Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

Dated as of June 15, 2017

 

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

 

NORTECH SYSTEMS INCORPORATED,

 

as Borrower

 

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

 

BANK OF AMERICA, N.A.,

 

as Lender

 

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

 

Table of Contents

 

 

 

Page

 

 

 

SECTION 1.

DEFINITIONS; RULES OF CONSTRUCTION

1

1.1

Definitions

1

1.2

Accounting Terms

15

1.3

Uniform Commercial Code

16

1.4

Certain Matters of Construction

16

 

 

 

SECTION 2.

CREDIT FACILITIES

16

2.1

Revolver Commitment

16

2.2

Term Loan Commitment

17

2.3

Letter of Credit Facility

17

 

 

 

SECTION 3.

INTEREST, FEES AND CHARGES

18

3.1

Interest

18

3.2

Fees

19

3.3

Computation of Interest, Fees, Yield Protection

19

3.4

Reimbursement Obligations

19

3.5

Illegality

20

3.6

Inability to Determine Rates

20

3.7

Increased Costs; Capital Adequacy

20

3.8

Mitigation

21

3.9

Funding Losses

21

3.10

Maximum Interest

21

 

 

 

SECTION 4.

LOAN ADMINISTRATION

21

4.1

Manner of Borrowing and Funding Revolver Loans

21

4.2

Number and Amount of LIBOR Loans; Determination of Rate

22

4.3

[Intentionally Omitted]

22

4.4

[Intentionally Omitted]

22

4.5

Effect of Termination

22

 

 

 

SECTION 5.

PAYMENTS

22

5.1

General Payment Provisions

22

5.2

Repayment of Revolver Loans

22

5.3

Repayment of Term Loan

23

5.4

Payment of Other Obligations

23

5.5

Dominion Account

23

5.6

Marshaling; Payments Set Aside

24

5.7

Application of Payments

24

5.8

Account Stated

24

5.9

Taxes

24

 

 

 

SECTION 6.

CONDITIONS PRECEDENT

26

6.1

Conditions Precedent to Initial Loans

26

6.2

Conditions Precedent to All Credit Extensions

26

 

 

 

SECTION 7.

COLLATERAL

26

7.1

Grant of Security Interest

26

7.2

Lien on Deposit Accounts; Cash Collateral

27

7.3

Real Estate Collateral

27

7.4

Other Collateral

27

7.5

Limitations

27

7.6

Further Assurances; Extent of Liens

27

 

 

 

SECTION 8.

REPRESENTATIONS AND WARRANTIES

28

8.1

General Representations and Warranties

28

8.2

Complete Disclosure

31

 

i

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

 

Table of Contents

(continued)

 

 

 

Page

SECTION 9.

COVENANTS AND CONTINUING AGREEMENTS

31

9.1

Affirmative Covenants

31

9.2

Negative Covenants

33

9.3

Financial Covenants

36

 

 

 

SECTION 10.

EVENTS OF DEFAULT; REMEDIES ON DEFAULT

36

10.1

Events of Default

36

10.2

Remedies upon Default

37

10.3

License

38

10.4

Setoff

38

10.5

Remedies Cumulative; No Waiver

38

 

 

 

SECTION 11.

MISCELLANEOUS

39

11.1

Amendments and Waivers

39

11.2

Power of Attorney

39

11.3

Indemnity

39

11.4

Notices and Communications

39

11.5

Performance of Borrower’s Obligations

40

11.6

Credit Inquiries

41

11.7

Severability

41

11.8

Cumulative Effect; Conflict of Terms

41

11.9

Counterparts; Execution

41

11.10

Entire Agreement

41

11.11

No Control; No Advisory or Fiduciary Responsibility

41

11.12

Confidentiality

41

11.13

[Intentionally Omitted]

42

11.14

GOVERNING LAW

42

11.15

Consent to Forum

42

11.16

Waivers by Borrower

42

11.17

PATRIOT Act Notice

42

11.18

NO ORAL AGREEMENT

43

 

ii

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

 

LIST OF SCHEDULES

 

Schedule 8.1.4

Names and Capital Structure

Schedule 8.1.11

Patents, Trademarks, Copyrights and Licenses

Schedule 8.1.13

Environmental Matters

Schedule 8.1.14

Restrictive Agreements

Schedule 8.1.15

Litigation

Schedule 8.1.17

Pension Plans

Schedule 9.1.9

Deposit Accounts

Schedule 9.1.10

Business Locations

Schedule 9.2.2

Existing Liens

Schedule 9.2.17

Existing Affiliate Transactions

 

EXHIBITS

 

Exhibit A

Form of Borrowing Base Certificate

Exhibit B

Form of Compliance Certificate

Exhibit C

Conditions Precedent

Exhibit D

Fees

Exhibit E

Financial Reporting

Exhibit F

Collateral Reporting

 

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

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT is dated as of June 15, 2017, by and between
NORTECH SYSTEMS INCORPORATED, a Minnesota corporation (“Borrower”) and BANK OF
AMERICA, N.A., a national banking association (“Lender”).

 

R E C I T A L S:

 

Borrower has requested that Lender provide a credit facility to Borrower to
finance its business enterprise.  Lender is willing to provide the credit
facility on the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties
agree as follows:

 

SECTION 1.        DEFINITIONS; RULES OF CONSTRUCTION

 

1.1          Definitions.  As used herein, the following terms have the meanings
set forth below:

 

Affiliate: with respect to a specified Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified.  “Control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the ability
to exercise voting power, by contract or otherwise.  “Controlling” and
“Controlled” have correlative meanings.

 

Anti-Terrorism Law: any law relating to terrorism or money laundering, including
the PATRIOT Act.

 

Applicable Margin: the margin set forth below:

 

Base Rate

 

LIBOR

 

Base Rate

 

LIBOR

 

Revolver Loans

 

Revolver Loans

 

Term Loans

 

Term Loans

 

1.00

%

2.00

%

1.25

%

2.25

%

 

Availability: the Borrowing Base minus Revolver Usage.

 

Availability Reserve: the sum (without duplication of any other Reserves or
items that are otherwise addressed or excluded through eligibility criteria) of
(a) the Inventory Reserve; (b) the Rent and Charges Reserve; (c) the Bank
Product Reserve; (d) the aggregate amount of liabilities secured by Liens upon
Collateral that are senior to Lender’s Liens (other than Permitted Liens
described in clause (b) of the definition thereof) (but imposition of any such
reserve shall not waive an Event of Default arising therefrom); (e) reserves for
bad debt write-downs or write-offs, discounts, returns, promotions, credits,
credit memos and other dilutive items with respect to Accounts and (f) such
additional reserves, in such amounts and with respect to such matters, as Lender
in its Permitted Discretion may elect to impose from time to time.

 

Bank Product: any of the following products, services or facilities extended to
an Obligor or Affiliate of an Obligor by Lender or any of its Affiliates:
(a) Cash Management Services; (b) products under Hedging Agreements;
(c) commercial credit card and merchant card services and corporate purchasing
cards; and (d) leases and other banking products or services, other than Letters
of Credit.

 

Bank Product Debt: Debt, obligations and other liabilities of an Obligor or
Affiliate of an Obligor with respect to Bank Products.

 

Bank Product Reserve: the aggregate amount of reserves established by Lender
from time to time in its Permitted Discretion in respect of Bank Product Debt.

 

Bankruptcy Code: Title 11 of the United States Code.

 

1

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

 

Base Rate: for any day, a per annum rate equal to the greater of (a) the Prime
Rate for such day; (b) the Federal Funds Rate for such day, plus 0.50%; or
(c) LIBOR for a 30 day interest period as determined on such day, plus 1.00%.

 

Base Rate Loan: any Loan that bears interest based on the Base Rate.

 

Base Rate Revolver Loan: a Revolver Loan that bears interest based on the Base
Rate.

 

Base Rate Term Loan: a Term Loan that bears interest based on the Base Rate.

 

Board of Governors: the Board of Governors of the Federal Reserve System.

 

Borrowed Money: with respect to any Obligor, without duplication, its (a) Debt
that (i) arises from the lending of money by any Person to such Obligor; (ii) is
evidenced by notes, drafts, bonds, debentures, credit documents or similar
instruments; (iii) accrues interest or is a type upon which interest charges are
customarily paid (excluding trade payables owing in the Ordinary Course of
Business); or (iv) was issued or assumed as full or partial payment for
Property; (b) Capital Leases; (c) reimbursement obligations with respect to
letters of credit; and (d) guaranties of any Debt of the foregoing types owing
by another Person.

 

Borrowing: a group of Loans that are made or converted together on the same day
and have the same interest option and, if applicable, Interest Period.

 

Borrowing Base: on any date of determination, an amount equal to the lesser of:
(a) the Revolver Commitment, minus the Availability Reserve; or (b) the sum of:
(i) 85% of the Value of Eligible Accounts; plus (ii) 80% of the Value of
Eligible Foreign Accounts; plus (ii) the lesser of (A) 70% of the Value of
Eligible Inventory; or (B) 85% of the NOLV Percentage of the Value of Eligible
Inventory minus (iii) the Availability Reserve.  Availability included in the
Borrowing Base resulting from the proviso in clause (g) of the definition of
“Eligible Accounts” shall not exceed $1,500,000 in the aggregate at any time.

 

Borrowing Base Certificate: a certificate substantially in the form of Exhibit A
(or such other form acceptable to Lender) and satisfactory to Lender in all
respects, by which Borrower certifies the Borrowing Base.

 

Borrowing Base Trigger Period: the period (a) commencing on any day that (i) an
Event of Default occurs, or (ii) Availability is less than $4,000,000 for five
consecutive days; and (b) continuing until, during each of the preceding 30
consecutive days, no Event of Default has existed and Availability has been more
than $4,000,000.

 

Business Day: any day other than a Saturday, Sunday or other day on which
commercial banks are authorized to close under the laws of, or are in fact
closed in, North Carolina and Minnesota, and if such day relates to a LIBOR
Loan, any such day on which dealings in Dollar deposits are conducted between
banks in the London interbank Eurodollar market.

 

Capital Expenditures: all liabilities incurred or expenditures made by Borrower
or any of its Subsidiaries for the acquisition of fixed assets, or any
improvements, replacements, substitutions or additions thereto with a useful
life of more than one year.

 

Capital Lease: any lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

 

Cash Collateral: cash, and any interest or other income earned thereon, that is
delivered to Lender to Cash Collateralize any Obligations.

 

Cash Collateral Account: a demand deposit, money market or other account
maintained with Lender and subject to Lender’s Liens.

 

Cash Collateralize: the delivery of cash to Lender, as security for the payment
of Obligations, in an amount equal to (a) with respect to LC Obligations, 105%
of the aggregate LC Obligations; and (b) with respect to any inchoate,
contingent or other Obligations (including Obligations arising under Bank
Products), Lender’s good faith

 

2

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

 

estimate of the amount due or to become due, including fees, expenses and
indemnification hereunder.  “Cash Collateralization” has a correlative meaning.

 

Cash Equivalents: (a) marketable obligations issued or unconditionally
guaranteed by, and backed by the full faith and credit of, the United States
government, maturing within 12 months of the date of acquisition;
(b) certificates of deposit, time deposits and bankers’ acceptances maturing
within 12 months of the date of acquisition, and overnight bank deposits, in
each case which are issued by Lender or a commercial bank organized under the
laws of the United States or any state or district thereof, rated A-1 (or
better) by S&P or P-1 (or better) by Moody’s at the time of acquisition, and
(unless issued by Lender) not subject to offset rights; (c) repurchase
obligations with a term of not more than 30 days for underlying investments of
the types described in clauses (a) and (b) entered into with any bank described
in clause (b); (d) commercial paper issued by Lender or rated A-1 (or better) by
S&P or P-1 (or better) by Moody’s, and maturing within nine months of the date
of acquisition; and (e) shares of any money market fund that has substantially
all of its assets invested continuously in the types of investments referred to
above, has net assets of at least $500,000,000 and has the highest rating
obtainable from either Moody’s or S&P.

 

Cash Management Services: services relating to 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 in Law: the occurrence, after the date hereof, of (a) the adoption,
taking effect or phasing in of any law, rule, regulation or treaty; (b) any
change in any law, rule, regulation or treaty or in the administration,
interpretation or application thereof; or (c) the making, issuance or
application of any request, guideline, requirement or directive (whether or not
having the force of law) by any Governmental Authority; provided, however, that
“Change in Law” shall include, regardless of the date enacted, adopted or
issued, all requests, rules, 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 for International
Settlements, the Basel Committee on Banking Supervision (or any similar
authority) or any other Governmental Authority.

 

Change of Control: (a) (1) any person or group other than the group consisting
of Curtis Squire, Inc. and members of the Kunin family (together, the “Kunin
Group”) is at any time the beneficial owner of thirty percent (30%) or more of
the equity securities of Borrower entitled to vote for the election of directors
(the “Voting Securities”), and (2) such other person or group then owns a
greater percentage of the voting Securities than the Kunin Group; (b) a change
in the majority of directors of Borrower during any 24 month period, unless
approved by the majority of directors serving at the beginning of such period;
or (c) the sale or transfer of all or substantially all assets of Borrower.

 

Claims: all claims, liabilities, obligations, losses, damages, penalties,
judgments, proceedings, interest, costs and expenses of any kind (including
remedial response costs, reasonable attorneys’ fees and Extraordinary Expenses)
at any time (including after Full Payment of the Obligations) incurred by any
Indemnitee or asserted against any Indemnitee by any Obligor or other Person, in
any way relating to (a) any Loans, Letters of Credit, Loan Documents, or the use
thereof or transactions relating thereto; (b) any action taken or omitted in
connection with any Loan Documents; (c) the existence or perfection of any
Liens, or realization upon any Collateral; (d) exercise of any rights or
remedies under any Loan Documents or applicable law; or (e) failure by any
Obligor to perform or observe any terms of any Loan Document, in each case
including all costs and expenses relating to any investigation, litigation,
arbitration or other proceeding (including an Insolvency Proceeding or appellate
proceedings), whether or not the applicable Indemnitee is a party thereto.

 

Closing Date: as defined in Section 6.1.

 

Code: the Internal Revenue Code of 1986.

 

Collateral: all Property described in Section 7.1, all Property described in any
Security Documents as security for any Obligations, and all other Property that
now or hereafter secures (or is intended to secure) any Obligations.

 

3

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

 

Commitment Termination Date: the earliest to occur of (a) the Revolver
Termination Date; (b) the date on which Borrower terminates the Revolver
Commitment pursuant to Section 2.1.3; or (c) the date on which the Revolver
Commitment is terminated pursuant to Section 10.2.

 

Commitments: the Revolver Commitment and the Term Loan Commitment.

 

Commodity Exchange Act:  the Commodity Exchange Act (7 U.S.C. § 1 et seq.).

 

Compliance Certificate: a certificate substantially in the form of Exhibit B,
and satisfactory to Lender in all respects, by which Borrower certifies
compliance with Sections 9.2.3 and 9.3.

 

Connection Income Taxes: Other Connection Taxes that are imposed on or measured
by net income (however denominated), or are franchise or branch profits Taxes.

 

Contingent Obligation: any obligation of a Person arising from a guaranty,
indemnity or other assurance of payment or performance of any Debt, lease,
dividend or other obligation (“primary obligations”) of another obligor
(“primary obligor”) in any manner, whether directly or indirectly, including any
obligation of such Person under any (a) guaranty, endorsement, co-making or sale
with recourse of an obligation of a primary obligor; (b) obligation to make
take-or-pay or similar payments regardless of nonperformance by any other party
to an agreement; and (c) arrangement (i) to purchase any primary obligation or
security therefor, (ii) to supply funds for the purchase or payment of any
primary obligation, (iii) to maintain or assure working capital, equity capital,
net worth or solvency of the primary obligor, (iv) to purchase Property or
services for the purpose of assuring the ability of the primary obligor to
perform a primary obligation, or (v) otherwise to assure or hold harmless the
holder of any primary obligation against loss in respect thereof.  The amount of
any Contingent Obligation shall be deemed to be the stated or determinable
amount of the primary obligation (or, if less, the maximum amount for which such
Person may be liable under the instrument evidencing the Contingent Obligation)
or, if not stated or determinable, the maximum reasonably anticipated liability
with respect thereto.

 

Debt: as applied to any Person, without duplication, (a) all items that would be
included as liabilities on a balance sheet in accordance with GAAP, including
Capital Leases, but excluding trade payables incurred and being paid in the
Ordinary Course of Business; (b) all Contingent Obligations; (c) all
reimbursement obligations in connection with letters of credit issued for the
account of such Person; and (d) in the case of Borrower, the Obligations.  The
Debt of a Person shall include any recourse Debt of any partnership in which
such Person is a general partner or joint venturer.

 

Default: an event or condition that, with the lapse of time or giving of notice,
would constitute an Event of Default.

 

Default Rate: for any Obligation (including, to the extent permitted by law,
interest not paid when due), 2% plus the interest rate otherwise applicable
thereto.

 

Deposit Account Control Agreement: a control agreement satisfactory to Lender
executed by an institution maintaining a Deposit Account for an Obligor, to
perfect Lender’s Lien on such account.

 

Designated Jurisdiction:  any country or territory to the extent that such
country or territory itself is the subject of any Sanction.

 

Distribution: any declaration or payment of a distribution, interest or dividend
on any Equity Interest (other than payment-in-kind); distribution, advance or
repayment of Debt to a holder of Equity Interests; or purchase, redemption, or
other acquisition or retirement for value of any Equity Interest.

 

Dollars: lawful money of the United States.

 

Dominion Account: a special account established by Borrower at Lender or a bank
acceptable to Lender, over which Lender has exclusive control for withdrawal
purposes.

 

EBITDA: determined on a consolidated basis for Borrower and its Subsidiaries,
net income, calculated before interest expense, provision for income taxes,
depreciation and amortization expense, gains or losses arising

 

4

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

 

from the sale of capital assets, gains arising from the write-up of assets, any
extraordinary gains (in each case, to the extent included in determining net
income), non-cash expenses or losses and other non-cash charges, plus such other
items added to EBITDA from time to time, as permitted by the Lender in its
Permitted Discretion.

 

Eligible Account: an Account owing to Borrower that arises in the Ordinary
Course of Business from the sale of goods or rendition of services, is payable
in Dollars and is deemed by Lender, in its Permitted Discretion, to be an
Eligible Account.  Without limiting the foregoing, no Account shall be an
Eligible Account if:

 

(a) it is unpaid for (i) more than 90 days after the original invoice date if
owed by an Account Debtor other than General Electric Company, Emerson Electric
Co. or any of their respective wholly owned subsidiaries or (ii) more than 130
days after the original invoice date if owed by General Electric Company or
Emerson Electric Co. or any wholly owned subsidiary thereof;

 

(b) 50% or more of the Accounts owing by the Account Debtor are not Eligible
Accounts under the foregoing clause (a);

 

(c) when aggregated with other Accounts owing by the Account Debtor, it exceeds
15% of the aggregate Eligible Accounts (or such higher percentage as Lender may
establish for the Account Debtor from time to time), provided, however, for each
of General Electric Company and its wholly owned subsidiaries and Emerson
Electric Co. and its wholly owned subsidiaries, the foregoing percentage shall
be 25%;

 

(d) it does not conform with a covenant or representation herein;

 

(e) it is owing by a creditor or supplier, or is otherwise subject to a
potential offset, counterclaim, dispute, deduction, discount, recoupment,
reserve, defense, chargeback, credit or allowance (but ineligibility shall be
limited to the amount thereof);

 

(f) an Insolvency Proceeding has been commenced by or against the Account
Debtor; or the Account Debtor has failed, has suspended or ceased doing
business, is liquidating, dissolving or winding up its affairs, is not Solvent,
or is subject to Sanctions or any specially designated nationals list maintained
by OFAC; or Borrower is not able to bring suit or enforce remedies against the
Account Debtor through judicial process;

 

(g) the Account Debtor is organized or has its principal offices or assets
outside the United States or Canada; provided, however, Accounts owing from
General Electric Company, Emerson Electric Co., Cummins Corporation or any of
their respective wholly owned subsidiaries, in each case, located in countries
acceptable to the Lender in its Permitted Discretion shall not be deemed
ineligible solely as a result of this clause (g).

 

(h) it is owing by a Governmental Authority, unless the Account Debtor is the
United States or any department, agency or instrumentality thereof and the
Account has been assigned to Lender in compliance with the federal Assignment of
Claims Act;

 

(i) it is not subject to a duly perfected, first priority Lien in favor of
Lender, or is subject to any other Lien;

 

(j) the goods giving rise to it have not been delivered to the Account Debtor,
the services giving rise to it have not been accepted by the Account Debtor, or
it otherwise does not represent a final sale;

 

(k) it is evidenced by Chattel Paper or an Instrument of any kind, or has been
reduced to judgment;

 

(l) its payment has been extended or the Account Debtor has made a partial
payment;

 

(m) it arises from a sale to an Affiliate, from a sale on a cash-on-delivery,
bill-and-hold, sale-or-return, sale-on-approval, consignment, or other
repurchase or return basis, or from a sale for personal, family or household
purposes;

 

(n) it represents a progress billing or retainage, or relates to services for
which a performance, surety or completion bond or similar assurance has been
issued;

 

5

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

 

(o) it includes a billing for interest, fees or late charges, but ineligibility
shall be limited to the extent thereof.  In calculating delinquent portions of
Accounts under clauses (a) and (b), credit balances more than 90 days old will
be excluded.; or

 

(p) it is the subject of any factoring, supply chain finance facility or
equivalent financing, regardless of when such Account is purchased by the Person
providing such factoring, supply chain finance facility or equivalent financing.

 

Eligible Foreign Account: an Account that (a) but for clause (g) of the
definition of “Eligible Accounts” would constitute an Eligible Account and
(b) is supported by a letter of credit (delivered to and directly drawable by
Lender and issued by a financial institution acceptable to Lender) or credit
insurance satisfactory in all respects to Lender; provided, that, Accounts
subject to the proviso in clause (g) of the definition of “Eligible Accounts”
shall be disregarded for purposes of determining Eligible Foreign Accounts.

