at public or private
sale, in one or more sales or lots, at such price as Lender reasonably may deem
best, for cash or on credit or for future delivery, without assumption of any
credit risk on the part of Lender and the purchaser of any or all of the
Collateral so sold shall thereafter own the same, absolutely free from any
claim, encumbrance or right of any kind whatsoever and any sale of the
Collateral conducted in conformity with reasonable commercial practices of
banks, commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Collateral shall be deemed to
be commercially reasonable. Except with respect to any of the Collateral which
threatens to decline speedily in value or is, or becomes, of a type sold on a
recognized market, Lender will give Borrower reasonable notice of the time and
place of any public sale thereof, or of the time after which any private sale or
other intended disposition is to be made. Any requirements of reasonable notice
shall be met if ten (10) days’ prior written notice of such sale or disposition
is provided to Borrower. Notwithstanding anything to contrary contained herein,
Borrower acknowledges and agrees that each of the Pledged Interests is sold on a
recognized market and no notice of sale shall be required in accordance with
Section 9-611(d) of the Code. Any other requirement of notice, demand or
advertisement for sale is, to the extent permitted by law, waived. Lender may,
in its own name or in the name of a designee or nominee, buy all or any part of
the Collateral at any public sale and, if permitted by applicable law, buy all
or any part of the Collateral at any private sale.

 

 

 
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SECTION 8.5     Other Remedies. Upon the occurrence and during the continuance
of an Event of Default, Lender shall have all rights and remedies with respect
to the Obligations and the Collateral under applicable law and the Loan
Documents, including all rights and remedies of a secured party under the Code
and Lender may do any or all of the following: (i) remove for copying all
documents, instruments, files and records (including the copying of any computer
records) relating to the Collateral; and (ii) foreclose the security interests
created pursuant to the Loan Documents by any available procedure, or take
possession of any or all of the Collateral, without judicial process and enter
any premises where any Collateral may be located for the purpose of taking
possession of or removing the same.

 

SECTION 8.6     No Marshalling; Deficiencies; Remedies Cumulative. Upon the
occurrence and during the continuance of an Event of Default, Lender shall have
no obligation to marshal any Collateral or to seek recourse against or
satisfaction of any of the Obligations from one source before seeking recourse
against or satisfaction from another source. Upon the occurrence and during the
continuance of an Event of Default, the net cash proceeds resulting from
Lender’s exercise of any of the foregoing rights to liquidate all or
substantially all of the Collateral, shall be applied by Lender to such of the
Obligations and in such order as Lender shall elect in its discretion, whether
due or to become due. Borrower shall remain liable to Lender and Lender for any
deficiencies, and Lender and Lender in turn agree to remit to Borrower or its
successor or assign any surplus resulting therefrom. All of Lender’s and
Lender’s remedies under the Loan Documents shall be cumulative, may be exercised
simultaneously against any Collateral and Borrower or in such order and with
respect to such Collateral or Borrower as Lender may deem desirable, and are not
intended to be exhaustive.

 

SECTION 8.7     Waivers. Except as may be otherwise specifically provided herein
or in any other Loan Document, Borrower hereby waives any right to a judicial or
other hearing with respect to any action or prejudgment remedy or proceeding by
Lender during the continuance of an Event of Default to take possession,
exercise control over, or dispose of any item of Collateral in any instance
(regardless of where the same may be located) where such action is permitted
under the terms of this Agreement or any other Loan Document or by applicable
law or of the time, place or terms of sale in connection with the exercise of
Lender’s rights hereunder and also waives any bonds, security or sureties
required by any statute, rule or other law as an incident to any taking of
possession by Lender of any Collateral. Borrower also waives any damages
(direct, consequential or otherwise) occasioned by the enforcement of Lender’s
rights under this Agreement or any other Loan Document including the taking of
possession of any Collateral. These waivers and all other waivers provided for
in this Agreement and the other Loan Documents have been negotiated by the
parties, and Borrower acknowledges that it has been represented by counsel of
its own choice, has consulted such counsel with respect to its rights hereunder
and has freely and voluntarily entered into this Agreement and the other Loan
Documents as the result of arm’s-length negotiations.

