Exhibit 10.31

 

LOAN AGREEMENT

 

THIS LOAN AGREEMENT (“Loan Agreement” or “Agreement”) is made this 15th day of
January, 2020, by and between Eastside Distilling Inc., a Nevada corporation,
whose address is 1001 SE Water Avenue, Suite 390, Portland, OR 97214
(“Eastside”), MotherLode LLC, an Oregon limited liability company, whose address
is 1001 SE Water Avenue, Suite 390, Portland, OR 97214 (“MotherLode”), Big
Bottom Distilling, LLC, an Oregon limited liability company, whose address is
1001 SE Water Avenue, Suite 390, Portland, OR 97214 (“Big Bottom”), Craft
Canning + Bottling, LLC, an Oregon limited liability company, whose address is
1001 SE Water Avenue, Suite 390, Portland, OR 97214 (“Craft”), Redneck Riviera
Whiskey Co., LLC, a Tennessee limited liability company, whose address is 1001
SE Water Avenue, Suite 390, Portland, OR 97214 (“Redneck”) and Outlandish
Beverages LLC, an Oregon limited liability company, whose address is 1001 SE
Water Avenue, Suite 390, Portland, OR 97214 (“Outlandish” and together with
Eastside, MotherLode, Big Bottom, Craft and Redneck, collectively, the
“Borrowers,” and each, a “Borrower”), and Live Oak Banking Company, a North
Carolina banking corporation, with an address of 1741 Tiburon Drive, Wilmington,
North Carolina 28403 (“Lender”).

 

RECITALS OF FACTS

 

A. Borrowers are engaged in the business of the production of crafted, small
batch spirits for sale and distribution.

 

B. Borrowers have requested that Lender make loans to Borrowers to refinance
existing debt and for working capital purposes, and Lender is willing to make
such loans pursuant to the terms of the Loan Documents.

 

NOW, THEREFORE, incorporating the Recitals of Facts set forth above and in
consideration of the mutual agreements herein contained, the parties agree as
follows:

 

AGREEMENTS

 

SECTION One. DEFINITIONS.

 

1.01 Certain Specific Terms. For purposes of this Loan Agreement, the following
terms shall have the following meanings:

 

“ABC Licenses” means all licenses required by any state alcohol beverage
commission in connection with Borrowers’ business.

 

“Acceptable Inventory” means Borrowers’ Inventory of whiskey in barrels or totes
(a) in which Lender holds a valid, perfected first security interest, and (b) in
which, in the reasonable judgment of Lender at the time an extension of credit
is requested based upon such Inventory and at all times thereafter while an
extension of credit remains outstanding, is in good, undamaged condition and is
not obsolete or otherwise unmarketable in the ordinary course of business as a
result of type, category, quality and/or quantity.

 

“Account” or “Accounts Receivable” means, in addition to the definition of
account as contained in the Uniform Commercial Code, the right of the Borrowers
to receive payment for goods sold which are not evidenced by an instrument or
chattel paper, whether or not it has been earned by performance.

 

“Affiliate” means (a) any officer, director or manager of any Person, (b) any
other Person or entity that controls, is controlled by or is under common
control with any Person, and (c) any Person or entity that directly or
indirectly owns ten percent (10%) or more of any Person.

 

 

 

 

“Anti-Corruption Laws” means all laws, rules, and regulations of any
jurisdiction applicable to any Borrower or their Affiliates from time to time
concerning or relating to bribery or corruption.

 

“Big Bottom” has the meaning assigned to such term set forth in the introductory
paragraph to this Loan Agreement.

 

“Board” means the Board of Governors of the Federal Reserve System of the United
States of America.

 

“Borrower” and “Borrowers” have the meanings provided in the introductory
paragraph of this Loan Agreement.

 

“Borrower Representative” means Eastside.