 

Eligible Inventory: Inventory owned by Borrower that Lender, in its Permitted
Discretion, deems to be Eligible Inventory.  Without limiting the foregoing, no
Inventory shall be Eligible Inventory unless it:

 

(a) is finished goods or raw materials, and not work-in-process, packaging or
shipping materials, labels, samples, display items, bags, replacement parts,
sub-assemblies or manufacturing supplies;

 

(b) is not held on consignment, or is otherwise on hold, nor subject to any
deposit or down payment;

 

(c) is in new and saleable condition and is not damaged, defective, shopworn or
otherwise unfit for sale;

 

(d) is not slow-moving, perishable, obsolete or unmerchantable, and does not
constitute returned or repossessed goods;

 

(e) meets all standards imposed by any Governmental Authority, has not been
acquired from an entity subject to Sanctions or any specially designated
nationals list maintained by OFAC and does not constitute hazardous materials
under any Environmental Law;

 

(f) conforms with the covenants and representations herein;

 

(g) is subject to Lender’s duly perfected, first priority Lien, and no other
Lien;

 

(h) is within the continental United States, is not in transit except between
locations of Borrower, and is not consigned to any Person;

 

(i) is not subject to any warehouse receipt or negotiable Document;

 

(j) is not subject to any License or other arrangement that restricts Borrower’s
or Lender’s right to dispose of such Inventory, unless Lender has received an
appropriate Lien Waiver; and

 

(k) is not located on leased premises or in the possession of a warehouseman,
processor, repairman, mechanic, shipper, freight forwarder or other Person,
unless the lessor or such Person has delivered a Lien Waiver or, in the
discretion of Lender, an appropriate Rent and Charges Reserve has been
established; provided, however, the Borrower shall have 90 days following the
Closing Date to provide a Lien Waiver with respect to its location in Milaca,
MN, after which time Inventory at such location will be deemed ineligible unless
Lender, in its discretion, establishes a Rent and Charges reserve for such
location; and

 

(l) is reflected in the details of a current perpetual inventory report.

 

Environmental Agreement: an agreement of an Obligor to indemnify Lender from
liability under Environmental Laws with respect to Real Estate subject to a
Mortgage.

 

Environmental Laws: applicable laws (including programs, permits and guidance
promulgated by regulatory agencies), relating to public health (other than
occupational safety and health regulated by OSHA) or the

 

6

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

 

protection or pollution of the environment, including the Comprehensive
Environmental Response Compensation and Liability Act (42 U.S.C. § 9601 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. §§ 6991-6991i) and
the Clean Water Act (33 U.S.C. §§ 1251 et seq.).

 

Environmental Notice: a notice (whether written or oral) from any Governmental
Authority or other Person of any possible noncompliance with, investigation of a
possible violation of, litigation relating to, or potential fine or liability
under any Environmental Law, or with respect to any Environmental Release,
environmental pollution or hazardous materials, including any complaint,
summons, citation, order, claim, demand or request for correction, remediation
or otherwise.

 

Environmental Release: a release as defined under any Environmental Law.

 

Equity Interest: the interest of any (a) shareholder in a corporation;
(b) partner in a partnership (whether general, limited, limited liability or
joint venture); (c) member in a limited liability company; or (d) other Person
having any other form of equity security or ownership interest.

 

ERISA: the Employee Retirement Income Security Act of 1974.

 

ERISA Affiliate: any trade or business (whether or not incorporated) under
common control with an Obligor within the meaning of Section 414(b) or (c) of
the Code (and Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code).

 

ERISA Event: (a) a Reportable Event with respect to a Pension Plan; (b) a
withdrawal by any Obligor or ERISA Affiliate from a Pension Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer
(as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is
treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by any Obligor or ERISA Affiliate from a Multiemployer Plan
or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate, the treatment of a Plan amendment as a
termination under Section 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan;
(e) the determination that any Pension Plan or Multiemployer Plan is considered
an at risk plan or a plan in critical or endangered status under the Code, ERISA
or the Pension Protection Act of 2006; (f) an event or condition which
constitutes grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan or Multiemployer Plan;
or (g) the imposition of any liability under Title IV of ERISA, other than for
PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any
Obligor or ERISA Affiliate.

 

Event of Default: as defined in Section 10.

 

Excluded Swap Obligation: with respect to an Obligor, each Swap Obligation as to
which, and only to the extent that, such Obligor’s guaranty of or grant of a
Lien as security for such Swap Obligation is or becomes illegal under the
Commodity Exchange Act because the Obligor does not constitute an “eligible
contract participant” as defined in the act (determined after giving effect to
any keepwell, support or other agreement for the benefit of such Obligor, and
all guarantees of Swap Obligations by other Obligors) when such guaranty or
grant of Lien becomes effective with respect to the Swap Obligation.  If a
Hedging Agreement governs more than one Swap Obligation, only the Swap
Obligation(s) or portions thereof described in the foregoing sentence shall be
Excluded Swap Obligation(s) for the applicable Obligor.

 

Excluded Tax: (a) Taxes imposed on or measured by a Recipient’s net income
(however denominated), franchise Taxes and branch profit Taxes (i) as a result
of such Recipient being organized under the laws of, or having its principal
office or, in the case of Lender, its lending office located in, the
jurisdiction imposing such Tax, or (ii) constituting Other Connection Taxes; and
(b) U.S. federal withholding Taxes imposed pursuant to FATCA.

 

Extraordinary Expenses: all costs, expenses or advances that Lender may incur
during a Default or Event of Default, or during the pendency of an Insolvency
Proceeding of an Obligor, including those relating to (a) any audit, inspection,
repossession, storage, repair, appraisal, insurance, manufacture, preparation or
advertising for sale, sale, collection, or other preservation of or realization
upon any Collateral; (b) any action, arbitration or other proceeding (whether
instituted by or against Lender, any Obligor, any representative of creditors of
an Obligor or any other Person) in any way relating to any Collateral (including
the validity, perfection, priority or avoidability of Lender’s

 

7

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

 

Liens with respect to any Collateral), Loan Documents, Letters of Credit or
Obligations, including any lender liability or other Claims; (c) the exercise of
any rights or remedies of Lender in, or the monitoring of, any Insolvency
Proceeding; (d) settlement or satisfaction of any taxes, charges or Liens with
respect to any Collateral; (e) any action to enforce any Obligations or Loan
Documents or to realize upon any Collateral (whether by judicial action,
self-help, notification of Account Debtors, exercise of set off or recoupment,
credit bid or otherwise); and (f) negotiation and documentation of any
modification, waiver, workout, restructuring or forbearance with respect to any
Loan Documents or Obligations.  Such costs, expenses and advances include
transfer fees, Other Taxes, storage fees, insurance costs, permit fees, utility
reservation and standby fees, legal fees, appraisal fees, brokers’ and
auctioneers’ fees and commissions, accountants’ fees, environmental study fees,
wages and salaries paid to employees of any Obligor or independent contractors
in liquidating any Collateral, and travel expenses.

 

FATCA:  Sections 1471 through 1474 of the Code (including any amended or
successor version if substantively comparable and not materially more onerous to
comply with), and any agreements entered into pursuant to Section 1471(b)(1) of
the Code.

 

Federal Funds Rate: (a) the weighted average of interest rates on overnight
federal funds transactions with members of the Federal Reserve System on the
applicable day (which shall be the preceding Business Day, if the applicable day
is not a Business Day), as published by the Federal Reserve Bank of New York on
the next Business Day; or (b) if no such rate is published on the next Business
Day, the average rate (rounded up to the nearest 1/8 of 1%) charged to Lender on
the applicable day on such transactions, as determined by Lender; provided, that
in no event shall such rate be less than zero.

 

Fiscal Quarter: means any of the quarterly accounting periods of Borrower,
ending on March 31, June 30, September 30 and December 31 of each Fiscal Year.

 

Fiscal Year: the fiscal year of Borrower and its Subsidiaries for accounting and
tax purposes, ending on December 31 of each year.

 

Fixed Charge Coverage Ratio: the ratio, determined on a consolidated basis for
Borrower and its Subsidiaries for the most recent four Fiscal Quarters, of
(a) EBITDA minus (i) Capital Expenditures (except those financed with Borrowed
Money other than Revolver Loans) (ii) cash taxes paid and (iii) Distributions
made, to (b) Fixed Charges.

 

Fixed Charges: the sum of interest expense (other than payment-in-kind) and
scheduled principal payments made on Borrowed Money.

 

FLSA: the Fair Labor Standards Act of 1938.

 

Foreign Plan: any employee benefit plan or arrangement (a) maintained or
contributed to by any Obligor or Subsidiary that is not subject to the laws of
the United States; or (b) mandated by a government other than the United States
for employees of any Obligor or Subsidiary.

 

Foreign Subsidiary: a Subsidiary that is a “controlled foreign corporation”
under Section 957 of the Code, such that a guaranty by such Subsidiary of the
Obligations or a Lien on the assets of such Subsidiary to secure the Obligations
would result in material tax liability to Borrower.

 

Foreign Subsidiary OpEx Payments: means cash payments made by the Borrower in
the ordinary course of business to Manufacturing & Assembly Solutions of
Monterrey S DE RL DE CV to fund payroll and other ordinary course operating
expenses.

 

Full Payment: with respect to any Obligations, (a) the full and indefeasible
cash payment thereof, including any interest, fees and other charges accruing
during an Insolvency Proceeding (whether or not allowed in the proceeding);
(b) if such Obligations are LC Obligations or inchoate or contingent in nature,
Cash Collateralization thereof (or delivery of a standby letter of credit
acceptable to Lender in its discretion, in the amount of required Cash
Collateral); and (c) a release of any Claims of Obligors against Lender arising
on or before the payment date.  The Revolver Loans shall not be deemed to have
been paid in full unless the Revolver Commitment has terminated.

 

GAAP: generally accepted accounting principles in effect in the United States
from time to time.

 

8

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

 

Governmental Approvals: all authorizations, consents, approvals, licenses and
exemptions of, registrations and filings with, and required reports to, all
Governmental Authorities.

 

Governmental Authority: any federal, state, local, foreign or other agency,
authority, body, commission, court, instrumentality, political subdivision,
central bank, or other entity or officer exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions for any
governmental, judicial, investigative, regulatory or self-regulatory authority
(including any supra-national bodies such as the European Union or European
Central Bank).

 

Guarantor Payment:  as defined in Section 5.10.3.

 

Guarantors: each Person that guarantees payment or performance of Obligations.

 

Guaranty: each guaranty agreement executed by a Guarantor in favor of Lender.

 

Hedging Agreement: any “swap agreement” as defined in Section 101(53B)(A) of the
Bankruptcy Code.

 

Indemnified Taxes: (a) Taxes, other than Excluded Taxes, imposed on or relating
to any payment of an Obligation; and (b) to the extent not otherwise described
in clause (a), Other Taxes.

 

Indemnitees: Lender, other Secured Parties, and their officers, directors,
employees, Affiliates, agents and attorneys.

 

Insolvency Proceeding: any case or proceeding commenced by or against a Person
under any state, federal or foreign law for, or any agreement of such Person to,
(a) the entry of an order for relief under the Bankruptcy Code, or any other
insolvency, debtor relief or debt adjustment law; (b) the appointment of a
receiver, trustee, liquidator, administrator, conservator or other custodian for
such Person or any part of its Property; or (c) an assignment or trust mortgage
for the benefit of creditors.

 

Intellectual Property: all intellectual and similar Property of a Person,
including inventions, designs, patents, copyrights, trademarks, service marks,
trade names, trade secrets, confidential or proprietary information, customer
lists, know-how, software and databases; all embodiments or fixations thereof
and all related documentation, applications, registrations and franchises; all
licenses or other rights to use any of the foregoing; and all books and records
relating to the foregoing.

 

Interest Period: as defined in Section 3.1.3.

 

Inventory Reserve: reserves established by Lender to reflect factors that may
negatively impact the Value of Inventory, including change in salability,
obsolescence, seasonality, theft, shrinkage, imbalance, change in composition or
mix, markdowns and vendor chargebacks.

 

Investment: (a) a transaction or series of transactions resulting in
(i) acquisition of a business division or substantially all assets of a Person;
(ii) record or beneficial ownership of 50% or more of the Equity Interests of a
Person; or (iii) merger, consolidation or combination of Borrower or any of its
Subsidiaries with another Person; (b) an acquisition of record or beneficial
ownership of any Equity Interests of a Person; or (c) an advance or capital
contribution to or other investment in a Person.

 

IRS: the United States Internal Revenue Service.

 

LC Application: an application by Borrower to Lender for issuance of a Letter of
Credit, in form and substance satisfactory to Lender.

 

LC Conditions: the following conditions necessary for issuance of a Letter of
Credit: (a) each of the conditions set forth in Section 6 is satisfied as
determined by Lender; (b) after giving effect to such issuance, total LC
Obligations do not exceed the Letter of Credit Subline, no Overadvance exists
and Revolver Usage does not exceed the Borrowing Base; (c) the Letter of Credit
and payments thereunder are denominated in Dollars; and (d) the purpose and form
of the proposed Letter of Credit are satisfactory to Lender in its discretion.

 

9

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

 

LC Documents: all documents, instruments and agreements (including LC Requests
and LC Applications) delivered by Borrower or any other Person to Lender in
connection with any Letter of Credit.

 

LC Obligations: the sum of (a) all amounts owing by Borrower for drawings under
Letters of Credit; and (b) the aggregate Stated Amount of all outstanding
Letters of Credit.

 

Letter of Credit: any standby or documentary letter of credit, foreign guaranty,
documentary bankers acceptance or similar instrument issued by Lender for the
account or benefit of Borrower or Affiliate of Borrower.

 

Letter of Credit Subline: $1,500,000.

 

LIBOR: for any Interest Period, the per annum rate of interest (rounded up to
the nearest 1/8th of 1%) determined by Lender at approximately 11:00
a.m. (London time) two Business Days prior to an interest period, for a term
comparable to such period, equal to the London Interbank Offered Rate, or
comparable or successor rate approved by Lender, as published on the applicable
Reuters screen page (or other commercially available source designated by Lender
from time to time); provided, that in no event shall LIBOR be less than zero.

 

LIBOR Loan: each set of LIBOR Revolver Loans or LIBOR Term Loans having a common
length and commencement of Interest Period.

 

LIBOR Revolver Loan: a Revolver Loan that bears interest based on LIBOR.

 

LIBOR Term Loan: a Term Loan that bears interest based on LIBOR.

 

License: any license or agreement under which an Obligor is authorized to use
Intellectual Property in connection with any manufacture, marketing,
distribution or disposition of Collateral, any use of Property or any other
conduct of its business.

 

Licensor: any Person from whom an Obligor obtains the right to use any
Intellectual Property.

 

Lien: a Person’s interest in Property securing an obligation owed to, or a claim
by, another Person, including any lien, security interest, pledge,
hypothecation, assignment, trust, reservation, encroachment, easement,
right-of-way, covenant, condition, restriction, lease, or other title exception
or encumbrance.

 

Lien Waiver: an agreement, in form and substance satisfactory to Lender, by
which (a) for any material Collateral located on leased premises, the lessor
waives or subordinates any Lien it may have on the Collateral, and agrees to
permit Lender to enter upon the premises and remove the Collateral or to use the
premises to store or dispose of the Collateral; (b) for any Collateral held by a
warehouseman, processor, shipper, customs broker or freight forwarder, such
Person waives or subordinates any Lien it may have on the Collateral, agrees to
hold any Documents in its possession relating to the Collateral as agent for
Lender, and agrees to deliver the Collateral to Lender upon request; (c) for any
Collateral held by a repairman, mechanic or bailee, such Person acknowledges
Lender’s Lien, waives or subordinates any Lien it may have on the Collateral,
and agrees to deliver the Collateral to Lender upon request; and (d) for any
Collateral subject to a Licensor’s Intellectual Property rights, the Licensor
grants to Lender the right, vis-à-vis such Licensor, to enforce Lender’s Liens
with respect to the Collateral, including the right to dispose of it with the
benefit of the Intellectual Property, whether or not a default exists under any
applicable License.

 

Loan: a Revolver Loan or Term Loan.

 

Loan Documents: this Agreement, Other Agreements and Security Documents.

 

Loan Year: each 12 month period commencing on the Closing Date and on each
anniversary of the Closing Date.

 

Margin Stock: as defined in Regulation U of the Board of Governors.

 

Material Adverse Effect: the effect of any event or circumstance that, taken
alone or in conjunction with other events or circumstances, (a) has or could be
reasonably expected to have a material adverse effect on the

 

10

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

 

business, operations, Properties, prospects or condition (financial or
otherwise) of any Obligor on the value of any material Collateral, on the
enforceability of any Loan Documents, or on the validity or priority of Lender’s
Liens on any Collateral; (b) impairs the ability of an Obligor to perform its
obligations under the Loan Documents, including repayment of any Obligations; or
(c) otherwise impairs the ability of Lender to enforce or collect any
Obligations or to realize upon any Collateral.

 

Material Contract: any agreement or arrangement to which Borrower or any of its
Subsidiaries is party (other than the Loan Documents) (a) that is deemed to be a
material contract under any securities law applicable to such Person, including
the Securities Act of 1933; (b) for which breach, termination, nonperformance or
failure to renew could reasonably be expected to have a Material Adverse Effect;
or (c) that relates to Subordinated Debt, or (d) to Debt in an aggregate amount
of $500,000 or more.

 

Moody’s: Moody’s Investors Service, Inc., and its successors.

 

Mortgage: a mortgage, deed of trust or deed to secure debt pursuant to which an
Obligor grants a Lien on its Real Estate to Lender, as security for the
Obligations.

 

Multiemployer Plan: any employee benefit plan of the type described in
Section 4001(a)(3) of ERISA, to which any Obligor or ERISA Affiliate makes or is
obligated to make contributions, or during the preceding five plan years, has
made or been obligated to make contributions.

 

Net Proceeds: with respect to any disposition of Property, proceeds (including,
when received, any deferred or escrowed payments) received by Borrower or any of
its Subsidiaries in cash from such disposition, net of (a) reasonable and
customary costs and expenses actually incurred in connection therewith,
including legal fees and sales commissions; (b) amounts applied to repayment of
Debt secured by a Permitted Lien senior to Lender’s Liens on Collateral sold;
(c) transfer or similar taxes; and (d) reserves for indemnities, until such
reserves are no longer needed.

 

NOLV Percentage: the net orderly liquidation value of Inventory, expressed as a
percentage, expected to be realized at an orderly, negotiated sale held within a
reasonable period of time, net of all liquidation expenses, as determined from
the most recent appraisal of Borrower’s Inventory performed by an appraiser and
on terms  reasonably satisfactory to Lender.

 

Notice of Borrowing: a Notice of Borrowing to be provided by Borrower to request
a Revolver Loans, in form satisfactory to Lender.

 

Notice of Conversion/Continuation: a Notice of Conversion/Continuation to be
provided by Borrower to request a conversion or continuation of any Loans as
LIBOR Loans, in form satisfactory to Lender.

 

Obligations: all (a) principal of and premium, if any, on the Loans; (b) LC
Obligations and other obligations of Obligors with respect to Letters of Credit;
(c) interest, expenses, fees, indemnification obligations, Extraordinary
Expenses and other amounts payable by Obligors under Loan Documents; (d) Bank
Product Debt; and (e) other Debts, obligations and liabilities of any kind owing
by any Obligor to Lender, whether now existing or hereafter arising, whether
evidenced by a note or other writing, whether allowed in any Insolvency
Proceeding, whether arising from an extension of credit, issuance of a letter of
credit, acceptance, loan, guaranty, indemnification or otherwise, and whether
direct or indirect, absolute or contingent, due or to become due, primary or
secondary, or joint or several; provided, that Obligations of an Obligor shall
not include its Excluded Swap Obligations.

 

Obligor: Borrower, Guarantor, or other Person that is liable for payment of any
Obligations or that has granted a Lien in favor of Lender on its assets to
secure any Obligations.

 

OFAC:  Office of Foreign Assets Control of the U.S. Treasury Department.

 

Ordinary Course of Business: the ordinary course of business of Borrower or any
of its Subsidiaries, undertaken in good faith and consistent with applicable law
and past practices.

 

Organic Documents: with respect to any Person, its charter, certificate or
articles of incorporation, bylaws, articles of organization, limited liability
agreement, operating agreement, members agreement, shareholders

 

11

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

 

agreement, partnership agreement, certificate of partnership, certificate of
formation, voting trust agreement, or similar agreement or instrument governing
the formation or operation of such Person.

 

OSHA: the Occupational Safety and Hazard Act of 1970.

 

Other Agreement: each LC Document, Lien Waiver, Subordination Agreement, Real
Estate Related Document, Borrowing Base Certificate, Compliance Certificate,
financial statement or report delivered hereunder, or other document, instrument
or agreement (other than this Agreement or a Security Document) now or hereafter
delivered by an Obligor or other Person to Lender in connection with any
transactions relating hereto.

 

Other Connection Taxes:  Taxes imposed on a Recipient due to a present or former
connection between it and the taxing jurisdiction (other than connections
arising from the Recipient having executed, delivered, become party to,
performed obligations or received payments under, received or perfected a Lien
or engaged in any other transaction pursuant to, enforced, or sold or assigned
an interest in, any Loan or Loan Document).

 

Other Taxes: all present or future stamp, court, documentary, intangible,
recording, filing or similar Taxes that arise from any payment made under, from
the execution, delivery, performance, enforcement or registration of, from the
receipt or perfection of a Lien under, or otherwise with respect to, any Loan
Document, except Other Connection Taxes imposed with respect to an assignment.

 

Overadvance: as defined in Section 2.1.4.

 

PATRIOT Act: the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L.
No. 107-56, 115 Stat. 272 (2001).

 

Payment Item: each check, draft or other item of payment payable to Borrower,
including those constituting proceeds of any Collateral.

 

PBGC: the Pension Benefit Guaranty Corporation.

 

Pension Plan: any employee pension benefit plan (as defined in Section 3(2) of
ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA
and is sponsored or maintained by any Obligor or ERISA Affiliate or to which the
Obligor or ERISA Affiliate contributes or has an obligation to contribute, or in
the case of a multiple employer or other plan described in Section 4064(a) of
ERISA, has made contributions at any time during the preceding five plan years.

 

Permitted Discretion: a determination made in the exercise, in good faith, of
reasonable business judgment (from the perspective of a secured, asset-based
lender).