 

 

 
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SECTION 8.8     Lender Appointed Attorney-in-Fact. Borrower hereby appoints
Lender as Borrower’s attorney-in-fact, with full authority in the place and
stead of Borrower and in the name of Borrower or otherwise, from time to time in
Lender’s discretion, to take any action and to execute any instrument or
agreement which Lender may deem necessary or advisable to accomplish the
purposes of this Agreement, including, without limitation, to receive, endorse
and collect all instruments made payable to Borrower representing any interest
payment, dividend or other distribution in respect of the Collateral or any part
thereof and to give full discharge for the same. This power of attorney created
under this Section, being coupled with an interest, shall be irrevocable as long
as any of the Obligations shall be outstanding. The power of attorney created
under this Section may only be exercised during the continuance of an Event of
Default.

 

SECTION 8.9     Lender’s Duty. Lender shall not be liable for any acts,
omissions, errors of judgment or mistakes of fact or law including, without
limitation, those acts, omissions, errors or mistakes with respect to the
Collateral, except for those arising out of or in connection with Lender’s (a)
gross negligence or willful misconduct, or (b) failure to use reasonable care
with respect to the safe custody of any certificate or other possessory
collateral evidencing any of the Collateral which is in the physical possession
of Lender. Without limiting the generality of the foregoing, Lender shall be
under no obligation to take any steps necessary to preserve rights in the
Collateral against any other parties but may do so at its option, and all
reasonable expenses incurred in connection therewith shall be for the sole
account of Borrower, and shall be added to the Obligations secured hereby.

 

SECTION 8.10     Further Assurances. Borrower shall do all things and shall
execute and deliver all documents and instruments reasonably requested by Lender
to protect or perfect any Lien (and the priority thereof) of Lender on the
Collateral.

 

 

 
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ARTICLE IX.
GENERAL PROVISIONS

 

SECTION 9.1     Notices. Except as otherwise provided herein, all notices and
other communications hereunder shall be in writing and sent by certified or
registered mail, return receipt requested, by overnight delivery service, with
all charges prepaid, by hand delivery, or e-mail followed by a hard copy sent by
regular mail, as follows:

 

 

if to Lender:

Citibank, N.A.
One Sansome Street
San Francisco, CA 94104
Attn: Ms. Nan Dias

 

 

if to Borrower:

Energy Recovery, Inc.
1717 Doolittle Drive
San Leandro, CA 94577,
Attn: Ms. Sharon Smith-Lennox

 

or, in each case, to such other address as Lender or Borrower may specify to the
other party in the manner required hereunder. All such notices and
correspondence shall be deemed given (i) if sent by certified or registered
mail, three Business Days after being postmarked, (ii) if sent by overnight
delivery service or by hand delivery, when received at the above stated
addresses or when delivery is refused and (iii) if sent by e-mail transmission,
when such transmission is confirmed.

 

SECTION 9.2     Delays; Partial Exercise of Remedies. No delay or omission of
Lender to exercise any right or remedy hereunder shall impair any such right or
operate as a waiver thereof. No single or partial exercise by Lender of any
right or remedy shall preclude any other or further exercise thereof, or
preclude any other right or remedy.

 

SECTION 9.3     Right of Setoff. In addition to and not in limitation of all
rights of offset that Lender or any of its Affiliates may have under applicable
law, and whether or not Lender has made any demand or the Obligations of
Borrower have matured, Lender and its Affiliates shall have the right during the
continuance of any Event of Default to set off and apply any and all deposits
(general or special, time or demand, provisional or final, or any other type) at
any time held and any other indebtedness at any time owing by Lender or any of
its Affiliates to or for the credit or the account of Borrower against any and
all of the Obligations. In the event that Lender exercises any of its rights
under this Section 9.3, Lender shall provide prompt written notice to Borrower
of such exercise, provided that the failure to give such notice shall not affect
the validity of the exercise of such rights.

 

SECTION 9.4     Indemnification; Reimbursement of Expenses of Collection.