 

“Borrowing Base” means, as to the Borrowers, an amount equal to:

 

  (a) on the Closing Date, sixty-five percent (65%) of the Inventory Value, as
reasonably determined by Lender, of Borrowers’ Eligible Inventory, based upon
Lender’s limited preliminary appraisal report; and         (b) after receipt of
Lender’s full appraisal report, eighty-five percent (85%) of the Inventory
Value, as reasonably determined by Lender, of Borrowers’ Eligible Inventory,
based upon Lender’s fully completed appraisal report;

 

minus, an amount equal to all service fees or rental payments owed by Borrowers
during the ninety (90) day period immediately succeeding the date of
determination to any warehouses or bailees holding Eligible Inventory, as
determined by Lender in its reasonable discretion; provided, that Lender may, in
its good faith reasonable business judgment, make changes to applicable
standards of eligibility, advance rates and reserves for any assets in the
Borrowing Base (i) upon the occurrence and during the continuance of an Event of
Default or (ii) in order to mitigate the impact of events, conditions,
contingencies, or risks which may adversely affect the Inventory Value
identified from an unsatisfactory field exam conducted by Lender pursuant to
Section 5.10, which changes shall be effective immediately after the Lender
shall have delivered notice of such changes to the Borrower Representative.

 

“Borrowing Base Certificate” means a certificate substantially in the form of
Exhibit A attached hereto (with such changes therein as may be required by the
Lender to reflect the components of the Borrowing Base as provided for hereunder
from time to time), executed by the chief financial officer of the Borrower
Representative.

 

“Business Day” means any day which is not a Saturday, Sunday or a day on which
Lender is authorized or obligated by law, executive order or governmental decree
to be closed.

 

“Change in Control” means, an event or series of events by which:

 

(a) the acquisition of ownership, directly or indirectly, beneficially or of
record, by any Person or group (within the meaning of the Securities Exchange
Act of 1934 and the rules of the U.S. Securities and Exchange Commission
thereunder as in effect on the date hereof), of Equity Interests representing
more than 50% of the aggregate ordinary voting power represented by the issued
and outstanding Equity Interests of Eastside; or

 

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(b) Eastside ceases to own, directly or indirectly, 100% of the Equity Interests
of MotherLode, Big Bottom, Craft, Redneck and Outlandish (except pursuant to a
transaction permitted under this Agreement).

 

“Closing Date” means the date on which all Loan Documents have been executed and
delivered to and accepted by Lender, all conditions precedent to funding set
forth in Section 3 have been satisfied or waived by the Lender.

 

“Collateral” means collectively all assets of the Borrowers, excluding Accounts
Receivable.

 

“Contractual Obligations” means, as applied to any Person, any indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject including, without limitation,
the Loan Documents.

 

“Craft” has the meaning assigned to such term set forth in the introductory
paragraph to this Loan Agreement.

 

“Debt” means with respect to the Borrowers, without duplication, (a)
indebtedness for borrowed money or for the deferred purchase price of property
or services including debt instruments (except any such balance that constitutes
an account payable to a trade creditor created, incurred, assumed or guaranteed
by such Person in the ordinary course of business of such Person in connection
with obtaining goods, materials or services that is not overdue by more than one
hundred twenty (120) days unless the trade payable is being contested in good
faith), (b) obligations as lessee under leases which shall have been or should
be, in accordance with GAAP, recorded as capital leases, (c) obligations under
direct or indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise assure a creditor
against loss in respect of, indebtedness or obligations of the kinds referred to
in clause (a) or (b) above, and (d) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of ERISA.

 

“Default” means any event or condition which, with the giving or receipt of
notice or lapse of time or both, would constitute an Event of Default hereunder.

 

“Demand Date” means the date that is 30 days following the date Lender makes
demand on Borrowers for payment in full of all Indebtedness, which demand may be
made by Lender at any time.

 

“Disposal” means the intentional or unintentional abandonment, discharge,
deposit, injection, dumping, spilling, leaking, storing, burning, thermal
destruction, or placing of any Hazardous Substance so that it or any of its
constituents may enter the environment.