 

Permitted Lien: as defined in Section 9.2.2.

 

Person: any individual, corporation, limited liability company, partnership,
joint venture, association, trust, unincorporated organization, Governmental
Authority or other entity.

 

Plan: any employee benefit plan (as such term is defined in Section 3(3) of
ERISA) established by an Obligor or, with respect to any such plan that is
subject to Section 412 of the Code or Title IV of ERISA, an ERISA Affiliate.

 

Platform: as defined in Section 11.4.3.

 

Prime Rate: the rate of interest announced by Lender from time to time as its
prime rate.  Such rate is set by Lender on the basis of various factors,
including its costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may be
priced at, above or below such rate.  Any change in such rate publicly announced
by Lender shall take effect at the opening of business on the day specified in
the announcement.

 

Properly Contested: with respect to any obligation of an Obligor, (a) the
obligation is subject to a bona fide dispute regarding amount or the Obligor’s
liability to pay; (b) the obligation is being properly contested in good faith

 

12

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

 

by appropriate proceedings promptly instituted and diligently pursued;
(c) appropriate reserves have been established in accordance with GAAP;
(d) non-payment could not have a Material Adverse Effect, nor result in
forfeiture or sale of any assets of the Obligor; (e) no Lien is imposed on
assets of the Obligor, unless bonded and stayed to the satisfaction of Lender;
and (f) if the obligation results from entry of a judgment or other order, such
judgment or order is stayed pending appeal or other judicial review.

 

Property: any interest in any kind of property or asset, whether real, personal
or mixed, or tangible or intangible.

 

Purchase Money Debt: (a) Debt (other than the Obligations) for payment of any of
the purchase price of fixed assets; (b) Debt (other than the Obligations)
incurred within 10 days before or after acquisition of any fixed assets, for the
purpose of financing any of the purchase price thereof; and (c) any renewals,
extensions or refinancings (but not increases) thereof.

 

Purchase Money Lien: a Lien that secures Purchase Money Debt, encumbering only
the fixed assets acquired with such Debt and constituting a Capital Lease or a
purchase money security interest under the UCC.

 

Qualified ECP:  an Obligor with total assets exceeding $10,000,000, or that
constitutes an “eligible contract participant” under the Commodity Exchange Act
and can cause another Person to qualify as an “eligible contract participant”
under Section 1a(18)(A)(v)(II) of such act.

 

Real Estate: all right, title and interest (whether as owner, lessor or lessee)
in any real Property or any buildings, structures, parking areas or other
improvements thereon.

 

Recipient:  Lender or any other recipient of a payment to be made by an Obligor
under a Loan Document or on account of an Obligation.

 

Reimbursement Date: as defined in Section 2.3.2.

 

Related Real Estate Documents: with respect to any Real Estate subject to a
Mortgage, the following, in form and substance satisfactory to Lender and
received by Lender for review at least 15 days prior to the effective date of
the Mortgage:  (a) a mortgagee title policy (or binder therefor) covering
Lender’s interest under the Mortgage, by an insurer acceptable to Lender, which
must be fully paid on such effective date; (b) such assignments of leases,
estoppel letters, attornment agreements, consents, waivers and releases as
Lender may require with respect to other Persons having an interest in the Real
Estate; (c) a current, as-built survey of the Real Estate, containing a
metes-and-bounds property description and certified by a licensed surveyor
acceptable to Lender; (d) a life-of-loan flood hazard determination and, if the
Real Estate is located in a special flood hazard area, an acknowledged notice to
borrower and flood insurance by an insurer acceptable to Lender; (e) a current
appraisal of the Real Estate, prepared by an appraiser, and in form and
substance satisfactory to Lender; (f) an environmental assessment, prepared by
environmental engineers acceptable to Lender, and other reports, certificates,
studies or data as Lender may reasonably require; and (g) an Environmental
Agreement and such other documents, instruments or agreements as Lender may
reasonably require with respect to any environmental risks regarding the Real
Estate.

 

Rent and Charges Reserve: the aggregate of (a) all past due rent and other
amounts owing by an Obligor to any landlord, warehouseman, processor, repairman,
mechanic, shipper, freight forwarder, broker or other Person who possesses any
Collateral or could assert a Lien on any Collateral; and (b) a reserve at least
equal to three months’ rent and other charges that could be payable to any such
Person, unless it has executed a Lien Waiver.

 

Reportable Event: any of the events set forth in Section 4043(c) of ERISA, other
than events for which the 30 day notice period has been waived.

 

Restricted Payment: Distributions, Restricted Investments, and payments
prohibited by Section 9.2.8.

 

Restricted Payment Conditions: shall be deemed satisfied in connection with a
Restricted Payment if: (a) no Default or Event of Default has occurred and is
continuing or would result immediately after giving effect to such Restricted
Payment; (b) as of the date of any such Restricted Payment, immediately after
giving effect thereto and at all times during the 30 day period immediately
prior to such Restricted Payment, the Borrower shall have Availability of not
less $4,000,000, calculated for such 30 day period on a pro forma basis assuming
such Restricted

 

13

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

 

Payment was made on the first day of such 30 day period; (c) the Borrower shall
have a Fixed Charge Coverage Ratio of not less than 1.00 to 1.00 for the period
of four Fiscal Quarters most recently ended prior to the date of such Restricted
Payment, calculated on a pro forma basis assuming that such Restricted Payment
was made during the period of four Fiscal Quarters most recently ended prior to
the date of such Restricted Payment; and (d) Borrower shall have delivered to
the Lender a certificate in form and substance reasonably satisfactory to the
Lender certifying as to the items described in clauses (a), (b) and (c),
including calculations of the items in clauses (b) and (c).

 

Restricted Investment: any Investment by Borrower or any of its Subsidiaries,
other than (a) Investments in Subsidiaries to the extent existing on the Closing
Date; and (b) Cash Equivalents that are subject to Lender’s Lien and control,
pursuant to documentation in form and substance satisfactory to Lender; and
(c) loans and advances permitted under Section 9.2.7..

 

Restrictive Agreement: an agreement (other than a Loan Document) that conditions
or restricts the right of Borrower, any of its Subsidiaries or other Obligor to
incur or repay Borrowed Money, to grant Liens on any assets, to declare or make
Distributions, to modify, extend or renew any agreement evidencing Borrowed
Money, or to repay any intercompany Debt.

 

Revolver Commitment: Lender’s obligation to make Revolver Loans and to issue
Letters of Credit in an amount up to $16,000,000 in the aggregate.

 

Revolver Loan: a loan made pursuant to Section 2.1.

 

Revolver Termination Date: June 15, 2022.

 

Revolver Usage:  the aggregate amount of outstanding Revolver Loans, plus the
aggregate Stated Amount of outstanding Letters of Credit.

 

Royalties: all royalties, fees, expense reimbursement and other amounts payable
by Borrower under a License.

 

S&P: Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill
Companies, Inc., and any successors thereto.

 

Sanction: any international economic sanction administered or enforced by the
United States Government (including OFAC), the United Nations Security Council,
the European Union, Her Majesty’s Treasury or other relevant sanctions
authority.

 

Secured Parties: Lender and providers of Bank Products.

 

Security Documents: the Guaranties, Mortgages, Deposit Account Control
Agreements, and all other documents, instruments and agreements now or hereafter
securing (or given with the intent to secure) any Obligations.

 

Senior Officer: the chairman of the board, president, chief executive officer or
chief financial officer of Borrower or, if the context requires, an Obligor.

 

Solvent: as to any Person, such Person (a) owns Property whose fair salable
value is greater than the amount required to pay all of its debts (including
contingent, subordinated, unmatured and unliquidated liabilities); (b) owns
Property whose present fair salable value (as defined below) is greater than the
probable total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of such Person as they become absolute and matured;
(c) is able to pay all of its debts as they mature; (d) has capital that is not
unreasonably small for its business and is sufficient to carry on its business
and transactions and all business and transactions in which it is about to
engage; (e) is not “insolvent” within the meaning of Section 101(32) of the
Bankruptcy Code; and (f) has not incurred (by way of assumption or otherwise)
any obligations or liabilities (contingent or otherwise) under any Loan
Documents, or made any conveyance in connection therewith, with actual intent to
hinder, delay or defraud either present or future creditors of such Person or
any of its Affiliates.  “Fair salable value” means the amount that could be
obtained for assets within a reasonable time, either through collection or
through sale under ordinary

 

14

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

 

selling conditions by a capable and diligent seller to an interested buyer who
is willing (but under no compulsion) to purchase.

 

Specified Obligor:  an Obligor that is not then an “eligible contract
participant” under the Commodity Exchange Act (determined prior to giving effect
to  Section 5.10).

 

Stated Amount: the stated amount of a Letter of Credit, including any automatic
increase provided by the terms of the Letter of Credit or related LC Documents,
whether or not then effective.

 

Subordinated Debt: Debt incurred by Borrower that is expressly subordinate and
junior in right of payment to Full Payment of all Obligations, and is on terms
(including maturity, interest, fees, repayment, covenants and subordination)
satisfactory to Lender.

 

Subordination Agreement: any agreement in favor of the Lender whereby Debt
incurred by Borrower is made expressly subordinate and junior in right of
payment to Full Payment of all Obligations, and is on terms satisfactory to
Lender.

 

Subsidiary: any entity at least 50% of whose voting securities or Equity
Interests is owned by Borrower (including indirect ownership through other
entities in which Borrower directly or indirectly owns 50% of the voting
securities or Equity Interests).

 

Swap Obligations:  with respect to any Obligor, its obligations under a Hedging
Agreement that constitutes a “swap” within the meaning of Section 1a(47) of the
Commodity Exchange Act.

 

Taxes: all present or future taxes, levies, imposts, duties, deductions,
withholdings, assessments, fees or other charges imposed by any Governmental
Authority, including any interest, additions to tax or penalties applicable
thereto.

 

Term Loan: a loan made pursuant to Section 2.2.

 

Term Loan Commitment: Lender’s obligation to make a Term Loan in an amount up to
$5,000,000.

 

Trigger Period: the period (a) commencing on any day that Availability is less
than $5,000,000 for five consecutive days; and (b) continuing until, during each
of the preceding 30 consecutive days, Availability has been more than
$5,000,000.

 

UCC: the Uniform Commercial Code as in effect in the State of Minnesota or, when
the laws of any other jurisdiction govern the perfection or enforcement of any
Lien, the Uniform Commercial Code of such jurisdiction.

 

Unfunded Pension Liability: the excess of a Pension Plan’s benefit liabilities
under Section 4001(a)(16) of ERISA, over the current value of that Pension
Plan’s assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to the Code, ERISA or the Pension Protection Act of
2006 for the applicable plan year.

 

Unused Line Fee Rate: a per annum rate equal to 0.25%.

 

Value: (a) for Inventory, its value determined on the basis of the lower of cost
or market, calculated on a first-in, first-out basis, and excluding any portion
of cost attributable to intercompany profit among Borrower and its Affiliates;
and (b) for an Account, its face amount, net of any returns, rebates, discounts
(calculated on the shortest terms), credits, allowances or Taxes (including
sales, excise or other taxes) that have been or could be claimed by the Account
Debtor or any other Person.

 

1.2          Accounting Terms.  Under the Loan Documents (except as otherwise
specified herein), all accounting terms shall be interpreted, all accounting
determinations shall be made, and all financial statements shall be prepared, in
accordance with GAAP applied on a basis consistent with the most recent audited
financial statements of Borrower delivered to Lender before the Closing Date and
using the same inventory valuation method as used in such financial statements,
except for any change required or permitted by GAAP if Borrower’s certified

 

15

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

 

public accountants concur in such change, the change is disclosed to Lender, and
all relevant provisions of the Loan Documents are amended in a manner
satisfactory to Lender to take into account the effects of the change.

 

1.3          Uniform Commercial Code.  As used herein, the following terms are
defined in accordance with the UCC in effect in the State of Minnesota from time
to time:  “Account,” “Account Debtor,” “Chattel Paper,” “Commercial Tort Claim,”
“Deposit Account,” “Document,” “Electronic Chattel Paper,” “Equipment,”
“Fixtures,” “General Intangibles,” “Goods,” “Instrument,” “Inventory,”
“Investment Property,” “Letter-of-Credit Right” and “Supporting Obligation.”

 

1.4          Certain Matters of Construction.  The definitions of terms herein
shall apply equally to the singular and plural forms of the terms defined.  The
terms “herein,” “hereof,” “hereunder” and other words of similar import refer to
this Agreement as a whole and not to any particular section, paragraph or
subdivision.  Any pronoun used shall be deemed to cover all genders.  In the
computation of periods of time from a specified date to a later specified date,
“from” means “from and including,” and “to” and “until” each mean “to but
excluding.”  The terms “including” and “include” shall mean “including, without
limitation” and, for purposes of each Loan Document, the parties agree that the
rule of ejusdem generis shall not be applicable to limit any provision. 
Section titles appear as a matter of convenience only and shall not affect the
interpretation of any Loan Document.  All references to (a) laws include all
related regulations, interpretations, supplements, amendments and successor
provisions; (b) any document, instrument or agreement include any amendments,
waivers and other modifications, extensions or renewals (to the extent permitted
by the Loan Documents); (c) any section mean, unless the context otherwise
requires, a section of this Agreement; (d) any exhibits or schedules mean,
unless the context otherwise requires, exhibits and schedules attached hereto,
which are hereby incorporated by reference; (e) any Person include successors
and assigns; (f) time of day mean time of day at Lender’s notice address under
Section 11.4.1; or (g) discretion of Lender mean its sole and absolute
discretion.  All references to Value, Borrowing Base components, Loans, Letters
of Credit, Obligations and other amounts herein shall be denominated in Dollars,
unless expressly provided otherwise, and all determinations (including
calculations of Borrowing Base and financial covenants) made from time to time
under the Loan Documents shall be made in light of the circumstances existing at
such time.  Borrowing Base calculations shall be consistent with historical
methods of valuation and calculation, and otherwise satisfactory to Lender (and
not necessarily calculated in accordance with GAAP).  Borrower shall have the
burden of establishing any alleged negligence, misconduct or lack of good faith
by Lender under any Loan Documents.  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.  Reference to Borrower’s “knowledge” or similar
concept means actual knowledge of a Senior Officer, or knowledge that a Senior
Officer would have obtained if he or she had engaged in good faith and diligent
performance of his or her duties, including reasonably specific inquiries of
employees or agents and a good faith attempt to ascertain the matter.

 

SECTION 2.        CREDIT FACILITIES

 

2.1          Revolver Commitment.

 

2.1.1.      Revolver Loans.  Lender agrees, on the terms set forth herein, to
make Revolver Loans to Borrower in an aggregate amount up to the Revolver
Commitment, from time to time through the Commitment Termination Date.  The
Revolver Loans may be repaid and reborrowed as provided herein.  In no event
shall Lender have any obligation to honor a request for a Revolver Loan if
Revolver Usage at such time plus the requested Loan would exceed the Borrowing
Base.

 

2.1.2.      Use of Proceeds.  The proceeds of Revolver Loans shall be used by
Borrower solely (a) to satisfy existing Debt; (b) to pay fees and transaction
expenses associated with the closing of this credit facility; (c) to pay
Obligations in accordance with this Agreement; and (d) for other lawful
corporate purposes of Borrower, including working capital.  Borrower shall not,
directly or indirectly, use any Letter of Credit or the proceeds of any Loan,
nor use, lend, contribute or otherwise make available any Letter of Credit or
proceeds of any Loan to any Subsidiary, joint venture partner or other Person,
(y) to fund any activities of or business with any Person, or in any country,
territory or jurisdiction, that, at the time of issuance of the Letter of Credit
or funding of the Loan, is the subject of Sanctions; or (z) in any manner that
will result in a violation of Sanctions by any Person (including any Secured
Party or other individual or entity participating in the transaction).

 

2.1.3.      Termination of Revolver Commitment.  The Revolver Commitment shall
terminate on the Revolver Termination Date, unless sooner terminated in
accordance with this Agreement.  Upon at least 15 days

 

16

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

 

prior written notice to Lender Borrower may, at its option, terminate the
Revolver Commitment and this credit facility.  Any notice of termination given
by Borrower shall be irrevocable.  On the termination date, Borrower shall make
Full Payment of all Obligations.

 

2.1.4.      Overadvances.  If Revolver Usage exceeds the Borrowing Base
(“Overadvance”) at any time, the excess amount shall be payable by Borrower on
demand by Lender, but all such Revolver Loans shall nevertheless constitute
Obligations secured by the Collateral and entitled to all benefits of the Loan
Documents.  Any funding or sufferance of an Overadvance shall not constitute a
waiver of the Event of Default caused thereby.

 

2.1.5.      Increase of Revolver Commitment.

 

(a)           The Borrower may request that the Lender increase the Revolver
Commitment provided that (i) any such request for an increase shall be in a
minimum amount of $5,000,000, (ii) the Borrower may make a maximum of four such
requests, and (iii) after giving effect thereto, the sum of the total of
increases to the Revolver Commitment does not exceed $20,000,000 in the
aggregate.  Nothing contained in this section shall constitute, or otherwise be
deemed to be, a commitment on the part of the Lender to increase the Revolver
Commitment hereunder at any time and the Borrower acknowledges that the Lender
may decline the request for any reason, or no reason whatsoever, notwithstanding
the absence of a Material Adverse Effect, Default or Event of Default.

 

(b)           As a condition precedent to (i) requesting such an increase, the
Borrower shall deliver to the Lender a certificate of the Borrower signed by a
Senior Officer (A) certifying and attaching the resolutions adopted by the
Borrower approving or consenting to such increase and (B) certifying that,
before and after giving effect to such increase or addition, the conditions
precedent in Section 6.2 are satisfied and (ii) the Lender agreeing to such an
increase, the Borrower shall deliver to the Lender an amendment to this
Agreement in form and substance satisfactory to the Lender,  a legal opinion
from counsel to the Borrower and other documents consistent with those delivered
on the Closing Date, to the extent requested by the Lender.

 

2.2          Term Loan Commitment.  Lender agrees, on the terms set forth
herein, to make a Term Loan to Borrower in an amount up to the Term Loan
Commitment.  The Term Loan shall be funded by Lender on the Closing Date, and
the Term Loan Commitment shall expire upon funding.

 

2.3          Letter of Credit Facility.

 

2.3.1.      Issuance of Letters of Credit.  Lender agrees to issue Letters of
Credit from time to time until 30 days prior to the Revolver Termination Date
(or until the Commitment Termination Date, if earlier), on the terms set forth
herein, including the following:

 

(a)           Borrower acknowledges that Lender’s willingness to issue any
Letter of Credit is conditioned upon its receipt of a LC Application with
respect to the requested Letter of Credit, as well as such other instruments and
agreements as Lender may customarily require for issuance of a letter of credit
of similar type and amount.  Lender shall have no obligation to issue any Letter
of Credit unless (i) it receives a LC Application at least three Business Days
prior to the requested date of issuance; and (ii) each LC Condition is
satisfied.

 

(b)           Letters of Credit may be requested by Borrower to support
obligations incurred in the Ordinary Course of Business, or as otherwise
approved by Lender in its Permitted Discretion.  Increase, renewal or extension
of a Letter of Credit shall be treated as issuance of a new Letter of Credit,
except that Lender may require a new LC Application in its discretion.

 

(c)           Borrower assumes all risks of the acts, omissions or misuses of
any Letter of Credit by the beneficiary.  In connection with issuance of any
Letter of Credit, Lender shall not be responsible for the existence, character,
quality, quantity, condition, packing, value or delivery of any goods purported
to be represented by any Documents; any differences or variation in the
character, quality, quantity, condition, packing, value or delivery of any goods
from that expressed in any Documents; the form, validity, sufficiency, accuracy,
genuineness or legal effect of any Documents or of any endorsements thereon; the
time, place, manner or order in which shipment of goods is made; partial or
incomplete shipment of, or failure to ship, any goods referred to in a Letter of
Credit or Documents; any deviation from instructions, delay, default or fraud by
any shipper or other Person in connection with any goods, shipment or delivery;
any breach of contract between a shipper or vendor and Borrower; errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph,

 

17

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

 

telex, telecopy, e-mail, telephone or otherwise; errors in interpretation of
technical terms; the misapplication by a beneficiary of any Letter of Credit or
the proceeds thereof; or any consequences arising from causes beyond the control
of Lender, including any act or omission of a Governmental Authority.  No
Indemnitee shall be liable to any Obligor or other Person for any action taken
or omitted to be taken in connection with any Letter of Credit or LC Documents
except as a result of its gross negligence or willful misconduct.  Lender shall
be fully subrogated to the rights and remedies of each beneficiary whose claims
against Borrower are discharged with proceeds of any Letter of Credit.

 

(d)           In connection with its administration of and enforcement of rights
or remedies under any Letters of Credit or LC Documents, Lender shall be
entitled to act, and shall be fully protected in acting, upon any certification,
documentation or communication in whatever form believed by Lender, in good
faith, to be genuine and correct and to have been signed, sent or made by a
proper Person.  Lender may consult with and employ legal counsel, accountants
and other experts to advise it concerning its obligations, rights and remedies,
and shall be entitled to act upon, and shall be fully protected in any action
taken in good faith reliance upon, any advice given by such experts.  Lender may
employ agents and attorneys-in-fact in connection with any matter relating to
Letters of Credit or LC Documents, and shall not be liable for the negligence or
misconduct of agents and attorneys-in-fact selected with reasonable care.

 

2.3.2.      Reimbursement.  If Lender honors any request for payment under a
Letter of Credit, Borrower shall pay to Lender, on the same day (“Reimbursement
Date”), the amount paid under such Letter of Credit and all applicable fees,
together with interest at the interest rate for Base Rate Revolver Loans from
the Reimbursement Date until payment by Borrower.  The obligation of Borrower to
reimburse Lender for any payment made under a Letter of Credit shall be
absolute, unconditional, irrevocable, and joint and several, and shall be paid
without regard to any lack of validity or enforceability of any Letter of Credit
or the existence of any claim, setoff, defense or other right that Borrower may
have at any time against the beneficiary.  Whether or not Borrower submits a
Notice of Borrowing, Borrower shall be deemed to have requested a Borrowing of
Base Rate Revolver Loans in an amount necessary to pay all amounts due on any
Reimbursement Date.