 

(a)     Borrower hereby agrees that, Borrower will indemnify, defend and hold
harmless Lender and its successors, assigns, directors, officers, agents,
employees, advisors, shareholders, attorneys and Affiliates (each, an
“Indemnified Party”) from and against any and all losses, claims, damages,
liabilities, deficiencies, obligations, fines, penalties, actions (whether
threatened or existing), judgments, suits (whether threatened or existing) or
expenses (including, without limitation, reasonable fees and disbursements of
outside counsel, experts, consultants and other professionals) incurred by any
of them (collectively, “Claims”) (except, in the case of each Indemnified Party,
to the extent that any Claim is determined in a final judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party’s fraud, bad
faith, gross negligence or willful misconduct or a material breach by such
Indemnified Party of its obligations under this Agreement or any other Loan
Document) arising out of or by reason of (i) any litigation, investigation,
claim or proceeding related to (A) this Agreement, any other Loan Document or
the transactions contemplated hereby or thereby, (B) any actual or proposed use
by Borrower of the proceeds of the Advances or the Letters of Credit, or (C)
Lender’s entering into this Agreement, the other Loan Documents or any other
agreements and documents relating hereto (other than consequential damages and
loss of anticipated profits or earnings), including, without limitation, amounts
paid in settlement, court costs and the reasonable fees and disbursements of
counsel incurred in connection with any such litigation, investigation, claim or
proceeding, and (ii) any pending, threatened or actual action, claim, proceeding
or suit by any shareholder, director, manager or owner of Borrower or any actual
or purported violation of Borrower’s organizational documents or any other
agreement or instrument to which Borrower is a party or by which any of its
properties is bound. In addition, Borrower shall, upon demand, pay to Lender all
reasonable out-of-pocket costs and expenses incurred by Lender (including the
reasonable fees and disbursements of counsel and other professionals) in
connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents, and pay to Lender all costs
and expenses (including the reasonable fees and disbursements of counsel and
other professionals) paid or incurred by Lender in (A) enforcing or defending
its rights under or in respect of this Agreement, the other Loan Documents or
any other document or instrument now or hereafter executed and delivered in
connection herewith, (B) collecting the Obligations or otherwise administering
this Agreement and (C) foreclosing or otherwise realizing upon the Collateral or
any part thereof. If and to the extent that the obligations of Borrower
hereunder are unenforceable for any reason, Borrower hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations that is
permissible under applicable law.

 

 

 
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(b)     Borrower’s obligations under this Section 9.4 shall survive any
termination of this Agreement and the other Loan Documents, the termination and
the Payment in Full of the Obligations, and are in addition to, and not in
substitution of, any of the other Obligations.

 

SECTION 9.5     Amendments, Waivers and Consents. No amendment or waiver of any
provision of this Agreement or any other Loan Document, or consent to any
departure by Borrower therefrom, shall in any event be effective unless the same
shall be in writing and signed by Borrower and Lender and then such amendment,
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.

 

SECTION 9.6     Nonliability of Lender. The relationship among Borrower and
Lender shall be solely that of borrower and lender. Lender shall have no
fiduciary responsibilities to Borrower. Lender undertakes no responsibility to
Borrower to review or inform Borrower of any matter in connection with any phase
of Borrower’s business or operations.

 

SECTION 9.7     Assignments and Participations.

 

(a)     No Borrower Assignment. Borrower shall not assign this Agreement or any
of its rights or obligations hereunder without the prior written consent of
Lender.

 

 

 
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(b)     Lender Assignments. Lender may assign to one or more other Persons at
any time or from time to time all or a portion of its rights and obligations
under this Agreement, the Note and the other Loan Documents, without prior
notice to, and without any necessity to obtain the consent of, Borrower thereto;
provided, however, Lender shall provide notice to Borrower promptly after such
assignment.

 

(c)     Lender Participations. Lender may sell participations to one or more
parties in or to all or a portion of its rights and obligations under this
Agreement, the Note and the other Loan Documents.

 

(d)     Information. In connection with its efforts to assign its rights or
obligations or sell participations Lender may disclose any information they
have, now or in the future, with respect to the business of Borrower to
prospective assignees or purchasers, provided that such disclosure is subject to
written confidentiality arrangements customary for assignment or participation
transactions of such type.

 

(e)     Pledge to Federal Reserve Bank. Lender may at any time pledge or assign
a security interest in all or any portion of its rights under this Agreement to
secure obligations of Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to any
such pledge or assignment of a security interest, provided that no such pledge
or assignment of a security interest shall release Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for Lender as a
party hereto.