 

“Eastside” has the meaning assigned to such term set forth in the introductory
paragraph to this Loan Agreement.

 

“Eligible Inventory” means, as of the date of determination thereof, inventory
identified on Schedule 1.01(a) attached hereto and deemed by the Lender in its
reasonable discretion to be Acceptable Inventory eligible for inclusion in the
calculation of the Borrowing Base. Without limiting the generality of the
foregoing, unless otherwise approved in writing by the Lender, none of the
following shall be deemed to be Eligible Inventory:

 

  (a) Inventory that is not owned by a Borrower free of any title defect or any
Liens or interests of others, except for the Lien in favor of the Lender and
statutory liens or Permitted Liens;

 

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  (b) Inventory that is located in a public warehouse or in the possession of a
bailee or in a facility leased by a Borrower or any of its Affiliates unless the
applicable warehouseman, bailee or lessor (and its mortgagee, if any), has
delivered to the Lender a waiver and/or collateral access agreement and such
other documentation as the Lender may reasonably require;         (c) Inventory
that is covered by a negotiable document of title (such as a bill of lading or
warehouse receipt);         (d) Inventory that is in transit;         (e)
Inventory that is not held for sale or use in the ordinary course of the
Borrowers’ business and is not of good and merchantable quality;         (f)
Inventory that is not located in the United States of America (excluding
territories and possessions thereof);         (g) Inventory that is unsalable,
damaged, defective, recalled or used, or Inventory that has been returned by the
buyer unless such returned items are of good and merchantable quality and held
for resale by a Borrower in the ordinary course of business;         (h)
Inventory that has been manufactured to the specifications of a particular
customer and is not saleable in the ordinary course of business;         (i)
Inventory that contains or bears any intellectual property rights licensed to a
Borrower unless the Lender is satisfied in its sole and absolute discretion that
it may sell or otherwise dispose of such inventory without (i) infringing the
rights of such licensor, (ii) violating any contract with such licensor, or
(iii) incurring any liability with respect to payment of royalties other than
royalties incurred pursuant to sale of such Inventory under the current
licensing agreement;         (j) Inventory that is the subject of a consignment
by a Borrower as consignor;         (k) Inventory that is “private label”; and  
      (l) Inventory that does not comply with any representation or warranty
contained in this Agreement or any other Loan Document with respect to Inventory
in general, or to such Inventory in particular.

 

“Environmental Laws” means all federal, state, and local environmental, land
use, zoning, health, chemical use, safety and sanitation laws, statutes,
ordinances, regulations, codes, and rules relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production, or disposal of Hazardous
Substances and the policies, guidelines, procedures, interpretations, decisions,
orders, and directives of federal, state, and local governmental agencies and
authorities with respect thereto.

 

“Environmental Permits” means all licenses, permits, approvals, authorizations,
consents, or registrations required by any applicable Environmental Laws and all
applicable judicial and administrative orders in connection with ownership,
lease, purchase, transfer, closure, use, and/or operation of any property owned,
leased, or operated by a Borrower and/or as may be required for the storage,
treatment, generation, transportation, processing, handling, production, or
disposal of Hazardous Substances.

 

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“Equity Interests” means the membership interests, partnership interests or
capital stock of any class or any other equity interest or securities of any
Person and options, warrants and other rights to acquire membership interests,
partnership interests or capital stock of any class or any other equity interest
of such Person.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time.

 

“Event of Default” means an Event of Default or Events of Default as defined in
Section Seven.

 

“Excluded Account” means (a) any deposit account, securities account,
commodities account or other account of any Borrower to the extent solely and
exclusively used for payment of payroll, employee benefits and withholding
taxes, (b) any deposit account, securities account, commodities account or other
account of any Borrower to the extent solely and exclusively used to hold any
cash or cash equivalents pledged as a Permitted Lien, and (c) deposit accounts
of any Borrower which do not hold more than $5,000 in the aggregate at any time.