 

2.3.3.      Cash Collateral.  If at any time (a) an Event of Default exists,
(b) the Commitment Termination Date has occurred, or (c) the Revolver
Termination Date is scheduled to occur within 20 Business Days, then Borrower
shall, at Lender’s request, Cash Collateralize all outstanding Letters of
Credit.  If Borrower fails to provide any Cash Collateral as required hereunder,
Lender may advance, as Revolver Loans, the amount of Cash Collateral required.

 

SECTION 3.        INTEREST, FEES AND CHARGES

 

3.1          Interest.

 

3.1.1.      Rates and Payment of Interest.

 

(a)           The Obligations shall bear interest (i) if a Base Rate Loan, at
the Base Rate in effect from time to time, plus the Applicable Margin; (ii) if a
LIBOR Loan, at LIBOR for the applicable Interest Period, plus the Applicable
Margin; and (iii) if any other Obligation (including, to the extent permitted by
law, interest not paid when due), at the Base Rate in effect from time to time,
plus the Applicable Margin for Revolver Loans.

 

(b)           During an Insolvency Proceeding with respect to Borrower, or
during any other Event of Default if Lender in its discretion so elects,
Obligations shall bear interest at the Default Rate (whether before or after any
judgment).  Borrower acknowledges that the cost and expense to Lender due to an
Event of Default are difficult to ascertain and that the Default Rate is fair
and reasonable compensation for this.

 

(c)           Interest shall accrue from the date a Loan is advanced or
Obligation is incurred or payable, until paid in full by Borrower, and shall in
no event be less than zero at any time.  Interest accrued on the Loans shall be
due and payable in arrears, (i) on the first day of each month; (ii) on any date
of prepayment, with respect to the principal amount of Loans being prepaid; and
(iii) on the Commitment Termination Date.  Interest accrued on any other
Obligations shall be due and payable as provided in the Loan Documents and, if
no payment date is specified, shall be due and payable on demand. 
Notwithstanding the foregoing, interest accrued at the Default Rate shall be due
and payable on demand.

 

18

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

 

3.1.2.      Application of LIBOR to Outstanding Loans.

 

(a)           Borrower may on any Business Day, subject to delivery of a Notice
of Conversion/Continuation, elect to convert any portion of the Base Rate Loans
to, or to continue any LIBOR Loan at the end of its Interest Period as, a LIBOR
Loan.  During any Default or Event of Default, Lender may declare that no Loan
may be made, converted or continued as a LIBOR Loan.

 

(b)           Whenever Borrower desires to convert or continue Loans as LIBOR
Loans, Borrower shall give Lender a Notice of Conversion/Continuation, no later
than 11:00 a.m. at least two Business Days before the requested conversion or
continuation date.  Each Notice of Conversion/Continuation shall be irrevocable,
and shall specify the amount of Loans to be converted or continued, the
conversion or continuation date (which shall be a Business Day), and the
duration of the Interest Period (which shall be deemed to be 30 days if not
specified).  If, upon the expiration of any Interest Period in respect of any
LIBOR Loans, Borrower shall have failed to deliver a Notice of
Conversion/Continuation, it shall be deemed to have elected to convert such
Loans into Base Rate Loans.

 

3.1.3.      Interest Periods.  In connection with the making, conversion or
continuation of any LIBOR Loans, Borrower shall select an interest period
(“Interest Period”) to apply, which interest period shall be 30, 60, 90 or 180
days (if available from Lender); provided, however, that:

 

(a)           the Interest Period shall begin on the date the Loan is made or
continued as, or converted into, a LIBOR Loan, and shall expire on the
numerically corresponding day in the calendar month at its end;

 

(b)           if any Interest Period begins on a day for which there is no
corresponding day in the calendar month at its end or if such corresponding day
falls after the last Business Day of such month, then the Interest Period shall
expire on the last Business Day of such month; and if any Interest Period would
otherwise expire on a day that is not a Business Day, the period shall expire on
the next Business Day; and

 

(c)           no Interest Period shall extend beyond the Revolver Termination
Date; and no Interest Period for a LIBOR Term Loan may be established that would
require repayment before the end of an Interest Period in order to make any
scheduled principal payment on the Term Loan.

 

3.1.4.      Interest Rate Not Ascertainable.  If, due to any circumstance
affecting the London interbank market, Lender determines that adequate and fair
means do not exist for ascertaining LIBOR on any applicable date or that any
Interest Period is not available on the basis provided herein, then Lender shall
immediately notify Borrower of such determination.  Until Lender notifies
Borrower that such circumstance no longer exists, the obligation of Lender to
make affected LIBOR Loans shall be suspended, and no further Loans may be
converted into or continued as such LIBOR Loans.

 

3.2          Fees.  Borrower shall pay to Lender the fees set forth on Exhibit D
to this Agreement.

 

3.3          Computation of Interest, Fees, Yield Protection.  All interest, as
well as fees and other charges calculated on a per annum basis, shall be
computed for the actual days elapsed, based on a year of 360 days.  Each
determination by Lender of any interest, fees or interest rate hereunder shall
be final, conclusive and binding for all purposes, absent manifest error.  All
fees shall be fully earned when due and shall not be subject to rebate, refund
or proration.  All fees payable under Section 3.2 are compensation for services
and are not, and shall not be deemed to be, interest or any other charge for the
use, forbearance or detention of money.  A certificate as to amounts payable by
Borrower under Section 3.4, 3.6, 3.7, 3.9 or 5.9, submitted to Borrower by
Lender shall be final, conclusive and binding for all purposes, absent manifest
error, and Borrower shall pay such amounts to the appropriate party within 10
days following receipt of the certificate.

 

3.4          Reimbursement Obligations.  Borrower shall pay all Extraordinary
Expenses promptly upon request.  Borrower also shall reimburse Lender for all
legal, accounting, appraisal, consulting, and other fees, costs and expenses
incurred by it in connection with (a) negotiation and preparation of any Loan
Documents, including any amendment or other modification thereof;
(b) administration of and actions relating to any Collateral, Loan Documents and
transactions contemplated thereby, including any actions taken to perfect or
maintain priority of Lender’s Liens on any Collateral, to maintain any insurance
required hereunder or to verify Collateral; and (c) subject to the limits of
Section 9.1.1(b), each inspection, audit or appraisal with respect to any
Obligor or Collateral, whether prepared by Lender’s personnel or a third party. 
All legal, accounting and consulting fees shall

 

19

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

 

be charged to Borrower by Lender’s professionals at their full hourly rates,
regardless of any alternative fee arrangements that Lender or any of its
Affiliates may have with such professionals that otherwise might apply to this
or any other transaction.  Borrower acknowledges that counsel may provide Lender
with a benefit (such as a discount, credit or accommodation for other matters)
based on counsel’s overall relationship with Lender, including fees paid
hereunder.  If, for any reason (including inaccurate reporting by Borrower), it
is determined that a higher Applicable Margin should have applied to a period
than was actually applied, then the proper margin shall be applied
retroactively, and Borrower shall immediately pay to Lender an amount equal to
the difference between the amount of interest and fees that would have accrued
using the proper margin and the amount actually paid.  All amounts payable by
Borrower under this Section shall be due on demand.

 

3.5          Illegality.  If Lender determines that any applicable law has made
it unlawful, or that any Governmental Authority has asserted that it is
unlawful, for Lender to make, maintain or fund LIBOR Loans, or to determine or
charge interest rates based upon LIBOR, or any Governmental Authority has
imposed material restrictions on the authority of Lender to purchase or sell, or
to take deposits of, Dollars in the London interbank market, then, on notice
thereof by Lender to Borrower, any obligation of Lender to make or continue
LIBOR Loans or to convert Base Rate Loans to LIBOR Loans shall be suspended
until Lender notifies Borrower that the circumstances giving rise to such
determination no longer exist.  Upon delivery of such notice, Borrower shall
prepay or, if applicable, convert all LIBOR Loans to Base Rate Loans, either on
the last day of the Interest Period therefor, if Lender may lawfully continue to
maintain LIBOR Loans to such day, or immediately, if Lender may not lawfully
continue to maintain LIBOR Loans.  Upon any such prepayment or conversion,
Borrower shall also pay accrued interest on the amount so prepaid or converted.

 

3.6          Inability to Determine Rates.  If Lender notifies Borrower in
connection with a Borrowing, conversion or continuation of, a LIBOR Loan that
for any reason (a) Dollar deposits are not being offered to banks in the London
interbank Eurodollar market for the applicable Loan amount or Interest Period,
(b) adequate and reasonable means do not exist for determining LIBOR for the
applicable Interest Period, or (c) LIBOR for the applicable Interest Period does
not adequately and fairly reflect the cost to Lender of funding the Loan, then
Lender’s obligation to make or maintain LIBOR Loans shall be suspended to the
extent of the affected LIBOR Loan or Interest Period until Lender revokes the
notice.  Upon receipt of the notice, Borrower may revoke any pending request for
a Borrowing, conversion or continuation of a LIBOR Loan or, failing that, will
be deemed to have submitted a request for a Base Rate Loan.

 

3.7          Increased Costs; Capital Adequacy.

 

3.7.1.      Increased Costs Generally.  If any Change in Law shall:

 

(a)           impose, modify or deem applicable any reserve, liquidity, special
deposit, compulsory loan, insurance charge or similar requirement against assets
of, deposits with or for the account of, or credit extended or participated in
by, Lender (except any reserve requirement reflected in LIBOR);

 

(b)           subject any Recipient to Taxes (other than (i) Indemnified Taxes,
(ii) Taxes described in clause (b) of the definition of Excluded Taxes, or
(iii) Connection Income Taxes) with respect to any Loan, Letter of Credit,
Commitment or other obligations, or its deposits, reserves, other liabilities or
capital attributable thereto; or

 

(c)           impose on Lender or any interbank market any other condition, cost
or expense affecting any Loan, Letter of Credit, Commitment or Loan Document;

 

and the result in clause (a), (b) or (c) above shall be to increase the cost to
Lender of making or maintaining any Loan or Commitment, or converting to or
continuing any interest option for a Loan, or to increase the cost to Lender of
issuing or maintaining any Letter of Credit (or of maintaining its obligation to
issue a Letter of Credit), or to reduce the amount of any sum received or
receivable by Lender hereunder (whether of principal, interest or any other
amount) then, upon request by Lender, Borrower will pay to Lender such
additional amount or amounts as will compensate Lender for such additional costs
incurred or reduction suffered.

 

3.7.2.      Capital Requirements.  If Lender determines that a Change in Law
affecting Lender or its holding company regarding capital or liquidity
requirements has or would have the effect of reducing the rate of return on
Lender’s or such holding company’s capital as a consequence of this Agreement,
Commitments, Loans or Letters of Credit to a level below that which Lender or
such holding company could have achieved but for such

 

20

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

 

Change in Law (taking into consideration its policies with respect to capital
adequacy), then from time to time Borrower will pay to Lender such additional
amounts as will compensate it or its holding company for the reduction suffered.

 

3.7.3.      LIBOR Loan Reserves.  If Lender is required to maintain reserves
with respect to liabilities or assets consisting of or including Eurocurrency
funds or deposits, Borrower shall pay additional interest to Lender on each
LIBOR Loan equal to the costs of such reserves allocated to the Loan by Lender
(as determined by it in good faith, which determination shall be conclusive). 
The additional interest shall be due and payable on each interest payment date
for the Loan; provided, however, that if Lender notifies Borrower of the
additional interest less than 10 days prior to the interest payment date, then
the additional interest shall be payable 10 days after Borrower’s receipt of the
notice.

 

3.7.4.      Compensation.  Failure or delay on the part of Lender to demand
compensation pursuant to this Section shall not constitute a waiver of its right
to demand such compensation, but Borrower shall not be required to compensate
Lender for any increased costs or reductions suffered more than nine months
(plus any period of retroactivity of the Change in Law giving rise to the
demand) prior to the date that Lender notifies Borrower of the applicable Change
in Law and of Lender’s intention to claim compensation therefor.

 

3.8          Mitigation.  If Lender gives a notice under Section 3.5 or requests
compensation under Section 3.7, or if Borrower is required to pay any
Indemnified Taxes or additional amounts under Section 5.9, then at the request
of Borrower, Lender shall use reasonable efforts to designate a different
lending office or to assign its rights and obligations hereunder to another of
its offices, branches or Affiliates, if, in the judgment of Lender, such
designation or assignment (a) would eliminate the need for such notice or reduce
amounts payable or to be withheld in the future, as applicable; and (b) would
not subject Lender to any unreimbursed cost or expense and would not otherwise
be disadvantageous to it or unlawful.  Borrower shall pay all reasonable costs
and expenses incurred by Lender in connection with any such designation or
assignment.

 

3.9          Funding Losses.  If for any reason (a) any Borrowing, conversion or
continuation of, a LIBOR Loan does not occur on the date specified therefor in a
Notice of Borrowing or Notice of Conversion/Continuation (whether or not
withdrawn), (b) any repayment or conversion of a LIBOR Loan occurs on a day
other than the end of its Interest Period, or (c) Borrower fails to repay a
LIBOR Loan when required hereunder, then Borrower shall pay to Lender all
resulting losses and expenses, including loss of anticipated profits and any
loss, expense or fee arising from redeployment of funds or termination of match
fundings.  For purposes of calculating amounts payable under this Section,
Lender shall be deemed to have funded a LIBOR Loan by a matching deposit or
other borrowing in the London interbank market for a comparable amount and
period, whether or not the Loan was in fact so funded.

 

3.10        Maximum Interest.  Notwithstanding anything to the contrary
contained in any Loan Document, the interest paid or agreed to be paid under the
Loan Documents shall not exceed the maximum rate of non-usurious interest
permitted by applicable law (“maximum rate”).  If Lender shall receive interest
in an amount that exceeds the maximum rate, the excess interest shall be applied
to the principal of the Obligations or, if it exceeds such unpaid principal,
refunded to Borrower.  In determining whether the interest contracted for,
charged or received by Lender exceeds the maximum rate, Lender may, to the
extent permitted by applicable law, (a) characterize any payment that is not
principal as an expense, fee or premium rather than interest; (b) exclude
voluntary prepayments and the effects thereof; and (c) amortize, prorate,
allocate and spread in equal or unequal parts the total amount of interest
throughout the contemplated term of the Obligations hereunder.

 

SECTION 4.        LOAN ADMINISTRATION

 

4.1          Manner of Borrowing and Funding Revolver Loans.

 

4.1.1.      Notice of Borrowing.

 

(a)           Whenever Borrower desires funding of a Revolver Loan, Borrower
shall give Lender a Notice of Borrowing.  Such notice must be received by Lender
by 11:00 a.m. (i) on the requested funding date for a Base Rate Loan, and
(ii) at least two Business Days prior to the requested funding date for a LIBOR
Loan.  Notices received after such time shall be deemed received on the next
Business Day.  Each Notice of Borrowing shall be irrevocable and shall specify
(A) the amount of the Borrowing, (B) the requested funding date (which must be a

 

21

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

 

Business Day), (C) whether the Borrowing is to be made as a Base Rate Loan or
LIBOR Loan, and (D) in the case of a LIBOR Loan, the applicable Interest Period
(which shall be deemed to be 30 days if not specified).

 

(b)           Unless payment is otherwise made by Borrower, the becoming due of
any Obligations (whether principal, interest, fees or other charges, including
Extraordinary Expenses, LC Obligations, Cash Collateral and Bank Product Debt)
shall be deemed to be a request for a Base Rate Revolver Loan on the due date in
the amount due and the Loan proceeds shall be disbursed as direct payment of
such relevant Obligation.  In addition, Lender may, at its option, charge such
amount against any operating, investment or other account of Borrower maintained
with Lender or any of its Affiliates.

 

(c)           If Borrower maintains disbursement account with Lender or any of
its Affiliates, then presentation for payment in the account of a Payment Item
when there are insufficient funds to cover it shall be deemed to be a request
for a Base Rate Revolver Loan on the presentation date, in the amount of the
Payment Item.  Proceeds of the Loan may be disbursed directly to the account.

 

4.1.2.      Notices.  Borrower may request, convert or continue Loans, select
interest rates, and transfer funds based on telephonic or e-mailed instructions
to Lender.  Borrower shall confirm each such request by prompt delivery to
Lender of a Notice of Borrowing or Notice of Conversion/Continuation, if
applicable, but if it differs materially from the action taken by Lender, the
records of Lender shall govern.  Lender shall not have any liability for any
loss suffered by Borrower as a result of Lender acting upon its understanding of
telephonic or e-mailed instructions from a person believed in good faith to be a
person authorized to give such instructions on Borrower’s behalf.

 

4.2          Number and Amount of LIBOR Loans; Determination of Rate.  Each
Borrowing of LIBOR Loans when made shall be in a minimum amount of $500,000,
plus any increment of $100,000 in excess thereof.  No more than four Borrowings
of LIBOR Loans may be outstanding at any time, and all LIBOR Loans having the
same length and beginning date of their Interest Periods shall be aggregated
together and considered one Borrowing for this purpose.  Upon determining LIBOR
for any Interest Period requested by Borrower, Lender shall promptly notify
Borrower thereof by telephone or electronically and, if requested by Borrower,
shall confirm any telephonic notice in writing.

 

4.3          [Intentionally Omitted].

 

4.4          [Intentionally Omitted].

 

4.5          Effect of Termination.  On the effective date of the termination of
the Revolver Commitment, the Obligations shall be immediately due and payable,
and each Secured Party may terminate its Bank Products.  Until Full Payment of
the Obligations, all undertakings of Borrower contained in the Loan Documents
shall continue, and Lender shall retain its Liens in the Collateral and all of
its rights and remedies under the Loan Documents.  Lender shall not be required
to terminate its Liens unless it receives Cash Collateral or a written
agreement, in each case satisfactory to it, protecting it from dishonor or
return of any Payment Item previously applied to the Obligations.  Sections 2.3,
3.4, 3.6, 3.7, 3.9, 5.6, 5.9, 11.3, this Section, and each indemnity or waiver
given by an Obligor in any Loan Document, shall survive Full Payment of the
Obligations.

 

SECTION 5.        PAYMENTS

 

5.1          General Payment Provisions.  All payments of Obligations shall be
made in Dollars, without offset, counterclaim or defense of any kind, free and
clear of (and without deduction for) any Taxes, and in immediately available
funds, not later than 12:00 noon on the due date.  Any payment after such time
shall be deemed made on the next Business Day.  Any payment of a LIBOR Loan
prior to the end of its Interest Period shall be accompanied by all amounts due
under Section 3.9.  Borrower agrees that Lender shall have the continuing,
exclusive right to apply and reapply payments and proceeds of Collateral against
Obligations, in such manner as Lender deems advisable, but whenever possible,
any prepayment of Loans shall be applied first to Base Rate Loans and then to
LIBOR Loans.

 

5.2          Repayment of Revolver Loans.  Revolver Loans shall be due and
payable in full on the Commitment Termination Date, unless payment is sooner
required hereunder.  Revolver Loans may be prepaid from time to time, without
penalty or premium.  If an Overadvance exists at any time, Borrower shall, on
the sooner of

 

22

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

 

Lender’s demand or the first Business Day after Borrower has knowledge thereof,
repay Revolver Loans in an amount sufficient to reduce Revolver Usage to the
Borrowing Base.  If any asset disposition includes the disposition of Accounts
or Inventory, Borrower shall apply Net Proceeds to repay Revolver Loans equal to
the greater of (a) the net book value of such Accounts and Inventory, or (b) the
reduction in Borrowing Base resulting from the disposition. Concurrently with
any issuance of Equity Interests by Borrower, Borrower shall prepay Revolver
Loans in an amount equal to the Net Proceeds of such issuance.  Unless requested
by the Borrower, prepayments shall not reduce the Revolver Commitment.

 

5.3          Repayment of Term Loan.

 

5.3.1.      Payment of Principal.  The Term Loan shall be repaid on the first
day of each month in consecutive monthly installments of $41,491.00, commencing
on July 1, 2017 and continuing through the Commitment Termination Date, on which
date all principal, interest and other amounts owing with respect to the Term
Loan shall be due and payable in full.  Once repaid, whether such repayment is
voluntary or required, no portion of the Term Loan may be reborrowed.

 

5.3.2.      Mandatory Prepayments.

 

(a)           Concurrently with any disposition of Equipment or Real Estate that
is permitted under Section 9.2.6, Borrower shall prepay the Term Loan in an
amount equal to the Net Proceeds of such disposition;

 

(b)           Concurrently with the receipt of any proceeds of insurance or
condemnation awards paid in respect of any Equipment or Real Estate, Borrower
shall prepay the Term Loan in an amount equal to such proceeds, subject to
Section 5.7;

 

(c)           [Intentionally Omitted]; and

 

(d)           On the Commitment Termination Date, Borrower shall prepay the
entire Term Loan (unless sooner repaid hereunder).

 

5.3.3.      Optional Prepayments.  Borrower may, at its option from time to
time, prepay the Term Loan, which prepayment must be at least $500,000, plus any
increment of $100,000 in excess thereof.  Borrower shall give written notice to
Lender of an intended prepayment of the Term Loan, which notice shall specify
the amount of the prepayment, shall be irrevocable once given, shall be given at
least 10 Business Days prior to the end of a month and shall be effective as of
the first day of the next month.

 

5.3.4.      Application of Prepayments.  All partial prepayments of the Term
Loan shall be applied to installments of principal in respect of the Term Loan
in the inverse order of their maturities.

 

5.4          Payment of Other Obligations.  Obligations other than Loans,
including LC Obligations and Extraordinary Expenses, shall be paid by Borrower
as provided in the Loan Documents or, if no payment date is specified, on
demand.