 

SECTION 9.8     Counterparts; Telecopied Signatures. This Agreement and any
waiver or amendment hereto may be executed in counterparts and by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all of which shall together constitute one and the
same instrument. This Agreement and each of the other Loan Documents may be
executed and delivered by telecopier or other facsimile transmission (including
by electronic imaging) all with the same force and effect as if the same was a
fully executed and delivered original manual counterpart.

 

SECTION 9.9     Severability. In case any provision in or obligation under this
Agreement, any Note or any other Loan Document shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.

 

SECTION 9.10     Maximum Rate. Notwithstanding anything to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the parties
hereto hereby agree that all agreements between them under this Agreement and
the other Loan Documents, whether now existing or hereafter arising and whether
written or oral, are expressly limited so that in no contingency or event
whatsoever shall the amount paid, or agreed to be paid, to Lender for the use,
forbearance, or detention of the money loaned to Borrower and evidenced hereby
or thereby or for the performance or payment of any covenant or obligation
contained herein or therein, exceed the maximum non-usurious interest rate, if
any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Obligations, under the laws of the State of
New York (or the laws of any other jurisdiction whose laws may be mandatorily
applicable notwithstanding other provisions of this Agreement and the other Loan
Documents), or under applicable federal laws which may presently or hereafter be
in effect and which allow a higher maximum non-usurious interest rate than under
the laws of the State of New York (or such other jurisdiction), in any case
after taking into account, to the extent permitted by applicable law, any and
all relevant payments or charges under this Agreement and the other Loan
Documents executed in connection herewith, and any available exemptions,
exceptions and exclusions (the “Highest Lawful Rate”). If due to any
circumstance whatsoever, fulfillment of any provision of this Agreement or any
of the other Loan Documents at the time performance of such provision shall be
due shall exceed the Highest Lawful Rate, then, automatically, the obligation to
be fulfilled shall be modified or reduced to the extent necessary to limit such
interest to the Highest Lawful Rate, and if from any such circumstance Lender
should ever receive anything of value deemed interest by applicable law which
would exceed the Highest Lawful Rate, such excessive interest shall be applied
to the reduction of the principal amount then outstanding hereunder or on
account of any other then outstanding Obligations and not to the payment of
interest, or if such excessive interest exceeds the principal unpaid balance
then outstanding hereunder and such other then outstanding Obligations, such
excess shall be refunded to Borrower. All sums paid or agreed to be paid to
Lender for the use, forbearance, or detention of the Obligations and other
Indebtedness of Borrower to Lender shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such Indebtedness, until Payment in Full thereof, so that the actual rate of
interest on account of all such Indebtedness does not exceed the Highest Lawful
Rate throughout the entire term of such Indebtedness. The terms and provisions
of this Section shall control every other provision of this Agreement, the other
Loan Documents and all other agreements among the parties hereto.

 

 

 
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SECTION 9.11     Entire Agreement; Successors and Assigns; Interpretation. This
Agreement and the other Loan Documents constitute the entire agreement among the
parties, supersede any prior written and verbal agreements among them with
respect to the subject matter hereof and thereof, and shall bind and benefit the
parties and their respective successors and permitted assigns. This Agreement
shall be deemed to have been jointly drafted, and no provision of it shall be
interpreted or construed for or against a party because such party purportedly
prepared or requested such provision, any other provision, or this Agreement as
a whole.

 

SECTION 9.12     LIMITATION OF LIABILITY. LENDER SHALL HAVE NO LIABILITY TO
BORROWER (WHETHER SOUNDING IN CONTRACT, TORT OR EQUITY OR OTHERWISE) FOR LOSSES
SUFFERED BY BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED
TO THE TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL JUDGMENT OR COURT ORDER BINDING ON LENDER THAT THE LOSSES WERE THE
RESULT OF ACTS OR OMISSIONS CONSTITUTING FRAUD, BAD FAITH, GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF THE LENDER. BORROWER HEREBY WAIVE ALL FUTURE CLAIMS
AGAINST THE LENDER FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.

 

 

 
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SECTION 9.13     GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, WHETHER
SOUNDING IN CONTRACT, TORT OR EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAW PROVISIONS OTHER THAN SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND DECISIONS OF THE STATE OF
NEW YORK.