 

“Financial Statements” means the unaudited consolidated balance sheets and
income statements of Eastside as of September 30, 2019.

 

“Fiscal Quarter” means each of the three-month fiscal periods of the Borrowers,
ending on March 31, June 30, September 30, and December 31, respectively, in any
Fiscal Year of the Borrower.

 

“Fiscal Year” means the twelve-month fiscal period of the Borrowers, commencing
on January 1 and ending on the next ensuing December 31.

 

“GAAP” means generally accepted accounting principles, being those principles of
accounting set forth in pronouncements of the Financial Accounting Standards
Board, the American Institute of Certified Public Accountants, or which have
other substantial authoritative support and are applicable in the circumstances
as of the date of a report, consistently applied from period to period.

 

“Hazardous Substances” means, without limitation, any explosives, radon,
radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances, and any other
material defined as a hazardous substance in Section 101(14) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. Section 9601(14).

 

“Indebtedness” means all outstanding amounts owed by Borrowers to Lender,
secured by the Security Interest and any other collateral document, together
with all other amounts due, or which may become due, including but not limited
to interest, under this Loan Agreement or any of the Loan Documents. EACH
BORROWER HEREBY ACKNOWLEDGES THAT SUCH AMOUNTS MAY CAUSE THE OUTSTANDING
OBLIGATIONS TO LENDER TO EXCEED THE MAXIMUM OUTSTANDING AMOUNT UNDER THE NOTE,
AND CONFIRMS AND AGREES THAT THIS LOAN AGREEMENT IS INTENDED TO AND SHALL SECURE
ALL SUCH EXCESS AMOUNTS TO THE EXTENT AUTHORIZED IN THE LOAN DOCUMENTS.

 

“Inventory” means the inventory of the Borrowers and includes all “inventory” as
defined in the UCC as in effect in the State as of the date of this Loan
Agreement.

 

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“Inventory Value” means, with respect to Inventory of any Person, the orderly
liquidation value thereof as determined in a manner acceptable to the Lender by
an appraiser acceptable to the Lender, net of all costs of liquidation thereof.

 

“Investment” means the purchase or acquisition of any Equity Interests in any
other Person, any loan, advance, or extension of credit (excluding accounts
receivable arising in the ordinary course of business) to any other Person,
contribution to the capital of any other Person, or the acquisition of
substantially all of the assets of any other Person.

 

“Knowledge” means actual or constructive knowledge of any executive officer or
financial officer of a Borrower, after reasonable investigation.

 

“Lender” has the meaning assigned to such term set forth in the introductory
paragraph to this Loan Agreement.

 

“Loan” has the meaning assigned to it in Section 2.01 of this Loan Agreement.

 

“Loan Agreement” means this Loan Agreement by and among Borrowers and Lender.

 

“Loan Documents” means this Loan Agreement, the Note, the Security Agreement,
the Trademark Security Agreement, the Warrant, and all other agreements and
documents now or hereafter required to be executed by any Borrower in favor of
Lender and related to the Indebtedness, including, without limitation,
collateral documents, letter of credit agreements, account control agreements,
acceptance credit agreements, security agreements, pledges, guaranties,
mortgages, title insurance, assignments, and subordination agreements.

 

“Material Adverse Effect” means any change resulting in a material adverse
effect on (a) the business, properties, operations, or financial condition of
the Borrowers, taken as a whole, (b) the ability of any Borrower to pay or
perform its obligations, liabilities and Indebtedness under any of the Loan
Documents as such payment or performance becomes due in accordance with the
terms thereof, or (c) the rights, powers and remedies of Lender under any Loan
Document or the validity, legality or enforceability thereof.

 

“Maturity Date” means the earlier of (a) January 14, 2021, (b) the Demand Date,
and (c) that date on which the Lender accelerates the maturity of the Loan in
accordance with Section Seven hereof.

 

“Maximum Loan Availability” means the lesser of (a) $8,000,000, and (b) the
Borrowing Base.