 

5.5          Dominion Account.  Borrower shall maintain Dominion Accounts
pursuant to lockbox or other arrangements acceptable to Lender.  Borrower shall
obtain an agreement (in form and substance satisfactory to Lender) from each
lockbox servicer and Dominion Account bank, establishing Lender’s control over
and Lien in the lockbox or Dominion Account requiring immediate deposit of all
remittances received in the lockbox to a Dominion Account, and waiving offset
rights of such servicer or bank, except for customary administrative charges. 
If a Dominion Account is not maintained with Lender, Lender may require
immediate transfer of all funds in such account to a Dominion Account maintained
with Lender.  Lender assumes no responsibility to Borrower for any lockbox
arrangement or Dominion Account, including any claim of accord and satisfaction
or release with respect to any Payment Items accepted by any bank.  Borrower
shall request in writing and otherwise take all necessary steps to ensure that
all payments on Accounts or otherwise relating to Collateral are made directly
to a Dominion Account (or a lockbox relating to a Dominion Account).  If
Borrower or any of its Subsidiaries receives cash or Payment Items with respect
to any Collateral, it shall hold same in trust for Lender and promptly (not
later than the next Business Day) deposit same into a Dominion Account.

 

23

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

 

5.6          Marshaling; Payments Set Aside.  Lender shall have no obligation to
marshal any assets in favor of any Obligor or against any Obligations.  If any
payment by or on behalf of Borrower is made to Lender, or Lender exercises a
right of setoff, and any of such payment or setoff is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by Lender in its discretion) to be
repaid to a trustee, receiver or any other Person, then the Obligation
originally intended to be satisfied, and all Liens, rights and remedies relating
thereto, shall be revived and continued in full force and effect as if such
payment or setoff had not occurred.

 

5.7          Application of Payments.

 

5.7.1.      Dominion Account.  The ledger balance in the main Dominion Account
as of the end of a Business Day shall be applied to the Obligations at the
beginning of the next Business Day.  If, a credit balance results from such
application, it shall not accrue interest in favor of Borrower and shall be made
available to Borrower as long as no Default or Event of Default exists. 
Notwithstanding anything herein to the contrary, monies and collateral proceeds
obtained from an Obligor shall not be applied to repayment of its Excluded Swap
Obligations.  For purposes of calculating interest only, Lender will be deemed
to have applied funds deposited to the Dominion Account or otherwise received by
Lender to pay down the Obligations on the first Business Day following the
Business Day of deposit to the Dominion Account or receipt by Lender.

 

5.7.2.      Insurance and Condemnation Proceeds.  Any proceeds of insurance
(other than proceeds from workers’ compensation or D&O insurance) and any awards
arising from condemnation of any Collateral shall be paid to Lender.  Any such
proceeds or awards that relate to Inventory shall be applied to payment of the
Revolver Loans, and then to other Obligations, other than the Term Loan. 
Subject to Section 5.7.3 below, any proceeds or awards that relate to Equipment
or Real Estate shall be applied first to the Term Loan, then to Revolver Loans
and then to other Obligations.

 

5.7.3.      Reinvestment of Proceeds.  If requested by Borrower in writing
within 15 days after Lender’s receipt of any insurance proceeds or condemnation
awards relating to any loss or destruction of Equipment or Real Estate, Borrower
may use such proceeds or awards to repair or replace such Equipment or Real
Estate (and until so used, the proceeds shall be held by Lender as Cash
Collateral) as long as (i) no Default or Event of Default exists; (ii) such
repair or replacement is promptly undertaken and concluded, in accordance with
plans reasonably satisfactory to Lender; (iii) replacement buildings are
constructed on the sites of the original casualties and are of comparable size,
quality and utility to the destroyed buildings; (iv) the repaired or replaced
Property is free of Liens, other than Permitted Liens that are not Purchase
Money Liens; (v) Borrower complies with disbursement procedures for such repair
or replacement as Lender may reasonably require; and (vi) the aggregate amount
of such proceeds or awards from any single casualty or condemnation does not
exceed $1,500,000.

 

5.8          Account Stated.  Lender shall maintain, in accordance with
customary practices, loan account(s) evidencing the Debt of Borrower hereunder. 
Any failure of Lender to record anything in a loan account, or any error in
doing so, shall not limit or otherwise affect the obligation of Borrower to pay
any amount owing hereunder.  Entries made in a loan account shall constitute
presumptive evidence of the information contained therein.  If any information
contained in a loan account is provided to or inspected by any Person, the
information shall be conclusive and binding on such Person for all purposes
absent manifest error, except to the extent such Person notifies Lender in
writing within 30 days after receipt or inspection that specific information is
subject to dispute.

 

5.9          Taxes.

 

5.9.1.      Payments Free of Taxes; Obligation to Withhold; Tax Payment.

 

(a)           All payments of Obligations by Obligors shall be made without
deduction or withholding for any Taxes, except as required by applicable law. 
If applicable law (as determined by Lender in its discretion) requires the
deduction or withholding of any Tax from any such payment by a Recipient or
Obligor, then the Recipient or Obligor shall be entitled to make such deduction
or withholding based on information and documentation provided pursuant to this
Section.

 

(b)           If a Recipient or Obligor is required by the Code to withhold or
deduct Taxes, including backup withholding and withholding taxes, from any
payment, then the Recipient shall pay the full amount that it determines is to
be withheld or deducted to the relevant Governmental Authority pursuant to the
Code.  If a

 

24

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

 

Recipient or Obligor is required by any applicable law other than the Code to
withhold or deduct Taxes from any payment, then the Recipient or Obligor, to the
extent required by applicable law, shall timely pay the full amount to be
withheld or deducted to the relevant Governmental Authority.  In each case, to
the extent the withholding or deduction is made on account of Indemnified Taxes,
the sum payable by the applicable Obligor shall be increased as necessary so
that the Recipient receives an amount equal to the sum it would have received
had no such withholding or deduction been made.

 

(c)           Without limiting the foregoing, Borrower shall timely pay all
Other Taxes to the relevant Governmental Authority in accordance with applicable
law or, at Lender’s option, timely reimburse Lender for payment thereof.

 

5.9.2.      Tax Indemnification.  Borrower shall indemnify and hold harmless, on
a joint and several basis, each Recipient against any Indemnified Taxes
(including those imposed or asserted on or attributable to amounts payable under
this Section) payable or paid by a Recipient or required to be withheld or
deducted from a payment to a Recipient, and any penalties, interest and
reasonable expenses arising therefrom or with respect thereto, whether or not
such Indemnified Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority.  Borrower shall make payment within 10 days
after demand for any amount or liability payable under this Section.  A
certificate delivered to Borrower by Lender (for itself or on behalf of a
Recipient) as to the amount of such payment or liability, shall be conclusive
absent manifest error.

 

5.9.3.      Evidence of Payments.  If Lender or an Obligor pays any Taxes
pursuant to this Section, then upon request, Lender or Borrower, as applicable,
shall deliver to the other a copy of a receipt issued by the appropriate
Governmental Authority evidencing the payment, a copy of any return required by
applicable law to report the payment, or other evidence of payment reasonably
satisfactory to the requesting party.

 

5.9.4.      Treatment of Certain Refunds.  If Lender determines in its
discretion that it or another Recipient has received a refund of any Taxes that
were indemnified by Borrower or with respect to which Borrower paid additional
amounts pursuant to this Section, Lender shall pay or shall cause the other
Recipient to pay to Borrower the amount of such refund (but only to the extent
of indemnity payments made, or additional amounts paid, by Borrower with respect
to the Taxes giving rise to the refund), net of all out-of-pocket expenses
(including Taxes) incurred by the Recipient and without interest (other than any
interest paid by the relevant Governmental Authority with respect to such
refund).  Borrower shall, upon request by Lender, repay to the Recipient any
refund amount so paid over to Borrower (plus any penalties, interest or other
charges imposed by the relevant Governmental Authority) if the Recipient is
required to repay such refund to the Governmental Authority.  Notwithstanding
anything herein to the contrary, no Recipient shall be required to pay any
amount to Borrower if such payment would place the Recipient in a less favorable
net after-Tax position than it would have been in if the Tax subject to
indemnification and giving rise to such refund had not been deducted, withheld
or otherwise imposed and the indemnification payments or additional amounts with
respect to such Tax had never been paid.  In no event shall any Recipient be
required to make its tax returns (or any other information relating to its taxes
that it deems confidential) available to any Obligor or other Person.

 

5.9.5.      Status of Lender.  If Lender is entitled to an exemption from or
reduction of withholding Tax with respect to payments of Obligations, it shall
deliver to Borrower properly completed and executed documentation reasonably
requested by Borrower as will permit such payments to be made without or at a
reduced rate of withholding.  In addition, Lender, if reasonably requested by
Borrower, shall deliver such other documentation prescribed by applicable law as
is necessary to enable Borrower to determine whether Lender is subject to backup
withholding or information reporting requirements.  Notwithstanding the
foregoing, such documentation shall not be required if Lender believes delivery
of the documentation would subject it to any material unreimbursed cost or
expense or would materially prejudice its legal or commercial position.

 

5.9.6.      Documentation.  Without limiting the foregoing, Lender shall deliver
to Borrower, from time to time upon reasonable request, executed originals of
IRS Form W-0, certifying that Lender is exempt from U.S. federal backup
withholding Tax.  If payment of any Obligation to Lender would be subject to
U.S. federal withholding Tax imposed by FATCA if Lender were to fail to comply
with the applicable reporting requirements of FATCA (including those contained
in Section 1471(b) or 1472(b) of the Code), Lender shall deliver to Borrower at
the time(s) prescribed by law and otherwise as reasonably requested by Borrower
such documentation prescribed by applicable law (including
Section 1471(b)(3)(C)(i) of the Code) and such additional documentation
reasonably requested by Borrower as may be necessary for it to comply with its
obligations under FATCA and to determine that

 

25

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

 

Lender has complied with its obligations under FATCA or to determine the amount
to deduct and withhold from such payment.  Solely for purposes of the preceding
sentence, “FATCA” shall include any amendments made to FATCA after the date
hereof.  If any form or certification delivered by Lender pursuant to this
Section expires or becomes obsolete or inaccurate in any respect, Lender shall
update the form or certification or notify Borrower in writing of its inability
to do so.

 

5.9.7.      Survival.  Each party’s obligations under this Section 5.9 shall
survive any assignment by Lender of rights or obligations hereunder, termination
of the Commitments, and any repayment, satisfaction, discharge or Full Payment
of any Obligations.

 

SECTION 6.        CONDITIONS PRECEDENT

 

6.1          Conditions Precedent to Initial Loans.  In addition to the
conditions set forth in Section 6.2, Lender shall not be required to fund any
requested Loan, issue any Letter of Credit or otherwise extend credit to
Borrower hereunder, until the date (“Closing Date”) that each of the conditions
precedent set forth on Exhibit C has been satisfied.

 

6.2          Conditions Precedent to All Credit Extensions.  Lender shall not be
required to fund any Loans, issue any Letters of Credit, or grant any other
accommodation to or for the benefit of Borrower, unless the following conditions
are satisfied:

 

(a)           No Default or Event of Default shall exist at the time of, or
result from, such funding, issuance or grant;

 

(b)           The representations and warranties of each Obligor in the Loan
Documents shall be true and correct in all material respects (or, in the case of
any representation and warranty qualified by materiality, in all respects) on
the date of, and upon giving effect to, such funding, issuance or grant (except
for representations and warranties that expressly relate to an earlier date);

 

(c)           All conditions precedent in any other Loan Document shall be
satisfied;

 

(d)           No event shall have occurred or circumstance exist that has or
could reasonably be expected to have a Material Adverse Effect; and

 

(e)           With respect to issuance of a Letter of Credit, the LC Conditions
shall be satisfied.

 

Each request (or deemed request) by Borrower for funding of a Loan, issuance of
a Letter of Credit or grant of an accommodation shall constitute a
representation by Borrower that the foregoing conditions are satisfied on the
date of such request and on the date of such funding, issuance or grant.  As an
additional condition to any funding, issuance or grant, Lender shall have
received such other information, documents, instruments and agreements as it
deems appropriate in connection therewith.

 

SECTION 7.        COLLATERAL

 

7.1          Grant of Security Interest.  To secure the prompt payment and
performance of the Obligations, Borrower hereby grants to Lender, on behalf of
itself and the other Secured Parties, a continuing security interest in and Lien
upon all Property of Borrower, including all of the following Property, whether
now owned or hereafter acquired, and wherever located:  (a) all Accounts;
(b) all Chattel Paper, including Electronic Chattel Paper; (c) all Commercial
Tort Claims, including those shown on Schedule 8.1.15; (d) all Deposit Accounts;
(e) all Documents; (f) all General Intangibles, including Intellectual Property;
(g) all Goods, including Inventory, Equipment and Fixtures; (h) all Instruments;
(i) all Investment Property; (j) all Letter-of-Credit Rights; (k) all Supporting
Obligations; (l) all monies, whether or not in the possession or under the
control of Lender, or a bailee or Affiliate of Lender, including any Cash
Collateral; (m) all accessions to, substitutions for, and all replacements,
products, and cash and non-cash proceeds of the foregoing, including proceeds of
and unearned premiums with respect to insurance policies, and claims against any
Person for loss, damage or destruction of any Collateral; and (n) all books and
records (including customer lists, files, correspondence, tapes, computer
programs, print-outs and computer records) pertaining to the foregoing;
provided, that in no event shall the Collateral include more than 65% of the
voting stock of any Foreign Subsidiary.

 

26

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

 

7.2          Lien on Deposit Accounts; Cash Collateral.

 

7.2.1.      Deposit Accounts.  To further secure the prompt payment and
performance of the Obligations, Borrower hereby grants to Lender a continuing
security interest in and Lien upon all amounts credited to any Deposit Account
of Borrower, including sums in any blocked, lockbox, sweep or collection
account.  Borrower hereby authorizes and directs each bank or other depository
to deliver to Lender, upon request, all balances in any Deposit Account
maintained for Borrower, without inquiry into the authority or right of Lender
to make such request.

 

7.2.2.      Cash Collateral.  Cash Collateral may be invested, at Lender’s
discretion (and with the consent of Borrower, as long as no Event of Default
exists), but Lender shall have no duty to do so, regardless of any agreement or
course of dealing with Borrower, and shall have no responsibility for any
investment or loss.  As security for its Obligations, Borrower hereby grants to
Lender a security interest in and Lien upon all Cash Collateral held from time
to time and all proceeds thereof, whether held in a Cash Collateral Account or
otherwise.  Lender may apply Cash Collateral to the payment of Obligations as
they become due, in such order as Lender may elect.  Each Cash Collateral
Account and all Cash Collateral shall be under the sole dominion and control of
Lender, and neither Borrower nor any other Person shall have any right to any
Cash Collateral, until Full Payment of the Obligations.

 

7.3          Real Estate Collateral.

 

7.3.1.      Lien on Real Estate.  The Obligations shall also be secured by
Mortgages upon Real Estate owned by Borrower located in Mankato, Minnesota,
Bemidji, Minnesota and Merrifield, Minnesota, all as more particularly described
in the Mortgage encumbering the same.  The Mortgages shall be duly recorded, at
Borrower’s expense, in each office where such recording is required to
constitute a fully perfected Lien on the Real Estate covered thereby.

 

7.3.2.      Collateral Assignment of Leases.  To further secure the prompt
payment and performance of the Obligations, Borrower hereby transfers and
assigns to Lender all of Borrower’s right, title and interest in, to and under
all now or hereafter existing leases of real Property to which Borrower is a
party, whether as lessor or lessee, and all extensions, renewals, modifications
and proceeds thereof.

 

7.4          Other Collateral.

 

7.4.1.      Commercial Tort Claims.  Borrower shall promptly notify Lender in
writing if Borrower has a Commercial Tort Claim (other than, as long as no
Default or Event of Default exists, a Commercial Tort Claim for less than
$100,000), shall promptly amend Schedule 8.1.15 to include such claim, and shall
take such actions as Lender deems appropriate to subject such claim to a duly
perfected, first priority Lien in favor of Lender.

 

7.4.2.      Certain After-Acquired Collateral.  Borrower shall promptly notify
Lender in writing if, after the Closing Date, Borrower obtains any interest in
any Collateral consisting of Deposit Accounts, Chattel Paper,
Documents, Instruments, Intellectual Property, Investment Property or
Letter-of-Credit Rights and, upon Lender’s request, shall promptly take such
actions as Lender deems appropriate to effect Lender’s duly perfected, first
priority Lien upon such Collateral, including obtaining any appropriate
possession, control agreement or Lien Waiver.  If any Collateral is in the
possession of a third party, at Lender’s request, Borrower shall obtain an
acknowledgment that such third party holds the Collateral for the benefit of
Lender.

 

7.5          Limitations.  The Lien on Collateral granted hereunder is given as
security only and shall not subject Lender to, or in any way modify, any
obligation or liability of Borrower relating to any Collateral.  In no event
shall the grant of any Lien under any Loan Document secure an Excluded Swap
Obligation of the granting Obligor.

 

7.6          Further Assurances; Extent of Liens.  All Liens granted to Lender
under the Loan Documents are for the benefit of Secured Parties.  Promptly upon
request, Borrower shall deliver such instruments and agreements, and shall take
such actions, as Lender deems appropriate under applicable law to evidence or
perfect its Lien on any Collateral, or otherwise to give effect to the intent of
this Agreement.  Borrower authorizes Lender to file any financing statement that
describes the Collateral as “all assets” or “all personal property” of Borrower,
or

 

27

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

 

words to similar effect, and ratifies any action taken by Lender before the
Closing Date to effect or perfect its Lien on any Collateral.

 

SECTION 8.        REPRESENTATIONS AND WARRANTIES

 

8.1          General Representations and Warranties.  To induce Lender to enter
into this Agreement and to make available the Commitments, Loans and Letters of
Credit, Borrower represents and warrants that:

 

8.1.1.      Organization and Qualification.  Borrower and each of its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization.  Borrower and each of its
Subsidiaries is duly qualified, authorized to do business and in good standing
as a foreign corporation in each jurisdiction where failure to be so qualified
could reasonably be expected to have a Material Adverse Effect.

 

8.1.2.      Power and Authority.  Each Obligor is duly authorized to execute,
deliver and perform its Loan Documents.  The execution, delivery and performance
of the Loan Documents have been duly authorized by all necessary action, and do
not (a) require any consent or approval of any holders of Equity Interests of
any Obligor, except those already obtained; (b) contravene the Organic Documents
of any Obligor; (c) violate or cause a default under any applicable law or
Material Contract; or (d) result in or require the imposition of a Lien (other
than Permitted Liens) on any Obligor’s Property.

 

8.1.3.      Enforceability.  Each Loan Document is a legal, valid and binding
obligation of each Obligor party thereto, enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors’ rights generally.

 

8.1.4.      Capital Structure.  Schedule 8.1.4 shows, for Borrower and each of
its Subsidiaries, its name, jurisdiction of organization, authorized and issued
Equity Interests, holders of its Equity Interests, and agreements binding on
such holders with respect to such Equity Interests.  Except as disclosed on
Schedule 8.1.4, in the five years preceding the Closing Date, neither Borrower
nor any of its Subsidiaries has acquired any substantial assets from any other
Person nor been the surviving entity in a merger or combination.  Borrower has
good title to its Equity Interests in its Subsidiaries, subject only to Lender’s
Lien, and all such Equity Interests are duly issued, fully paid and
non-assessable.  Except as disclosed on Schedule 8.1.4, there are no outstanding
purchase options, warrants, subscription rights, agreements to issue or sell,
convertible interests, phantom rights or powers of attorney relating to Equity
Interests of Borrower or any of its Subsidiaries.

 

8.1.5.      Title to Properties; Priority of Liens.  Borrower and each of its
Subsidiaries has good and marketable title to (or valid leasehold interests in)
all of its Real Estate, and good title to all of its personal Property,
including all Property reflected in any financial statements delivered to
Lender, in each case free of Liens except Permitted Liens.  Borrower and each of
its Subsidiaries has paid and discharged all lawful claims that, if unpaid,
could become a Lien on its Properties, other than Permitted Liens.  All Liens of
Lender in the Collateral are duly perfected, first priority Liens, subject only
to Permitted Liens that are expressly allowed to have priority over Lender’s
Liens.

 

8.1.6.      Accounts.  Lender may rely, in determining which Accounts are
Eligible Accounts, on all statements and representations made by Borrower with
respect thereto.  Borrower warrants, with respect to each Account at the time it
is shown as an Eligible Account in a Borrowing Base Certificate, that:  (a) it
is genuine and enforceable in accordance with its terms and is not evidenced by
a judgment;  (b) it arises out of a completed, bona fide sale and delivery of
goods or rendition of services in the Ordinary Course of Business, and
substantially in accordance with any purchase order, contract or other document
relating thereto; (c) it is for a sum certain, maturing as stated in the invoice
covering such sale or rendition of services, a copy of which has been furnished
or is available to Lender on request; (d) it is not, to Borrower’s knowledge,
subject to any offset, Lien (other than Lender’s Lien), deduction, defense,
dispute, counterclaim or other adverse condition except as arising in the
Ordinary Course of Business and disclosed to Lender; (e) no purchase order,
agreement, document or applicable law restricts assignment of the Account to
Lender (regardless of whether, under the UCC, the restriction is ineffective);
and (f) no extension, compromise, settlement, modification, credit, deduction or
return has been authorized with respect to the Account, except discounts or
allowances granted in the Ordinary Course of Business for prompt payment that
are reflected on the face of the invoice related thereto and in the reports
submitted to Lender hereunder.

 

28

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

 

8.1.7.      Financial Statements.  The consolidated and consolidating balance
sheets, and related statements of income, cash flow and shareholders’ equity, of
Borrower and its Subsidiaries that have been and are hereafter delivered to
Lender, are prepared in accordance with GAAP, and fairly present the financial
positions and results of operations of Borrower and its Subsidiaries at the
dates and for the periods indicated.  All projections delivered from time to
time to Lender have been prepared in good faith, based on reasonable assumptions
in light of the circumstances at such time.  Since December 31, 2016, there has
been no change in the condition, financial or otherwise, of Borrower or any of
its Subsidiaries that could reasonably be expected to have a Material Adverse
Effect.  No financial statement delivered to Lender at any time contains any
untrue statement of a material fact, nor fails to disclose any material fact
necessary to make such statement not materially misleading.  Borrower and each
of its Subsidiaries is Solvent.

 

8.1.8.      Surety Obligations.  Neither Borrower nor any of its Subsidiaries is
obligated as surety or indemnitor under any bond or other contract that assures
payment or performance of any obligation of any Person, except as permitted
hereunder.