 

SECTION 9.14     SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN BORROWER AND
LENDER BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO (A) THIS AGREEMENT;
(B) ANY OTHER LOAN DOCUMENT OR (C) ANY CONDUCT, ACT OR OMISSION OF BORROWER OR
LENDER OR ANY OF THEIR RESPECTIVE PARTNERS, EMPLOYEES, AGENTS, ATTORNEYS OR
OTHER AFFILIATES, IN EACH CASE WHETHER SOUNDING IN CONTRACT, TORT OR EQUITY OR
OTHERWISE AND IN EACH CASE WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL COURTS LOCATED IN NEW
YORK, NEW YORK AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE TAKEN;
PROVIDED, HOWEVER, THAT LENDER SHALL HAVE THE RIGHT, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST BORROWER OR ITS PROPERTY IN (A)
ANY COURTS OF COMPETENT JURISDICTION AND VENUE AND (B) ANY LOCATION SELECTED BY
BORROWER TO ENABLE LENDER TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT
OR OTHER COURT ORDER IN FAVOR OF LENDER. BORROWER AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT
BY LENDER. BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT IN WHICH LENDER HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON CONVENIENS.

 

SECTION 9.15     JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO (A)
THIS AGREEMENT; (B) ANY OTHER LOAN DOCUMENT OR (C) ANY CONDUCT, ACT OR OMISSION
OF BORROWER, LENDER OR ANY OF THEIR RESPECTIVE PARTNERS, EMPLOYEES, AGENTS,
ATTORNEYS OR OTHER AFFILIATES, IN EACH CASE WHETHER SOUNDING IN CONTRACT, TORT
OR EQUITY OR OTHERWISE AND IN EACH CASE WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT.

 

SECTION 9.16     Publicity. Lender may (a) publish in any trade or other
publication or otherwise publicize to any third party (including its Affiliates)
a tombstone, article, press release or similar material relating to the
financing transactions contemplated by this Agreement (including the use of
company logos) and (b) provide to industry trade organizations related
information necessary and customary for inclusion in league table measurements.

 

 

 
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SECTION 9.17     No Third Party Beneficiaries. Neither this Agreement nor any
other Loan Document is intended or shall be construed to confer any rights or
benefits upon any Person other than the parties hereto and thereto

 

SECTION 9.18     Confidentiality. Lender shall maintain the confidentiality of
all Information (as defined below), except that Information may be disclosed by
any of them (a) to its Affiliates, and to its and their partners, directors,
officers, employees, agents, advisors and representatives (provided such Persons
are informed of the confidential nature of the Information and instructed to
keep it confidential); (b) to the extent requested by any governmental,
regulatory or self-regulatory authority purporting to have jurisdiction over it
or its Affiliates; (c) to the extent required by applicable law or by any
subpoena or other legal process; (d) to any other party hereto; (e) in
connection with any action or proceeding, or other exercise of rights or
remedies, relating to any Loan Documents or Obligations; (f) subject to an
agreement containing provisions substantially the same as this Section, to any
assignee or any actual or prospective party (or its advisors); (g) with the
consent of Borrower (not to be unreasonably withheld, conditioned or delayed);
or (h) to the extent such Information (i) becomes publicly available other than
as a result of a breach of this Section or (ii) is available to Lender or any of
its Affiliates on a nonconfidential basis from a source other than Borrower.
Notwithstanding the foregoing, Lender may publish or disseminate general
information describing this credit facility, including the names and addresses
of Borrower and a general description of Borrower’s businesses, and may use
Borrower’s logos, trademarks or product photographs in advertising materials, as
provided in Section 9.16. As used herein, “Information” means all information
received from Borrower relating to it or its business that is identified as
confidential when delivered. Any Person required to maintain the confidentiality
of Information pursuant to this Section shall be deemed to have complied if it
exercises the same degree of care that it accords its own confidential
information. Lender acknowledges that (i) Information may include material
non-public information concerning Borrower; (ii) it has developed compliance
procedures regarding the use of material non-public information; and (iii) it
will handle such material non-public information in accordance with applicable
law, including federal and state securities laws.

 

SECTION 9.19     Patriot Act Notice. Lender hereby notifies Borrower that
pursuant to the requirements of the Patriot Act, Lender is required to obtain,
verify and record information that identifies Borrower, including its legal
name, address, tax ID number and other information that will allow Lender to
identify it in accordance with the Patriot Act. Lender will also require
information regarding each guarantor, if any, and may require information
regarding Borrower’s management and owners, such as legal name, address, social
security number and date of birth.