 

“MotherLode” has the meaning assigned to such term set forth in the introductory
paragraph to this Loan Agreement.

 

“Note” means that certain Promissory Note issued to the Lender evidencing the
Loan, in form and substance acceptable to the Lender, and includes all renewals,
modifications, extensions, substitutions and replacements thereof.

 

“OFAC” means the Office of Foreign Assets Control of the United States
Department of the Treasury.

 

“Outlandish” has the meaning assigned to such term set forth in the introductory
paragraph to this Loan Agreement.

 

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“PACA” means the Perishable Agricultural Commodities Act or any similar state
law.

 

“Permitted Liens” means (a) liens existing as of the date of this Loan Agreement
and disclosed in the Financial Statements or on Schedule 1.01(b) attached
hereto; (b) liens for taxes, assessments, or other governmental charges not
delinquent or being contested in good faith and by appropriate proceedings and
with respect to which reserves have been taken by a Borrower to the extent
required by GAAP; (c) landlords’ and lessors’ liens in respect of rent which
have been subordinated to the Indebtedness to the satisfaction of the Lender or
liens in respect of pledges or deposits under worker’s compensation,
unemployment insurance, social security laws, or similar legislation (other than
ERISA), or in connection with appeal and similar bonds incidental to litigation;
(d) liens of mechanics, materialmen, warehousemen, carriers, or other like liens
securing obligations incurred in the ordinary course of business that are not
yet due and payable or delinquent or are subject to contest by proper
proceedings; (e) liens arising solely by virtue of any statutory or common law
provision relating to banker’s liens, rights of set off, or similar rights and
remedies as to deposited funds; (f) liens created by PACA; (g) the lien of ENGS
Commercial Capital, LLC on Borrowers’ Accounts; (h) liens securing Debt
permitted by Section 6.01(c), and (i) liens constituting a renewal, extension,
or replacement of any Permitted Lien.

 

“Person” means and includes natural persons, corporations, limited liability
companies, limited partnerships, limited liability partnerships, general
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments and agencies and
political subdivisions thereof and their respective permitted successors and
assigns (or in the case of a governmental person, the successor functional
equivalent of such Person).

 

“Real Property Lease” means any leases and other similar agreements, whether now
existing or hereafter entered into, for space in or of any real property,
including all lease guaranties related thereto, as the same may be amended or
modified from time to time.

 

“Redneck” has the meaning assigned to such term set forth in the introductory
paragraph to this Loan Agreement.

 

“Sanctioned Country” means, at any time, a country or territory which is the
subject or target of any Sanctions.

 

“Sanctioned Person” means, at any time, (a) any Person listed in any
Sanctions-related list of designated Persons maintained by OFAC or the U.S.
Department of State, (b) any Person operating, organized or resident in a
Sanctioned Country, or (c) any Person owned or controlled by any such Person or
Persons described in the foregoing clauses (a) or (b).

 

“Sanctions” means economic or financial sanctions or trade embargoes imposed,
administered or enforced from time to time by the U.S. government, including
those administered by OFAC or the U.S. Department of State.

 

“Schedule” means any schedule executed in connection with, and which is a part
of, this Loan Agreement.

 

“Security Agreement” means that certain Security Agreement executed by Borrowers
in favor of Lender pursuant to this Loan Agreement, in form and substance
acceptable to the Lender, and includes all renewals, modifications, extensions,
substitutions and replacements thereof.

 

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“Security Interest” means the security interest granted to Lender by Borrowers
as described in the Security Agreement, or a security interest within the
meaning of the UCC, as appropriate.

 

“State” means the state of New York.

 

“Subsidiary” means, with respect to any Person, any corporation, partnership,
joint venture or other business entity (whether now existing or hereafter
organized or acquired) over which the Person exercises control, provided that it
shall be conclusively presumed that the Person exercises control over any such
entity (a) if more than 50% of the Equity Interests in such entity are owned by
the Person, directly or indirectly; or (b) if at least a majority of the
securities of each class having ordinary voting power for the election of
directors (other than securities which have such power only by reason of the
happening of a contingency) at the time as of which the determination is being
made, is owned, beneficially and of record, by such Person or by one or more of
the other Subsidiaries of such Person or by any combination thereof.