 

8.1.9.      Taxes.  Borrower and each of its Subsidiaries has filed all federal,
state and local tax returns and other reports that it is required by law to
file, and has paid, or made provision for the payment of, all Taxes upon it, its
income and its Properties that are due and payable, except to the extent being
Properly Contested.  The provision for Taxes on the books of Borrower and each
of its Subsidiaries is adequate for all years not closed by applicable statutes,
and for its current Fiscal Year.

 

8.1.10.    Brokers.  There are no brokerage commissions, finder’s fees or
investment banking fees payable in connection with any transactions contemplated
by the Loan Documents.

 

8.1.11.    Intellectual Property. Borrower and each of its Subsidiaries owns or
has the lawful right to use all Intellectual Property necessary for the conduct
of its business, without conflict with any rights of others other than any
conflicts that could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.  Except as disclosed on Schedule
8.1.11, neither Borrower nor any of its Subsidiaries pays or owes any Royalty or
other compensation to any Person with respect to any Intellectual Property.  All
Intellectual Property owned, used or licensed by, or otherwise subject to any
interests of, Borrower or any its Subsidiaries is shown on Schedule 8.1.11.

 

8.1.12.    Governmental Approvals.  Borrower and each of its Subsidiaries has,
is in compliance with, and is in good standing with respect to, all Governmental
Approvals necessary to conduct its business and to own, lease and operate its
Properties, other than any such non-compliance that could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

8.1.13.    Compliance with Laws.  Borrower and each of its Subsidiaries has duly
complied, and its Properties and business operations are in compliance, in all
material respects with all applicable law, except where noncompliance could not
reasonably be expected to have a Material Adverse Effect.  Since January 1,
2012, there have been no citations, notices or orders of material noncompliance
issued to Borrower or any of its Subsidiaries under any applicable law.  No
Inventory has been produced in violation of the FLSA.  Except as disclosed on
Schedule 8.1.13, neither Borrower’s nor any of its Subsidiaries’ past or present
operations, Real Estate or other Properties are subject to any federal, state or
local investigation to determine whether any remedial action is needed to
address any environmental pollution, hazardous material or environmental
clean-up.  Since January 1, 2012, neither Borrower nor any of its Subsidiaries
has received any Environmental Notice.  Neither Borrower nor any of its
Subsidiaries has any contingent liability with respect to any Environmental
Release, environmental pollution or hazardous material on any Real Estate now or
previously owned, leased or operated by it other than any liability that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  The representations and warranties contained in the
Environmental Agreement are true and correct on the Closing Date.

 

8.1.14.    Burdensome Contracts.  Neither Borrower nor any of its Subsidiaries
is party or subject to any Restrictive Agreement, except as shown on Schedule
8.1.14.  No such Restrictive Agreement prohibits the execution, delivery or
performance of any Loan Document by an Obligor.

 

8.1.15.    Litigation.  Except as shown on Schedule 8.1.15, there are no
proceedings or investigations pending or, to Borrower’s knowledge, threatened
against Borrower or any of its Subsidiaries, or any of their businesses,
operations, Properties, prospects or conditions, that (a) relate to any Loan
Documents or

 

29

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

 

transactions contemplated thereby; or (b) could reasonably be expected to have a
Material Adverse Effect if determined adversely to Borrower or any of its
Subsidiaries.  Except as shown on such Schedule, no Obligor has a Commercial
Tort Claim (other than, as long as no Default or Event of Default exists, a
Commercial Tort Claim for less than $100,000).  Neither Borrower nor any of its
Subsidiaries is in default with respect to any order, injunction or judgment of
any Governmental Authority.

 

8.1.16.    No Defaults.  No event or circumstance has occurred or exists that
constitutes a Default or Event of Default.  Neither Borrower nor any of its
Subsidiaries is in default, and no event or circumstance has occurred or exists
that with the passage of time or giving of notice would constitute a default by
Borrower or any of its Subsidiaries, under any Material Contract or in the
payment of any Borrowed Money or allow termination of any Material Contract.

 

8.1.17.    ERISA.  Except as disclosed on Schedule 8.1.17:

 

(a)           Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and other federal and state laws. 
Each Plan that is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS or an application for
such a letter is currently being processed by the IRS with respect thereto and,
to the knowledge of Borrower, nothing has occurred which would prevent, or cause
the loss of, such qualification.  Each Obligor and ERISA Affiliate has met all
applicable requirements under the Code, ERISA and the Pension Protection Act of
2006 other than any failures to comply that could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, and no
application for a waiver of the minimum funding standards or an extension of any
amortization period has been made with respect to any Plan.

 

(b)           There are no pending or, to the knowledge of Borrower, threatened
claims, actions or lawsuits, or action by any Governmental Authority, with
respect to any Plan that could reasonably be expected to have a Material Adverse
Effect.  There has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan that has resulted in or could
reasonably be expected to have a Material Adverse Effect.

 

(c)           (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) no Obligor
or ERISA Affiliate has incurred, or reasonably expects to incur, any liability
under Title IV of ERISA with respect to any Pension Plan (other than premiums
due and not delinquent under Section 4007 of ERISA); (iv) no Obligor or ERISA
Affiliate has incurred, or reasonably expects to incur, any liability (and no
event has occurred which, with the giving of notice under Section 4219 of ERISA,
would result in such liability) under Section 4201 or 4243 of ERISA with respect
to a Multiemployer Plan; (v) no Obligor or ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA; and
(vi) as of the most recent valuation date for any Pension Plan or Multiemployer
Plan, the funding target attainment percentage (as defined in
Section 430(d)(2) of the Code) is at least 60%, and no Obligor or ERISA
Affiliate knows of any fact or circumstance that could reasonably be expected to
cause the funding target attainment percentage for any such plan to drop below
60% as of such date.

 

(d)           With respect to any Foreign Plan, (i) all employer and employee
contributions required by law or by the terms of the Foreign Plan have been
made, or, if applicable, accrued, in accordance with normal accounting practices
other than any failures to pay or accrue contributions that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; (ii) the fair market value of the assets of each funded Foreign
Plan, the liability of each insurer for any Foreign Plan funded through
insurance, or the book reserve established for any Foreign Plan, together with
any accrued contributions, is sufficient to procure or provide for the accrued
benefit obligations with respect to all current and former participants in such
Foreign Plan according to the actuarial assumptions and valuations most recently
used to account for such obligations in accordance with applicable generally
accepted accounting principles; and (iii) it has been registered as required and
has been maintained in good standing with applicable regulatory authorities.

 

8.1.18.    Trade Relations.  There exists no actual or threatened termination,
limitation or modification of any business relationship between Borrower or any
of its Subsidiaries and any customer or supplier, or any group of customers or
suppliers, who individually or in the aggregate are material to the business of
Borrower or any of its Subsidiaries.

 

30

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

 

8.1.19.    Labor Relations.  Neither Borrower nor any of its Subsidiaries is
party to or bound by any collective bargaining agreement, management agreement
or consulting agreement.  There are no material grievances, disputes or
controversies with any union or other organization of Borrower’s or any of its
Subsidiaries’ employees, or, to Borrower’s knowledge, any asserted or threatened
strikes, work stoppages or demands for collective bargaining.

 

8.1.20.    Payable Practices.  Neither Borrower nor any of its Subsidiaries has
made any material change in its historical accounts payable practices from those
in effect on the Closing Date.

 

8.1.21.    Not a Regulated Entity.  No Obligor is (a) an “investment company” or
a “person directly or indirectly controlled by or acting on behalf of an
investment company” within the meaning of the Investment Company Act of 1940; or
(b) subject to regulation under the Federal Power Act, the Interstate Commerce
Act, any public utilities code or any other applicable law regarding its
authority to incur Debt.

 

8.1.22.    Margin Stock.  Neither Borrower nor any of its Subsidiaries is
engaged, principally or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.  No
Loan proceeds or Letters of Credit will be used by Borrower to purchase or
carry, or to reduce or refinance any Debt incurred to purchase or carry, any
Margin Stock or for any related purpose governed by Regulations T, U or X of the
Board of Governors.

 

8.1.23.    OFAC.  Neither Borrower nor any of its Subsidiaries or, to the
knowledge of Borrower or any of its Subsidiaries, any director, officer,
employee, agent, affiliate or representative thereof, is an individual or entity
currently the subject of any Sanctions.  Neither Borrower nor any of its
Subsidiaries is located, organized or resident in a Designated Jurisdiction.

 

8.1.24.    Deposit Accounts.  Schedule 9.1.9 sets forth all Deposit Accounts
maintained by Borrower, including all Dominion Accounts.

 

8.2          Complete Disclosure.  No Loan Document contains any untrue
statement of a material fact, nor fails to disclose any material fact necessary
to make the statements contained therein not materially misleading.  There is no
fact or circumstance that any Obligor has failed to disclose to Lender in
writing that could reasonably be expected to have a Material Adverse Effect.

 

SECTION 9.        COVENANTS AND CONTINUING AGREEMENTS

 

9.1          Affirmative Covenants.  As long as any Commitment or Obligations
are outstanding, Borrower shall, and shall cause each Subsidiary to:

 

9.1.1.      Inspections; Appraisals.

 

(a)           Permit Lender from time to time, subject (except when a Default or
Event of Default exists) to reasonable notice and normal business hours, to
visit and inspect the Properties of Borrower or any of its Subsidiaries,
inspect, audit and make extracts from Borrower’s or any of its Subsidiaries’
books and records, and discuss with its officers, employees, agents, advisors
and independent accountants Borrower’s or any of its Subsidiaries’ business,
financial condition, assets, prospects and results of operations.  Lender shall
not have any duty to Borrower to make any inspection, nor to share any results
of any inspection, appraisal or report with Borrower.  Borrower acknowledges
that all inspections, appraisals and reports are prepared by Lender for its
purposes, and Borrower shall not be entitled to rely upon them.

 

(b)           Reimburse Lender for all its charges, costs and expenses in
connection with (i) examinations of any Obligor’s books and records or any other
financial or Collateral matters as Lender deems appropriate, up to one time per
Loan Year; provided, however, that if an examination is in initiated during a
Trigger Period, up to two times per Loan Year; and (ii) appraisals of Inventory
up to one time per Loan Year; provided, however, that if an appraisal is in
initiated during a Trigger Period, up to two times per Loan Year; provided,
further, that if an examination or appraisal is initiated during a Default or
Event of Default, all charges, costs and expenses therefor shall be reimbursed
by Borrower without regard to such limits.  Subject to and without limiting the
foregoing, Borrower agrees to pay Lender’s then reasonable standard charges for
examination activities, including

 

31

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

 

the reasonable standard charges of Lender’s internal examination and appraisal
groups, as well as the reasonable charges of any third party used for such
purposes.

 

9.1.2.      Financial and Other Information.  Keep adequate records and books of
account with respect to its business activities, in which proper entries are
made in accordance with GAAP reflecting all financial transactions; and furnish
to Lender all financial statements, reports and other items set forth on
Exhibit E no later than the time specified therein.

 

9.1.3.      Collateral Reporting.  Provide Lender with each certificate, report
or schedule set forth on Exhibit F attached hereto no later than the times
specified therein.

 

9.1.4.      Notices.  Notify Lender in writing, promptly after Borrower’s
obtaining knowledge thereof, of any of the following that affects an Obligor: 
(a) the threat or commencement of any proceeding or investigation, whether or
not covered by insurance, if an adverse determination could have a Material
Adverse Effect; (b) any pending or threatened labor dispute, strike or walkout,
or the expiration of any material labor contract; (c) any default under or
termination of a Material Contract; (d) the existence of any Default or Event of
Default; (e) any judgment in an amount exceeding $250,000; (f) any violation or
asserted violation of any applicable law (including ERISA, OSHA, FLSA, or any
Environmental Laws), if an adverse resolution could have a Material Adverse
Effect; (g) the occurrence of any ERISA Event; (h) any proposed modification to
any material License or entry into a new material License in each case at least
30 days prior to its effective date or any default or breach asserted by any
Person to have occurred under any License which could reasonably be expected to
result in a Material Adverse Effect; or (i) the discharge of or any withdrawal
or resignation by Borrower’s independent accountants.

 

9.1.5.      Compliance with Laws.  Comply with all applicable laws, including
ERISA, Environmental Laws, FLSA, OSHA, Anti-Terrorism Laws, and laws regarding
collection and payment of Taxes, and maintain all Governmental Approvals
necessary to the ownership of its Properties or conduct of its business, unless
failure to comply (other than failure to comply with Anti-Terrorism Laws) or
maintain could not reasonably be expected to have a Material Adverse Effect.

 

9.1.6.      Taxes.  Pay and discharge all Taxes prior to the date on which they
become delinquent or penalties attach, unless such Taxes are being Properly
Contested.  If an Account of Borrower includes a charge for any Taxes, Lender is
authorized, in its discretion, to pay the amount thereof to the proper taxing
authority for the account of Borrower and to charge Borrower therefor; provided,
however, that Lender shall not be liable for any Taxes that may be due from
Borrower or with respect to any Collateral.

 

9.1.7.      Insurance.

 

(a)           Maintain insurance with respect to the Collateral, covering
casualty, hazard, theft, malicious mischief, flood and other risks, in amounts,
with endorsements and with insurers (with a Best Rating of at least A+, unless
otherwise approved by Lender in its discretion) satisfactory to Lender.  All
proceeds under each policy shall be payable to Lender.  From time to time upon
request, Borrower shall deliver to Lender the originals or certified copies of
its insurance policies and updated flood plain searches.  Unless Lender shall
agree otherwise, each policy shall include satisfactory endorsements (i) showing
Lender as lender’s loss payee; (ii) requiring 30 days prior written notice to
Lender in the event of cancellation of the policy for any reason whatsoever; and
(iii) specifying that the interest of Lender shall not be impaired or
invalidated by any act or neglect of Borrower or the owner of the Property, nor
by the occupation of the premises for purposes more hazardous than are permitted
by the policy.  If Borrower fails to provide and pay for any insurance, Lender
may, at its option, but shall not be required to, procure the insurance and
charge Borrower therefor.  Borrower agrees to deliver to Lender, promptly as
rendered, copies of all reports made to insurance companies.  While no Event of
Default exists, Borrower may settle, adjust or compromise any insurance claim,
as long as the proceeds are delivered to Lender.  If an Event of Default exists,
only Lender shall be authorized to settle, adjust and compromise such claims.

 

(b)           Without limiting clause (a) above, maintain insurance with
insurers (with a Best Rating of at least A+, unless otherwise approved by Lender
in its sole discretion) reasonably satisfactory to Lender, (i) with respect to
the Properties and business of Borrower and its Subsidiaries of such type
(including product liability, workers’ compensation, larceny, embezzlement, or
other criminal misappropriation insurance), in such amounts, and with such
coverages and deductibles as are customary for companies similarly situated; and
(ii) business interruption

 

32

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

 

insurance in an amount not less than $2,000,000, with deductibles and subject to
an insurance assignment satisfactory to Lender.

 

9.1.8.      Licenses.  Keep each material License affecting any Collateral
(including the manufacture, distribution or disposition of Inventory) or any
other material Property of Borrower and its Subsidiaries in full force and
effect and pay all Royalties when due.

 

9.1.9.      Deposit Accounts; Depository Bank.  Take all actions necessary to
establish Lender’s control of each such Deposit Account (other than an account
exclusively used for payroll, payroll taxes or employee benefits, or an account
containing not more than $10,000 at any time).  Borrower shall be the sole
account holder of each Deposit Account and shall not allow any other Person
(other than Lender) to have control over a Deposit Account or any Property
deposited therein.  Borrower shall promptly notify Lender of any opening or
closing of a Deposit Account and, with the consent of Lender, will amend
Schedule 9.1.9 to reflect same. No later than 120 days after the Closing Date,
Borrower shall maintain Lender as its principal depository bank, including for
the maintenance of all operating, collection, disbursement and other deposit
accounts and for all Cash Management Services.

 

9.1.10.    Other Collateral Covenants.  Comply with the following additional
covenants related to Collateral:

 

(a)           All tangible items of Collateral, other than Inventory in transit,
shall at all times be kept by Borrower at the business locations set forth in
Schedule 9.1.10, except that Borrower may (a) make sales or other dispositions
of Collateral in accordance with Section 9.2.6; and (b) move Collateral to
another location in the United States, upon 30 Business Days prior written
notice to Lender.

 

(b)           Whether or not a Default or Event of Default exists, Lender shall
have the right at any time, in the name of Lender, any designee of Lender or
Borrower, to verify the validity, amount or any other matter relating to any
Accounts of Borrower by mail, telephone or otherwise.  Borrower shall cooperate
fully with Lender in an effort to facilitate and promptly conclude any such
verification process.

 

(c)           All expenses of protecting, storing, warehousing, insuring,
handling, maintaining and shipping any Collateral, all Taxes payable with
respect to any Collateral (including any sale thereof), and all other payments
required to be made by Lender to any Person to realize upon any Collateral,
shall be borne and paid by Borrower.  Lender shall not be liable or responsible
in any way for the safekeeping of any Collateral, for any loss or damage thereto
(except for reasonable care in its custody while Collateral is in Lender’s
actual possession), for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency or other Person
whatsoever, but the same shall be at Borrower’s sole risk.

 

(d)           Borrower shall defend its title to Collateral and Lender’s Liens
therein against all Persons, claims and demands, except Permitted Liens.

 

(e)           Borrower shall ensure that the Equipment is mechanically and
structurally sound, and capable of performing the functions for which it was
designed, in accordance with manufacturer specifications subject to normal wear
and tear.

 

(f)            Upon request, Borrower shall provide Lender with copies of all
existing agreements, and promptly after execution thereof provide Lender with
copies of all future agreements, between an Obligor and any landlord,
warehouseman, processor, shipper, bailee or other Person that owns any premises
at which any Collateral may be kept or that otherwise may possess or handle any
Collateral.

 

(g)           Borrower shall use, store and maintain all Inventory with
reasonable care and caution, in accordance with applicable standards of any
insurance and in conformity with all applicable law, and shall make current rent
payments (within applicable grace periods provided for in leases) at all
locations where any Collateral is located.

 

33

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

 

9.2          Negative Covenants.  As long as any Commitment or Obligations are
outstanding, Borrower shall not, and shall cause each Subsidiary not to:

 

9.2.1.      Permitted Debt.  Create, incur, guarantee or suffer to exist any
Debt, except:  (a) the Obligations; (b) Subordinated Debt existing on the
Closing Date; (c) Purchase Money Debt of Borrower and its Subsidiaries that is
unsecured or secured only by a Purchase Money Lien, as long as the aggregate
amount of new Purchase Money Debt incurred during any fiscal year of Borrower
does not exceed $3,000,000 during such fiscal year; (d) Bank Product Debt
incurred in the Ordinary Course of Business; (e) Contingent Obligations
(i) arising from endorsements of Payment Items for collection or deposit in the
Ordinary Course of Business; (ii) arising from Hedging Agreements permitted
hereunder; (iii) existing on the Closing Date, and any extension or renewal
thereof that does not increase the amount of such Contingent Obligation when
extended or renewed; (iv) incurred in the Ordinary Course of Business with
respect to surety, appeal or performance bonds, or other similar obligations;
(v) arising from customary indemnification obligations in favor of purchasers in
connection with dispositions of Equipment permitted hereunder; or (vi) arising
under the Loan Documents.

 

9.2.2.      Permitted Liens.  Create or suffer to exist any Lien upon any of its
Property, except the following (collectively, “Permitted Liens”):  (a) Liens in
favor of Lender; (b) Purchase Money Liens securing Purchase Money Debt that is
permitted under Section 9.2.1; (c) Liens for Taxes not yet due or being Properly
Contested; (d) statutory Liens (other than Liens for Taxes or imposed under
ERISA) arising in the Ordinary Course of Business, but only if (i) payment of
the obligations secured thereby is not yet due or is being Properly Contested,
and (ii) such Liens do not materially impair the value or use of the Property or
materially impair operation of the business of Borrower or any of its
Subsidiaries; (e) Liens incurred or deposits made in the Ordinary Course of
Business to secure the performance of government tenders, bids, contracts,
statutory obligations and other similar obligations, as long as such Liens are
at all times junior to Lender’s Liens and are required or provided by law;
(f) Liens arising in the Ordinary Course of Business that are subject to Lien
Waivers; (g) Liens arising by virtue of a judgment or judicial order against
Borrower or any of its Subsidiaries, or any Property of Borrower or any of its
Subsidiaries, as long as such Liens are (i) in existence for less than 20
consecutive days or being Properly Contested, and (ii) at all times junior to
Lender’s Liens; (h) easements, rights-of-way, restrictions, covenants or other
agreements of record, and other similar charges or encumbrances on Real Estate,
that do not secure any monetary obligation and do not interfere with the
Ordinary Course of Business; (i) normal and customary rights of setoff upon
deposits in favor of depository institutions, and Liens of a collecting bank on
Payment Items in the course of collection; and (j) existing Liens shown on
Schedule 9.2.2.

 

9.2.3.      [Intentionally Omitted].

 

9.2.4.      Distributions; Upstream Payments.

 

(a)           Declare or make any Distributions, except (i) a Distribution by a
Subsidiary of Borrower to Borrower, (ii) Distributions consisting solely of
redemptions of Equity Interests in the Borrower in an aggregate amount not to
exceed $300,000 during each calendar year, but only so long as no Default or
Event of Default has occurred and is continuing or would result immediately
after giving effect to such Distribution and (iii) subject to the satisfaction
of the Restricted Payment Conditions, other Distributions.

 

(b)           Create or suffer to exist any encumbrance or restriction on the
ability of a Subsidiary to make any Distribution to Borrower, except for
restrictions under the Loan Documents, under applicable law or in effect on the
Closing Date as shown on Schedule 8.1.14.

 

9.2.5.      Restricted Investments.  Make any Restricted Investment, provided,
however, Borrower may make (a) in addition to the Foreign Subsidiary OpEx
Payments, Restricted Investments in Foreign Subsidiaries constituting advances
or capital contributions to, or other investments in, such Subsidiaries in an
aggregate amount not to exceed $500,000 during each calendar year, so long as
(i) no Default or Event of Default has occurred and is continuing or would
result immediately after giving effect to any such Restricted Investment; and
(ii) as of the date of any such Restricted Investment, and immediately after
giving effect thereto, the Borrower shall have Availability of not less
$2,000,000; (b) Foreign Subsidiary OpEx Payments in an aggregate amount not to
exceed $750,000 during each calendar month, so long as (i) such payments, and
the expenses for which such payments are being made, are consistent with the
Borrower’s historical practices with respect to the recipient of such payments
and (ii) no Default or Event of Default has occurred and is continuing or would
result immediately after giving effect to any

 

34

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

 

such Foreign Subsidiary OpEx Payment; and (c) other Restricted Investments,
including additional Restricted Investments in Subsidiaries, subject to the
satisfaction of the Restricted Payment Conditions with respect to such
Restricted Investments.