 

 

[Signature page follows]

 

 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by its proper and duly Authorized Officer as of the date first set forth above.

 

 

 

BORROWER

ENERGY RECOVERY, INC.,
a Delaware corporation

 

 

By: /s/ Chris Gannon

Name: Christian Gannon

Title: Chief Financial Officer

 

 

 

LENDER

 

CITIBANK, N.A.

 

 

By: /s/ Nanci Dias

Name: Nanci Dias

Title: SVP and Sr. Relationship Manager

 

 

 
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EXHIBIT A

 

Pledged Accounts

 

Citibank, N.A.

 

Energy Recovery, Inc.

Account No. 15C108460768

 

Energy Recovery, Inc.

Account No. C92182556

 

 
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EXHIBIT B

 

Form of Borrowing Base Certificate

 

Borrower: Energy Recovery, Inc.

Date: [__________________]

 

Reference is made to that certain Loan and Pledge Agreement (the “Agreement”)
dated January [__], 2017 by and between ENERGY RECOVERY, INC., a Delaware
corporation (“Borrower”) and CITIBANK, N.A. (“Lender”).

 

The undersigned officer of Borrower hereby certifies as of the date hereof that
he/she is an Authorized Officer of Borrower, and that as such, he/she is
authorized to execute and deliver this Borrowing Base Certificate to Lender on
behalf of Borrower and further certifies on behalf of Borrower that:

 

1.     The outstanding amount of all Advances as of the date hereof is:
$[_______________].

 

2.     The L/C Exposure as of the date hereof is: $[_______________].

 

3.     The attached Schedule I details the Eligible Assets in the Pledged
Account and the Loanable Value, along with the aggregate amount of the Borrowing
Base.

 

4.     The Borrowing Base is equal to or greater than the aggregate of: the
outstanding amount of all Advances, plus the L/C Exposure, plus the amount of
any Bank Products Reserve.

 

5.     No Default or Event of Default has occurred or is continuing.

 

 

 
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IN WITNESS WHEREOF, Borrower has executed this Borrowing Base Certificate as of
the date first written above.

  

 

 

ENERGY RECOVERY, INC.

 

  a Delaware corporation  

 

 

 

 

 

 

 

 

 

By:

/s/ 

 

 

Name:

 

 

 

Title:

 

 

 

 

 
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EXHIBIT C

 

FORM OF NOTICE OF BORROWING

 

 

[Citibank to provide standard form]

 

 

 
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EXHIBIT C-I

 

FORM OF NOTICE OF CONTINUATION

 

[Citibank to provide standard form]

 

 

 
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EXHIBIT D

 

Amendment To LOAN AND Pledge Agreement

 

This Amendment to Loan and Pledge Agreement (this “Amendment”) is made as of the
[_____] day of [____________, 20__], by ENERGY RECOVERY, INC., a Delaware
corporation (the “Borrower”), in favor of CITIBANK, N.A. (the “Lender”).

 

Preliminary Statements

 

A.     Borrower and Lender have executed and delivered that certain Loan and
Pledge Agreement dated as of January [__], 2017 (the “Agreement”).

 

B.     Borrower wishes to provide additional “Collateral” (as defined in the
Agreement) to Lender as provided in Section 3.5 of the Agreement.

 

NOW, THEREFORE, in consideration of the foregoing, Borrower and Lender agree to
add the following (“New Collateral”) to Exhibit A of the Agreement:

 

[describe new Pledged Interest or Pledged Accounts]

 

1.     Borrower and Lender agree that as of the date hereof the New Collateral
shall become part of the Collateral subject to the terms of the Agreement.

 

2.     Except as specifically amended hereby, the terms and conditions of the
Agreement are in all respects ratified and confirmed and remain in full force
and effect.

 

3.     Please note that this Amendment may be executed in separate counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same instrument.

  

 

 
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IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment.

 

 

  BORROWER:        

 

ENERGY RECOVERY, INC.

 

  a Delaware corporation  

 

 

 

 

 

By:

/s/ 

 

 

Name:

 

 

 

Title:

 

 

 

 

  LENDER:        

 

CITIBANK, N.A.

 

 

 

 

 

 

By:

/s/ 

 

 

Name:

 

 

 

Title:

 

 

 

 

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