 

“Trademark Security Agreement” means that certain Trademark Security Agreement
executed by certain Borrowers in favor of Lender pursuant to this Loan
Agreement, in form and substance acceptable to the Lender, and includes all
renewals, modifications, extensions, substitutions and replacements thereof.

 

“TTB Permits” means all required permits of the Alcohol and Tobacco Tax and
Trade Bureau for any Borrower’s business.

 

“UCC” means the Uniform Commercial Code, as in effect in the State on the date
hereof.

 

“Warrant” means the Warrant to Purchase Stock to be issued by Eastside to Lender
pursuant to this Loan Agreement, in form and substance acceptable to the Lender,
and includes all renewals, modifications, extensions, substitutions and
replacements thereof.

 

1.02 Singulars and Plurals. Unless the context otherwise requires, words in the
singular include the plural, and in the plural include the singular.

 

1.03 UCC Definitions. All terms used herein without definition which are defined
by the UCC shall have the meanings assigned to them by the UCC unless and to the
extent varied by this Loan Agreement.

 

1.04 Delaware Division. For all purposes under the Loan Documents, in connection
with any division or plan of division under Delaware law (or any comparable
event under a different jurisdiction’s laws): (a) if any asset, right,
obligation or liability of any Person becomes the asset, right, obligation or
liability of a different Person, then it shall be deemed to have been
transferred from the original Person to the subsequent Person, and (b) if any
new Person comes into existence, such new Person shall be deemed to have been
organized on the first date of its existence by the holders of its Equity
Interests at such time.

 

SECTION Two. LOAN.

 

2.01 The Commitment. Subject to the terms and conditions of the Loan Documents,
and so long as no Default or Event of Default exists, Lender has committed to
make up to two loan advances to Borrowers for the purposes set forth in the
Recitals, to be delivered to Borrowers, all in an aggregate principal amount not
to exceed, at any one time outstanding, the Maximum Loan Availability (the
“Loan”). The Loan will be made in two advances; the initial advance shall be
made on the Closing Date, and the second advance shall be made within sixty (60)
days after the Closing Date. No additional loan advances shall be made to
Borrower.

 

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2.02 Funding the Loan. Each loan advance hereunder shall be made by depositing
the same to the checking account of Borrower Representative, or in such other
manner as Borrower Representative and Lender may agree in writing from time to
time. Borrower Representative shall provide Lender with at least one (1)
Business Day’s written notice of the requested advance, specifying the date and
amount of the advance, together with a completed Borrowing Base Certificate.
Lender shall, on or after 1:00 P.M. (Eastern Time) of the advance date, make the
amount of the requested advance available to Borrowers, provided all conditions
precedent to such advance have been met or satisfied. Each requested loan
advance hereunder shall be in the minimum amount of $50,000.00 and multiples of
$50,000.00 in excess thereof.

 

2.03 The Note and Interest. All advances with respect to the Loan shall be
evidenced by the Note. The unpaid principal balance of the Note shall bear
interest from the Closing Date on disbursed and unpaid principal balances
(calculated on a year of 360 days) at a variable rate of interest equal to (i)
two and 49/100ths percent (2.49%) per annum plus (ii) the Prime Rate as
published in The Wall Street Journal, adjusted on a calendar quarterly basis.
Each change in the rate of interest shall become effective, without notice to
Borrowers, on the first day of each calendar quarter. The interest rate as of
the date hereof is 7.24%. Interest shall be payable monthly on the fifth (5th)
day of each month, with the final installment of interest and principal being
due and payable on the Maturity Date, or on such earlier date as the Loan
becomes due and payable. NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT OR ANY
OTHER INSTRUMENT OR DOCUMENT, ALL INDEBTEDNESS UNDER THIS AGREEMENT IS DUE AND
PAYABLE WITHIN 30 DAYS FOLLOWING DEMAND BY THE LENDER, WHICH MAY BE MADE BY
LENDER AT ANY TIME.