 

9.2.6.      Disposition of Assets.  Sell, lease, license, consign, transfer or
otherwise dispose of any Property of an Obligor or a Subsidiary of an Obligor,
including a disposition of Property in connection with a sale-leaseback
transaction or synthetic lease, except (a) as long as no Default or Event of
Default exists and all Net Proceeds are remitted to Lender, a disposition of
Property of an Obligor that is (i) a sale of Inventory in the Ordinary Course of
Business; (ii) a disposition of Equipment that, in the aggregate during any 12
month period, has a fair market or book value (whichever is more) of $250,000 or
less; or (iii) a disposition of Inventory that is obsolete, unmerchantable or
otherwise unsalable in the Ordinary Course of Business; (b) replacement of
Equipment that is worn, damaged or obsolete with Equipment of like function and
value, if the replacement Equipment is acquired substantially contemporaneously
with such disposition and is free of Liens; (c) a transfer of Property by a
Subsidiary or Obligor to Borrower; or (d) dispositions or other transfers of
Equipment to a Foreign Subsidiary, provided,  that, (i) no Default or Event of
Default exists at the time of such disposition or transfer, (ii) during any 12
month period, the fair market or book value (whichever is more) of such disposed
of or transferred Equipment does not exceed $200,000 and (iii) to the extent any
Net Proceeds are received in respect of such Equipment, such Net Proceeds are
remitted to the Lender.

 

9.2.7.      Loans.  Make any loans or other advances of money to any Person,
except advances to an officer or employee for salary, travel expenses,
commissions and similar items in the Ordinary Course of Business.

 

9.2.8.      Restrictions on Payment of Certain Debt.  Make any payments (whether
voluntary or mandatory, or a prepayment, redemption, retirement, defeasance or
acquisition) with respect to any (a) Subordinated Debt, except to the extent
expressly permitted under any subordination agreement relating to such Debt (and
a Senior Officer of Borrower shall certify to Lender, not less than five
Business Days prior to the date of payment, that all conditions under such
agreement have been satisfied); or (b) Borrowed Money (other than the
Obligations) prior to its due date under the agreements evidencing such Debt as
in effect on the Closing Date (or as amended thereafter with the written consent
of Lender), provided, however, the Borrower may make payments prohibited by this
Section 9.2.8 subject to the satisfaction of the Restricted Payment Conditions
with respect to such payment.

 

9.2.9.      Fundamental Changes.

 

(a)           Change its name or conduct business under any fictitious name;
change its tax, charter or other organizational identification number or change
its form or state of organization, in each case above (i) without at least 30
days prior notice to Lender and (ii) without written acknowledgment from Lender
that either (A) such change will not adversely affect the validity, perfection
or priority of the Lender’s security interest in the Collateral, or (B) any
reasonable action requested by the Lender in connection therewith has been
completed or taken (including any action to continue the perfection of any Liens
in favor of the Lender in any Collateral); or

 

(b)           Liquidate, wind up its affairs or dissolve itself; or merge,
combine or consolidate with any Person, whether in a single transaction or in a
series of related transactions, except for mergers or consolidations of a
wholly-owned Subsidiary with another wholly-owned Subsidiary or into Borrower.

 

9.2.10.    Subsidiaries.  Form or acquire any Subsidiary after the Closing Date
or permit any existing Subsidiary to issue any additional Equity Interests
except directors’ qualifying shares.

 

9.2.11.    Organic Documents.  Amend, modify or otherwise change any of its
Organic Documents, except in connection with a transaction permitted under
Section 9.2.9.

 

9.2.12.    Tax Consolidation.  File or consent to the filing of any consolidated
income tax return with any Person other than Borrower and its Subsidiaries.

 

9.2.13.    Accounting Changes.  Make any material change in accounting treatment
or reporting practices, except as required by GAAP and in accordance with
Section 1.2; or change its Fiscal Year.

 

9.2.14.    Restrictive Agreements.  Become a party to any Restrictive Agreement,
except a Restrictive Agreement (a) in effect on the Closing Date and listed on
Schedule 8.1.14; (b) relating to secured Debt

 

35

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

 

permitted hereunder, as long as the restrictions apply only to collateral for
such Debt; or (c) constituting customary restrictions on assignment in leases
and other contracts.

 

9.2.15.    Hedging Agreements.  Enter into any Hedging Agreement, except to
hedge risks arising in the Ordinary Course of Business and not for speculative
purposes.

 

9.2.16.    Conduct of Business.  Engage in any business, other than its business
as conducted on the Closing Date and any activities incidental thereto.

 

9.2.17.    Affiliate Transactions.  Enter into or be party to any transaction
with an Affiliate, except (a) transactions expressly permitted by the Loan
Documents; (b) payment of reasonable compensation to officers and employees for
services actually rendered, and payment of customary directors’ fees and
indemnities; and (c) transactions with Affiliates in the Ordinary Course of
Business (including those consummated prior to the Closing Date and shown on
Schedule 9.2.17) so long as such transactions are upon fair and reasonable terms
fully disclosed to Lender and no less favorable than would be obtained in a
comparable arm’s-length transaction with a non-Affiliate.

 

9.2.18.    Plans.  Become party to any Multiemployer Plan or Foreign Plan, other
than any in existence on the Closing Date.

 

9.2.19.    Amendments to Subordinated Debt.  Amend, supplement or otherwise
modify any document, instrument or agreement relating to any Subordinated Debt,
if such modification (a) increases the principal balance of such Debt, or
increases any required payment of principal or interest; (b) accelerates the
date on which any installment of principal or any interest is due, or adds any
additional redemption, put or prepayment provisions; (c) shortens the final
maturity date or otherwise accelerates amortization; (d) increases the interest
rate; (e) increases or adds any fees or charges; (f) modifies any covenant in a
manner or adds any representation, covenant or default that is more onerous or
restrictive in any material respect for Borrower or any of its Subsidiaries, or
that is otherwise materially adverse to Borrower, any of its Subsidiaries or
Lender; or (g) results in the Obligations not being fully benefited by the
subordination provisions thereof.

 

9.2.20.    Returns of Inventory; Affixed Equipment.  Return any Inventory to a
supplier, vendor or other Person, whether for cash, credit or otherwise, unless
(a) such return is in the Ordinary Course of Business; (b) no Default, Event of
Default or Overadvance exists or would result therefrom; (c) Lender is promptly
notified if the aggregate Value of all Inventory returned in any month exceeds
$250,000; and (d) any payment received by Borrower for a return is promptly
remitted to Lender for application to the Obligations.  Borrower shall not
permit any Equipment to become affixed to real Property unless any landlord or
mortgagee delivers a Lien Waiver.

 

9.2.21.    Acquisition, Sale and Maintenance of Inventory.  Acquire or accept
any Inventory on consignment or approval, and Borrower shall take all steps to
assure that all Inventory is produced in material compliance with applicable
law, including the FLSA.  Borrower shall not sell any Inventory on consignment
or approval or any other basis under which the customer may return or require
Borrower to repurchase such Inventory.

 

9.3          Financial Covenants.  As long as any Commitment or Obligations are
outstanding, Borrower shall:

 

9.3.1.      Fixed Charge Coverage Ratio.  Maintain a Fixed Charge Coverage Ratio
of at least 1.0  to 1.0 for each period of four Fiscal Quarters, commencing with
the period of four Fiscal Quarters ending March 31, 2017.

 

SECTION 10.      EVENTS OF DEFAULT; REMEDIES ON DEFAULT

 

10.1        Events of Default.  Each of the following shall be an “Event of
Default” if it occurs for any reason whatsoever, whether voluntary or
involuntary, by operation of law or otherwise:

 

(a)           Borrower fails to pay the Obligations when due (whether at stated
maturity, on demand, upon acceleration or otherwise);

 

36

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

 

(b)                                 Any representation, warranty or other
written statement of an Obligor made in connection with any Loan Documents or
transactions contemplated thereby is incorrect or misleading in any material
respect when given;

 

(c)                                  Borrower breaches or fail to perform any
covenant contained in Section 5.5, 5.7, 7.2, 7.3, 7.4, 7.6, 9.1.1(a), 9.1.2,
9.1.3, 9.1.4(d), 9.1.7, 9.2 or 9.3;

 

(d)                                 An Obligor breaches or fails to perform any
other covenant contained in any Loan Documents, and such breach or failure is
not cured within 15 days after a Senior Officer of such Obligor has knowledge
thereof or receives notice thereof from Lender, whichever is sooner; provided,
however, that such notice and opportunity to cure shall not apply if the breach
or failure to perform is not capable of being cured within such period or is a
willful breach by an Obligor;

 

(e)                                  A Guarantor repudiates, revokes or attempts
to revoke its Guaranty; an Obligor or third party denies or contests the
validity or enforceability of any Loan Documents or Obligations, or the
perfection or priority of any Lien granted to Lender; or any Loan Document
ceases to be in full force or effect for any reason (other than a waiver or
release by Lender);

 

(f)                                   Any breach or default of an Obligor occurs
under (i) any Hedging Agreement; or (ii) any instrument or agreement to which it
is a party or by which it or any of its Properties is bound, relating to any
Debt (other than the Obligations) in excess of $500,000, if the maturity of or
any payment with respect to such Debt may be accelerated or demanded due to such
breach;

 

(g)                                  Any judgment or order for the payment of
money is entered against an Obligor in an amount that exceeds, individually or
cumulatively with all unsatisfied judgments or orders against all Obligors,
$500,000 (net of insurance coverage therefor that has not been denied by the
insurer), unless a stay of enforcement of such judgment or order is in effect,
by reason of a pending appeal or otherwise;

 

(h)                                 A loss, theft, damage or destruction occurs
with respect to any Collateral if the amount not covered by insurance exceeds
$500,000;

 

(i)                                     An Obligor is enjoined, restrained or in
any way prevented by any Governmental Authority from conducting any material
part of its business; an Obligor suffers the loss, revocation or termination of
any material license, permit, lease or agreement necessary to its business;
there is a cessation of any material part of an Obligor’s business for a
material period of time; any material Collateral or Property of an Obligor is
taken or impaired through condemnation; an Obligor agrees to or commences any
liquidation, dissolution or winding up of its affairs; or an Obligor is not
Solvent;

 

(j)                                    (i) An Insolvency Proceeding is commenced
by an Obligor; (ii) an Obligor makes an offer of settlement, extension or
composition to its unsecured creditors generally; (iii) a trustee is appointed
to take possession of any substantial Property of or to operate any of the
business of an Obligor; or (iv) an Insolvency Proceeding is commenced against an
Obligor and the Obligor consents to institution of the proceeding, the petition
commencing the proceeding is not timely contested by the Obligor, the petition
is not dismissed within 30 days after filing, or an order for relief is entered
in the proceeding;

 

(k)                                 An ERISA Event occurs with respect to a
Pension Plan or Multiemployer Plan that has resulted or could reasonably be
expected to result in liability of an Obligor to a Pension Plan, Multiemployer
Plan or PBGC, or that constitutes grounds for appointment of a trustee for or
termination by the PBGC of any Pension Plan or Multiemployer Plan; an Obligor or
ERISA Affiliate fails to pay when due any installment payment with respect to
its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan;
or any event similar to the foregoing occurs or exists with respect to a Foreign
Plan;

 

(l)                                     An Obligor or any of its Senior Officers
is criminally indicted or convicted for (i) a felony committed in the conduct of
the Obligor’s business, or (ii) violating any state or federal law (including
the Controlled Substances Act, Money Laundering Control Act of 1986 and Illegal
Exportation of War Materials Act) that could lead to forfeiture of any material
Property or any Collateral; or

 

(m)                             A Change of Control occurs;

 

37

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

 

10.2                        Remedies upon Default.  If an Event of Default
described in Section 10.1(j) occurs with respect to Borrower, then to the extent
permitted by applicable law, all Obligations shall become automatically due and
payable and all Commitments shall terminate, without any action by Lender or
notice of any kind.  In addition, or if any other Event of Default exists,
Lender may in its discretion do any one or more of the following from time to
time:

 

(a)                                 declare any Obligations immediately due and
payable, whereupon they shall be due and payable without diligence, presentment,
demand, protest or notice of any kind, all of which are hereby waived by
Borrower to the fullest extent permitted by law;

 

(b)                                 terminate, reduce or condition any
Commitment, or make any adjustment to the Borrowing Base;

 

(c)                                  require Obligors to Cash Collateralize
their LC Obligations, Bank Product Debt and other Obligations that are
contingent or not yet due and payable, and, if Obligors fail to deposit such
Cash Collateral, Lender may advance the required Cash Collateral as Revolver
Loans; and

 

(d)                                 exercise any other rights or remedies
afforded under any agreement, by law, at equity or otherwise, including the
rights and remedies of a secured party under the UCC.  Such rights and remedies
include the rights to (i) take possession of any Collateral; (ii) require
Borrower to assemble Collateral, at Borrower’s expense, and make it available to
Lender at a place designated by Lender; (iii) enter any premises where
Collateral is located and store Collateral on such premises until sold (and if
the premises are owned or leased by Borrower, Borrower agrees not to charge for
such storage); and (iv) sell or otherwise dispose of any Collateral in its then
condition, or after any further manufacturing or processing thereof, at public
or private sale, with such notice as may be required by applicable law, in lots
or in bulk, at such locations, all as Lender, in its discretion, deems
advisable.  Borrower agrees that 10 days’ notice of any proposed sale or other
disposition of Collateral by Lender shall be reasonable, and that any sale
conducted on the internet or to a licensor of Intellectual Property shall be
commercially reasonable.  Lender may conduct sales on any Obligor’s premises,
without charge, and any sales may be adjourned from time to time in accordance
with applicable law.  Lender shall have the right to sell, lease or otherwise
dispose of any Collateral for cash, credit or any combination thereof, and
Lender may purchase any Collateral at public or, if permitted by law, private
sale and, in lieu of actual payment of the purchase price, may set off the
amount of such price against the Obligations.

 

10.3                        License.  Lender is hereby granted an irrevocable,
non-exclusive license or other right to use, license or sub-license (without
payment of royalty or other compensation to any Person) any or all Intellectual
Property of Borrower, computer hardware and software, trade secrets, brochures,
customer lists, promotional and advertising materials, labels, packaging
materials and other Property, in advertising for sale, marketing, selling,
collecting, completing manufacture of, or otherwise exercising any rights or
remedies with respect to, any Collateral.  Borrower’s rights and interests under
Intellectual Property shall inure to Lender’s benefit.

 

10.4                        Setoff.  At any time during an Event of Default,
Lender and its Affiliates are authorized, to the fullest extent permitted by
applicable law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final, in whatever currency) at any time held and
other obligations (in whatever currency) at any time owing by Lender or such
Affiliate to or for the credit or the account of an Obligor against its
Obligations, whether or not Lender or such Affiliate shall have made any demand
under this Agreement or any other Loan Document and although such Obligations
may be contingent or unmatured or are owed to a branch or office of Lender or
such Affiliate different from the branch or office holding such deposit or
obligated on such indebtedness.  The rights of Lender and each such Affiliate
under this Section are in addition to other rights and remedies (including other
rights of offset) that such Person may have.

 

10.5                        Remedies Cumulative; No Waiver.

 

10.5.1.           Cumulative Rights.  All agreements, warranties, guaranties,
indemnities and other undertakings of Obligors under the Loan Documents are
cumulative and not in derogation of each other.  The rights and remedies of
Lender under the Loan Documents are cumulative, may be exercised at any time and
from time to time, concurrently or in any order, and are not exclusive of any
other rights or remedies available by agreement, by law, at equity or
otherwise.  All such rights and remedies shall continue in full force and effect
until Full Payment of all Obligations.

 

38

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

 

10.5.2.           Waivers.  No waiver or course of dealing shall be established
by (a) the failure or delay of Lender to require strict performance by any
Obligor under any Loan Document, or to exercise any rights or remedies with
respect to Collateral or otherwise; (b) the making of any Loan or issuance of
any Letter of Credit during a Default, Event of Default or other failure to
satisfy any conditions precedent; or (c) acceptance by Lender of any payment or
performance by an Obligor under any Loan Documents in a manner other than that
specified therein.  Any failure to satisfy a financial covenant on a measurement
date shall not be cured or remedied by satisfaction of such covenant on a
subsequent date.

 

SECTION 11.                  MISCELLANEOUS

 

11.1                        Amendments and Waivers.

 

11.1.1.           Successors and Assigns.  This Agreement shall be binding upon
and inure to the benefit of Borrower, Lender, and their respective successors
and assigns, except that Borrower shall not have the right to assign its rights
or delegate its obligations under any Loan Documents.

 

11.1.2.           Amendments and Other Modifications.  No modification of any
Loan Document, including any extension or amendment of a Loan Document or any
waiver of a Default or Event of Default, shall be effective without the prior
written agreement of Lender and each Obligor party to such Loan Document;
provided, however, that only the consent of the parties to a Bank Product
agreement shall be required for any modification of such agreement.  Any waiver
or consent granted by Lender shall be effective only if in writing, and only for
the matter specified.

 

11.2                        Power of Attorney.  Borrower hereby irrevocably
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower’s true and lawful attorney (and agent-in-fact) for the purposes
provided in this Section.  Lender, or Lender’s designee, may, without notice and
in either its or Borrower’s name, but at the cost and expense of Borrower:

 

(a)                                 Endorse Borrower’s name on any Payment Item
or other proceeds of Collateral (including proceeds of insurance) that come into
Lender’s possession or control; and

 

(b)                                 During an Event of Default, (i) notify any
Account Debtors of the assignment of their Accounts, demand and enforce payment
of Accounts, by legal proceedings or otherwise, and generally exercise any
rights and remedies with respect to Accounts; (ii) settle, adjust, modify,
compromise, discharge or release any Accounts or other Collateral, or any legal
proceedings brought to collect Accounts or Collateral; (iii) collect, liquidate
and receive balances in Deposit Accounts or investment accounts, and take
control, in any manner, of proceeds of Collateral; (iv) receive, open and
dispose of mail addressed to Borrower, and notify postal authorities to deliver
any such mail to an address designated by Lender; (v) use Borrower’s stationery
and sign its name to verifications of Accounts and notices to Account Debtors;
(vi) use information contained in any data processing, electronic or information
systems relating to Collateral; (vii) make and adjust claims under insurance
policies; and (viii) do all other things necessary to carry out the intent and
purpose of this Agreement.

 

11.3                        Indemnity.  BORROWER SHALL INDEMNIFY AND HOLD
HARMLESS THE INDEMNITEES AGAINST ANY CLAIMS THAT MAY BE INCURRED BY OR ASSERTED
AGAINST ANY INDEMNITEE, INCLUDING CLAIMS ASSERTED BY ANY OBLIGOR OR OTHER PERSON
OR ARISING FROM THE NEGLIGENCE OF AN INDEMNITEE.  In no event shall any party to
a Loan Document have any obligation thereunder to indemnify or hold harmless an
Indemnitee with respect to a Claim that is determined in a final, non-appealable
judgment by a court of competent jurisdiction to result from the gross
negligence or willful misconduct of such Indemnitee.

 

11.4                        Notices and Communications.

 

11.4.1.           Notice Address.  Subject to Section 4.1.3, all notices and
other communications by or to a party hereto shall be in writing and shall be
given to such party at its address shown below, or at such other address as a
party may hereafter specify by notice in accordance with this Section 11.4. 
Each communication shall be effective only (a) if given by facsimile
transmission, when transmitted to the applicable facsimile number, if
confirmation of receipt is received; (b) if given by mail, three Business Days
after deposit in the U.S. mail, with first-class postage pre-paid, addressed to
the applicable address; or (c) if given by personal delivery, when duly

 

39

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

 

delivered to the notice address with receipt acknowledged.  Notwithstanding the
foregoing, no notice to Lender pursuant to Section 2.1.3, 2.3, 3.1.2, 4.1.1 or
5.3.3 shall be effective until actually received by the individual to whose
attention at Lender such notice is required to be sent.  Any written
communication that is not sent in conformity with the foregoing provisions shall
nevertheless be effective on the date actually received by the noticed party.

 

Addresses for notice:

 

(i)

 

If to Borrower:

 

 

 

 

 

Nortech Systems Incorporated

 

 

7550 Meridian Circle N; #150

 

 

Maple Grove, MN 55369

 

 

Attn: Paula Graff, VP & CFO

 

 

Facsimile: 952-449-0442

 

 

 

(ii)

 

If to Lender:

 

 

 

 

 

Bank of America, N.A.

 

 

20975 Swenson Drive; #200

 

 

Waukesha, WI 53186

 

 

Attn: Brian Conole

 

 

Facsimile: 262-207-3347

 

 

11.4.2.           Electronic Communications; Voice Mail.  Electronic mail and
internet websites may be used only for routine communications, such as delivery
of financial statements, Borrowing Base Certificates and other information
required by Section 9.1.2, administrative matters, distribution of Loan
Documents, and matters permitted under Section 4.1.3.  Lender make no assurances
as to the privacy and security of electronic communications.  Electronic and
voice mail may not be used as effective notice under the Loan Documents.

 

11.4.3.           Platform.  Borrowing Base information, reports, financial
statements and other materials shall be delivered by Borrower pursuant to
procedures approved by Lender, including electronic delivery (if possible) upon
request by Lender to an electronic system maintained by it (“Platform”). 
Borrower shall notify Lender of each posting of reports or other information on
the Platform.  All information shall be deemed received by Lender only upon its
receipt of such notice.  The Platform is provided “as is” and “as available.” 
NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD
PARTY RIGHTS, OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY LENDER
WITH RESPECT TO THE PLATFORM.  Lender does not warrant the adequacy or
functioning of the Platform, and expressly disclaims liability for any issues
involving the Platform.  No Indemnitee shall have any liability to Borrower or
any other Person for losses, claims, damages, liabilities or expenses of any
kind (whether in tort, contract or otherwise) relating to use by any Person of
the Platform or delivery of any information over the internet.

 

11.4.4.           Non-Conforming Communications.  Lender may rely upon any
communications purportedly given by or on behalf of Borrower even if they were
not made in a manner specified herein, were incomplete or were not confirmed, or
if the terms thereof, as understood by the recipient, varied from a later
confirmation.  Borrower shall indemnify and hold harmless each Indemnitee from
any liabilities, losses, costs and expenses arising from any electronic or
telephonic communication purportedly given by or on behalf of Borrower.

 

11.5                        Performance of Borrower’s Obligations.  Lender may,
in its discretion at any time and from time to time, at Borrower’s expense, pay
any amount or do any act required of Borrower under any Loan Documents or
otherwise lawfully requested by Lender to (a) enforce any Loan Documents or
collect any Obligations; (b) protect, insure, maintain or realize upon any
Collateral; or (c) defend or maintain the validity or priority of Lender’s Liens
in any Collateral, including any payment of a judgment, insurance premium,
warehouse charge, finishing or processing charge, or landlord claim, or any
discharge of a Lien.  All payments, costs and expenses (including Extraordinary
Expenses) of Lender under this Section shall be reimbursed by Borrower, on
demand, with interest from the date incurred until paid in full, at the Default
Rate applicable to Base Rate Revolver Loans.  Any payment

 

40

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

 

made or action taken by Lender under this Section shall be without prejudice to
any right to assert an Event of Default or to exercise any other rights or
remedies under the Loan Documents.

 

11.6                        Credit Inquiries.  Lender may (but shall have no
obligation) to respond to usual and customary credit inquiries from third
parties concerning any Obligor or Subsidiary.

 

11.7                        Severability.  Wherever possible, each provision of
the Loan Documents shall be interpreted in such manner as to be valid under
applicable law.  If any provision is found to be invalid under applicable law,
it shall be ineffective only to the extent of such invalidity and the remaining
provisions of the Loan Documents shall remain in full force and effect.

 

11.8                        Cumulative Effect; Conflict of Terms.  The
provisions of the Loan Documents are cumulative.  The parties acknowledge that
the Loan Documents may use several limitations or measurements to regulate
similar matters, and they agree that these are cumulative and that each must be
performed as provided.  Except as otherwise provided in another Loan Document
(by specific reference to the applicable provision of this Agreement), if any
provision contained herein is in direct conflict with any provision in another
Loan Document, the provision herein shall govern and control.

 

11.9                        Counterparts; Execution.  Any Loan Document may be
executed in counterparts, each of which shall constitute an original, but all of
which when taken together shall constitute a single contract.  This Agreement
shall become effective when Lender has received counterparts bearing the
signatures of all parties hereto.  Delivery of a signature page of any Loan
Document by telecopy or other electronic means shall be effective as delivery of
a manually executed counterpart of such agreement.  Any electronic signature,
contract formation on an electronic platform and electronic record-keeping shall
have the same legal validity and enforceability as a manually executed signature
or use of a paper-based recordkeeping system to the fullest extent permitted by
applicable law, including the Federal Electronic Signatures in Global and
National Commerce Act, the New York State Electronic Signatures and Records Act,
or any similar state law based on the Uniform Electronic Transactions Act.

 

11.10                 Entire Agreement.  Time is of the essence with respect to
all Loan Documents and Obligations.  The Loan Documents constitute the entire
agreement, and supersede all prior understandings and agreements, among the
parties relating to the subject matter thereof.

 

11.11                 No Control; No Advisory or Fiduciary Responsibility. 
Nothing in any Loan Document and no action of Lender pursuant to any Loan
Document shall be deemed to constitute control of any Obligor by Lender.  In
connection with all aspects of each transaction contemplated by any Loan
Document, Borrower acknowledges and agrees that (a)(i) this credit facility and
all related services by Lender or its Affiliates are arm’s-length commercial
transactions between Borrower and such Person; (ii) Borrower has consulted its
own legal, accounting, regulatory and tax advisors to the extent it has deemed
appropriate; and (iii) Borrower is capable of evaluating, and understand and
accept, the terms, risks and conditions of the transactions contemplated by the
Loan Documents; (b) each of Lender and its Affiliates is and has been acting
solely as a principal and, except as expressly agreed in writing by the relevant
parties, has not been, is not, and will not be acting as an advisor, agent or
fiduciary for Borrower, its Affiliates or any other Person, and has no
obligation with respect to the transactions contemplated by the Loan Documents
except as expressly set forth therein; and (c) Lender and its Affiliates may be
engaged in a broad range of transactions that involve interests that differ from
those of Borrower and its Affiliates, and have no obligation to disclose any of
such interests to Borrower or its Affiliates.  To the fullest extent permitted
by applicable law, Borrower hereby waives and releases any claims that it may
have against Lender and its Affiliates with respect to any breach of agency or
fiduciary duty in connection with any transaction contemplated by a Loan
Document.

 

11.12                 Confidentiality.  Lender agrees to maintain the
confidentiality of all Information (as defined below), except that Information
may be disclosed (a) to its Affiliates, and its and their partners, directors,
officers, employees, agents, advisors and representatives (provided they 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 relating to any Loan Documents or Obligations; (f) subject
to an agreement containing provisions substantially the same as this Section, to
any potential or actual transferee of any interest in a Loan Document or any
actual or prospective party (or its advisors) to any Bank Product or to any
swap, derivative or other transaction under which payments are to be made by
reference to an Obligor or Obligor’s obligations; (g) with the

 

41

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

 

consent of Borrower; 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 its Affiliates on a nonconfidential basis from a source
other than Borrower.  Notwithstanding the foregoing, Lender may publish or
disseminate general information concerning this credit facility, and may use
Borrower’s logos, trademarks or product photographs in advertising materials. 
As used herein, “Information” means all information received from an Obligor or
Subsidiary relating to it or its business, that is identified as confidential
when delivered.  Person required to maintain the confidentiality of Information
pursuant to this Section shall be deemed to have complied if it exercises a
degree of care similar to that accorded its own confidential information. 
Lender acknowledges that (i) Information may include material non-public
information; (ii) it has developed compliance procedures regarding the use of
such information; and (iii) it will handle the material non-public information
in accordance with applicable law.

 

11.13                 [Intentionally Omitted]

 

11.14                 GOVERNING LAW.  UNLESS EXPRESSLY PROVIDED IN ANY LOAN
DOCUMENT, THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL CLAIMS, SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO ANY
CONFLICT OF LAW PRINCIPLES EXCEPT FEDERAL LAWS RELATING TO NATIONAL BANKS.

 

11.15                 Consent to Forum.

 

11.15.1.    Forum.  BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION
OF ANY FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER MINNESOTA, IN
ANY DISPUTE, ACTION, LITIGATION OR OTHER PROCEEDING RELATING IN ANY WAY TO ANY
LOAN DOCUMENTS, AND AGREES THAT ANY DISPUTE, ACTION, LITIGATION OR OTHER
PROCEEDING SHALL BE BROUGHT BY IT SOLELY IN ANY SUCH COURT.  BORROWER
IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL CLAIMS, OBJECTIONS AND DEFENSES THAT
IT MAY HAVE REGARDING ANY SUCH COURT’S PERSONAL OR SUBJECT MATTER JURISDICTION,
VENUE OR INCONVENIENT FORUM.  EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY
SUBMITS TO THE JURISDICTION OF SUCH COURTS AND CONSENTS TO SERVICE OF PROCESS IN
THE MANNER PROVIDED FOR NOTICES IN SECTION 11.4.1.  A final judgment in any
proceeding of any such court shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or any other manner provided by applicable
law.

 

11.15.2.    Other Jurisdictions.  Nothing herein shall limit the right of Lender
to bring proceedings against any Obligor in any other court, nor limit the right
of any party to serve process in any other manner permitted by applicable law. 
Nothing in this Agreement shall be deemed to preclude enforcement by Lender of
any judgment or order obtained in any forum or jurisdiction.

 

11.16                 Waivers by Borrower.  To the fullest extent permitted by
applicable law, Borrower waives (a) the right to trial by jury (which Lender
hereby also waives) in any proceeding or dispute of any kind relating in any way
to any Loan Documents, Obligations or Collateral; (b) presentment, demand,
protest, notice of presentment, default, non-payment, maturity, release,
compromise, settlement, extension or renewal of any commercial paper, accounts,
documents, instruments, chattel paper and guaranties at any time held by Lender
on which Borrower may in any way be liable, and hereby ratifies anything Lender
may do in this regard; (c) notice prior to taking possession or control of any
Collateral; (d) any bond or security that might be required by a court prior to
allowing Lender to exercise any rights or remedies; (e) the benefit of all
valuation, appraisement and exemption laws; (f) any claim against Lender, on any
theory of liability, for special, indirect, consequential, exemplary or punitive
damages (as opposed to direct or actual damages) in any way relating to any
enforcement action, Obligations, Loan Documents or transactions relating
thereto; and (g) notice of acceptance hereof.  Borrower acknowledges that the
foregoing waivers are a material inducement to Lender entering into this
Agreement and that Lender is relying upon the foregoing in its dealings with
Borrower.  Borrower has reviewed the foregoing waivers with its legal counsel
and has knowingly and voluntarily waived its jury trial and other rights
following consultation with legal counsel.  In the event of litigation, this
Agreement may be filed as a written consent to a trial by the court.

 

11.17                 PATRIOT Act Notice.  Lender hereby notifies Borrower that
pursuant to 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
personal guarantor, if any, and may require information

 

42

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

 

regarding Borrower’s management and owners, such as legal name, address, social
security number and date of birth.  Borrower shall, promptly upon request,
provide all documentation and other information as Lender may request from time
to time in order to comply with any obligations under “know your customer,”
anti-money laundering or other requirements of applicable law.

 

11.18                 NO ORAL AGREEMENT.  THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
BETWEEN THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.

 

[Remainder of page intentionally left blank; signatures begin on following page]

 

43

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

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered  as of the
date set forth above.

 

 

LENDER:

 

 

 

BANK OF AMERICA, N.A.

 

 

 

 

 

By:

/s/ Brian Conole

 

Name:

Brian Conole

 

Title:

Senior VP

 

[Signature Page to Loan and Security Agreement]

 

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

 

 

BORROWER:

 

 

 

NORTECH SYSTEMS INCORPORATED

 

 

 

 

 

 

 

By:

/s/ Paula Graff

 

Name:

Paula Graff

 

Title:

VP & CFO

 

 

[Signature Page to Loan and Security Agreement]

 

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

 

EXHIBIT A

 

FORM OF BORROWING BASE CERTIFICATE

 

See attached

 

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

 

EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

In accordance with the terms of the Loan and Security Agreement dated June 15,
2017 (as the same may be amended, restated, supplemented, or otherwise modified
from time to time, the “Loan Agreement”) by and among Nortech Systems
Incorporated (“Borrower”) and Bank of America, N.A., I hereby certify that:

 

1.                                      I am the [President] [Chief Financial
Officer] of Borrower;

 

2.                                      The enclosed financial statements are
prepared in accordance with generally accepted accounting principles;

 

3.                                      No Default or Event of Default (each as
defined in the Loan Documents), has occurred.

 

4.                                      Borrower is in compliance with the
financial covenant(s) set forth in Section 9.3 of the Loan Agreement, as
demonstrated by the calculations contained in Schedule I, attached hereto and
made a part hereof.

 

 

Nortech Systems Incorporated, as Borrower

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

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

 

SCHEDULE I TO COMPLIANCE CERTIFICATE

 

[Borrower to provide detailed calculations of financial covenants]

 

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

 

EXHIBIT C

 

CONDITIONS PRECEDENT

 

(a)           Each Loan Document shall have been duly executed and delivered to
Lender by each of the signatories thereto, and each Obligor shall be in
compliance with all terms thereof.

 

(b)           Lender shall have received acknowledgments of all filings or
recordations necessary to perfect its Liens in the Collateral, as well as UCC
and Lien searches and other evidence satisfactory to Lender that such Liens are
the only Liens upon the Collateral, except Permitted Liens.

 

(c)           Lender shall have received the Related Real Estate Documents for
all Real Estate subject to a Mortgage.

 

(d)           Lender shall have received duly executed agreements establishing
each Dominion Account and related lockbox, in form and substance, and with
financial institutions, satisfactory to Lender.

 

(e)           Lender shall have received certificates, in form and substance
satisfactory to it, from a knowledgeable Senior Officer of Borrower certifying
that, after giving effect to the initial Loans and transactions hereunder,
(i) Borrower is Solvent; (ii) no Default or Event of Default exists; (iii) the
representations and warranties set forth in Section 8 are true and correct; and
(iv) Borrower has complied with all agreements and conditions to be satisfied by
it under the Loan Documents.

 

(f)            Lender shall have received a certificate of a duly authorized
officer of each Obligor, certifying (i) that attached copies of such Obligor’s
Organic Documents are true and complete, and in full force and effect, without
amendment except as shown; (ii) that an attached copy of resolutions authorizing
execution and delivery of the Loan Documents is true and complete, and that such
resolutions are in full force and effect, were duly adopted, have not been
amended, modified or revoked, and constitute all resolutions adopted with
respect to this credit facility; and (iii) to the title, name and signature of
each Person authorized to sign the Loan Documents.  Lender may conclusively rely
on this certificate until it is otherwise notified by the applicable Obligor in
writing.

 

(g)           Lender shall have received a written opinion of counsel to the
Borrower, as well as any local counsel to Borrower or Lender, in form and
substance satisfactory to Lender.

 

(h)           Lender shall have received copies of the charter documents of each
Obligor, certified by the Secretary of State or other appropriate official of
such Obligor’s jurisdiction of organization.  Lender shall have received good
standing certificates for each Obligor, issued by the Secretary of State or
other appropriate official of such Obligor’s jurisdiction of organization and
each jurisdiction where such Obligor’s conduct of business or ownership of
Property necessitates qualification.

 

(i)            Lender shall have received copies of policies or certificates of
insurance for the insurance policies carried by Borrower, all in compliance with
the Loan Documents.

 

(j)            Lender shall have completed its business, financial and legal due
diligence of Obligors, including a roll-forward of its previous field
examination, with results satisfactory to Lender.  No material adverse change in
the financial condition of any Obligor or in the quality, quantity or value of
any Collateral shall have occurred since December 31, 2016.

 

(k)           Borrower shall have paid all fees and expenses to be paid to
Lender on the Closing Date.

 

(l)            Lender shall have received a Borrowing Base Certificate prepared
as of March 31, 2017, as updated within one Business Day before the Closing
Date.  Upon giving effect to the initial funding of Loans and issuance of
Letters of Credit, and the payment by Borrower of all fees and expenses incurred
in connection herewith as well as any payables stretched beyond their customary
payment practices, Availability shall be at least $6,500,000.

 

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

 

EXHIBIT D

 

FEES

 

(a)           Unused Line Fee.  Borrower shall pay to Lender a fee equal to the
Unused Line Fee Rate times the amount by which the Revolver Commitment exceeds
the average daily Revolver Usage during any month.  Such fee shall be payable in
arrears, on the first day of each month and on the Commitment Termination Date.

 

(b)           LC Facility Fees.  Borrower shall pay to Lender (i) a fee equal to
the Applicable Margin in effect for LIBOR Revolver Loans times the average daily
Stated Amount of Letters of Credit, which fee shall be payable monthly in
arrears, on the first day of each month; (ii) a fronting fee equal to 0.25% per
annum on the Stated Amount of each Letter of Credit, which fee shall be payable
monthly in arrears, on the first day of each month; and (iii) all customary
charges associated with the issuance, amending, negotiating, payment,
processing, transfer and administration of Letters of Credit, which charges
shall be paid as and when incurred.  During an Event of Default, the fee payable
under clause (i) shall be increased by 2% per annum.

 

(c)           Closing Fee.  On the Closing Date, Borrower shall pay to Lender a
closing fee of $61,550.

 

(d)           Annual Administration Fee.  On the Closing Date and on the first
day of each Loan Year thereafter, the Borrower shall pay to Lender an annual
administration fee of $15,000.

 

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

 

EXHIBIT E

 

FINANCIAL REPORTING

 

As long as any Commitment or Obligations are outstanding, Borrower shall, and
shall cause each Subsidiary to furnish to Lender:

 

(a)           as soon as available, and in any event within 90 days after the
close of each Fiscal Year, balance sheets as of the end of such Fiscal Year and
the related statements of income, cash flow and shareholders’ equity for such
Fiscal Year, on consolidated and consolidating bases for Borrower and its
Subsidiaries, which consolidated statements shall be audited and certified
(without qualification) by a firm of independent certified public accountants of
recognized standing selected by Borrower and reasonably acceptable to Lender,
and shall set forth in comparative form corresponding figures for the preceding
Fiscal Year and other information acceptable to Lender;

 

(b)           as soon as available, and in any event within 45 days after the
end of each Fiscal Quarter, unaudited balance sheets as of the end of such
Fiscal Quarter and the related statements of income and cash flow for such
Fiscal Quarter and for the portion of the Fiscal Year then elapsed, on
consolidated and consolidating bases for Borrower and its Subsidiaries, setting
forth in comparative form corresponding figures for the preceding Fiscal Year
and certified by the chief financial officer of Borrower as prepared in
accordance with GAAP and fairly presenting the financial position and results of
operations for such month and period, subject to normal year-end adjustments and
the absence of footnotes;

 

(c)           concurrently with delivery of financial statements under clauses
(a) and (b) above, or more frequently if requested by Lender while a Default or
Event of Default exists, a Compliance Certificate executed by the chief
financial officer of Borrower;

 

(d)           concurrently with delivery of financial statements under clause
(a) above, copies of all management letters and other material reports submitted
to Borrower by its accountants in connection with such financial statements;

 

(e)           not later than 60 days following the end of each Fiscal Year,
projections of Borrower’s consolidated balance sheets, results of operations,
cash flow and Availability for the next Fiscal Year, month by month and for the
following three Fiscal Years, year by year;

 

(f)            By the 15th day of each month, as of the close of business of the
previous month, Borrower shall deliver to Lender a listing of Borrower’s trade
payables, specifying the trade creditor and balance due, and a detailed trade
payable aging, all in form satisfactory to Lender;

 

(g)           promptly after the sending or filing thereof, copies of any proxy
statements, financial statements or reports that Borrower has made generally
available to its shareholders; copies of any regular, periodic and special
reports or registration statements or prospectuses that Borrower files with the
Securities and Exchange Commission or any other Governmental Authority, or any
securities exchange; and copies of any press releases or other statements made
available by Borrower to the public concerning material changes to or
developments in the business of Borrower;

 

(h)           promptly after the sending or filing thereof, copies of any annual
report to be filed in connection with each Plan or Foreign Plan;

 

(i)            such other reports and information (financial or otherwise) as
Lender may request from time to time in connection with any Collateral or
Borrower’s, any of its Subsidiaries’ or other Obligor’s financial condition or
business; and

 

(j)            as soon as available, and in any event within 120 days after the
close of each Fiscal Year, financial statements for each Guarantor, in form and
substance satisfactory to Lender.

 

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

 

EXHIBIT F

 

COLLATERAL REPORTING

 

(a)           By the 15th day of each month, Borrower shall deliver to Lender a
Borrowing Base Certificate prepared as of the close of business of the previous
month, and at such other times as Lender may request, provided that while a
Borrowing Base Trigger Period exists, Borrower must deliver to the Lender a
Borrowing Base Certificate no later than the third Business Day of each week as
of the last Business Day of the immediately preceding week, provided, however,
if the Borrowing Base Trigger Period commences, other than as a result of an
Event of Default, on the first, second or third Business Day of any week, the
Borrower shall have until the third Business Day of the following week to
commence delivery of weekly Borrowing Base Certificates.  All calculations of
Availability in any Borrowing Base Certificate shall originally be made by
Borrower and certified by a Senior Officer, provided that Lender may from time
to time review and adjust any such calculation (i) to reflect its reasonable
estimate of declines in value of any Collateral, due to collections received in
the Dominion Account or otherwise; and (ii) to the extent the calculation is not
made in accordance with this Agreement or does not accurately reflect the
Availability Reserve.

 

(b)           Borrower shall keep accurate and complete records of its Accounts,
including all payments and collections thereon, and shall submit to Lender
sales, collection, reconciliation and other reports in form reasonably
satisfactory to Lender, on such periodic basis as Lender may reasonably request
(but no more frequently than once per month so long as no Event of Default has
occurred and is continuing).  Borrower shall also provide to Lender, on or
before the 15th day of each month, a detailed aged trial balance of all Accounts
as of the end of the preceding month, specifying each Account’s Account Debtor
name and address, amount, invoice date and due date, showing any discount,
allowance, credit, authorized return or dispute, and including such proof of
delivery, copies of invoices and invoice registers, copies of related documents,
repayment histories, status reports and other information as Lender may
reasonably request.  If Accounts in an aggregate face amount of $500,000 or more
cease to be Eligible Accounts, Borrower shall notify Lender of such occurrence
promptly (and in any event within one Business Day) after Borrower has knowledge
thereof.

 

(c)           Borrower shall keep accurate and complete records of its
Inventory, including costs and daily withdrawals and additions, and shall submit
to Lender inventory and reconciliation reports in form reasonably satisfactory
to Lender, on such periodic basis as Lender may reasonably request (but no more
frequently than once per month so long as no Event of Default has occurred and
is continuing).  Borrower shall conduct periodic (and on a more frequent basis
if requested by Lender when an Event of Default exists) cycle counts of
inventory consistent with historical practices, and shall provide to Lender a
report based on each such inventory count promptly upon completion thereof,
together with such supporting information as Lender may reasonably request.

 

(d)           Borrower shall keep accurate and complete records of its
Equipment, including kind, quality, quantity, cost, acquisitions and
dispositions thereof, and shall submit to Lender, on such periodic basis as
Lender may reasonably request, a current schedule thereof, in form reasonably
satisfactory to Lender (but no more frequently than twice per year so long as no
Event of Default has occurred and is continuing).  Promptly upon request,
Borrower shall deliver to Lender evidence of its ownership or interests in any
Equipment.

 

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