 

2.04 Prepayment of Loan.

 

(a) Borrowers may voluntarily prepay the outstanding principal amount of the
Note, in whole or in part, at any time, from time to time, each such prepayment
to include accrued and unpaid interest thereon, if any, to the applicable date
of prepayment (together with reasonable and documented out-of-pocket costs and
expenses, including, without limitation, reasonable documented fees, charges and
disbursements of counsel). Advances repaid may not be reborrowed.

 

(b) If on any day the sum of the aggregate outstanding principal balance of the
advances and other financial accommodations hereunder shall exceed the Maximum
Loan Availability, Borrowers shall, within three Business Days following written
request by Lender, prepay such advances and other financial accommodations by an
amount equal to such excess.

 

2.05 Payment and Computation.

 

(a) Business Day. Whenever any payment to be made hereunder shall be stated to
be due on other than a Business Day, such payment may be made on the next
succeeding Business Day, unless such Business Day falls in the next succeeding
calendar month, in which case, such payment shall be made on the preceding
Business Day. Any such alteration of time shall, in such case, be included in
the computation of payment of interest. All payments (including prepayments)
made by Borrowers on account of principal of or interest on the loans hereunder
shall be made without set-off or counterclaim on the date such payment is due,
to Lender, in each case in lawful money of the United States of America and in
immediately available funds.

 

(b) Debiting of Account. The Lender may, and Borrowers authorize the Lender to,
debit any account and/or certificate of deposit maintained by any Borrower with
the Lender for the amount of any payment, as and when such payment becomes due
hereunder, whether such payment is for accrued interest, principal, or expense,
even if debiting such account results in a loss or reduction of interest to
Borrowers or the imposition of a penalty. Such authorization shall not affect
the Borrowers’ obligation to pay when due all amounts payable hereunder, whether
or not there are sufficient funds in any accounts of Borrowers. The foregoing
rights of the Lender to debit any Borrower’s accounts shall be in addition to,
and not in limitation of, any rights of set-off which the Lender may have
hereunder or under any Loan Document.

 

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(c) Use of Proceeds of the Loan. The proceeds of the Loan shall be used by
Borrowers to refinance existing debt and to fund general working capital of
Borrowers.

 

(d) Servicing Fee. Borrowers shall pay to Lender a servicing fee with respect to
the Loan in the amount of (i) the then outstanding principal balance of the
Loan, times (ii) 0.50%, calculated as of, and due, annually on each anniversary
of the Closing Date.

 

(e) Unused Loan Fee. Borrowers shall pay to Lender an unused line fee of one
quarter of one percent (0.25%) per annum of the difference between (i) the Loan
commitment and (ii) the average daily balance of Loan advances outstanding for
each quarter, which fee shall be fully earned by Lender and payable quarterly in
arrears on the first Business Day of each quarter; provided, however, that no
unused line fee will accrue after the making of the second advance pursuant to
Section 2.01.

 

(f) Computation. Interest and any fees or compensation based upon a per annum
rate shall be calculated on the basis of a 360 day year for the actual number of
days elapsed.

 

(g) Authorized Advances. Borrowers hereby irrevocably request and authorize
Lender to make an advance hereunder to the extent of any fees or interest due
from time to time under this Agreement or any other Loan Documents and to apply
the proceeds of such advances to such fees or interest. The foregoing shall not
obligate Lender to make any such advance and Borrowers shall remain obligated to
pay said fees and interest when due.

 

2.06 Demand Loan. Borrowers expressly acknowledge and agree that the Loan is and
shall at all times be payable ON DEMAND by Lender, and that if Lender shall so
demand repayment, payment will be due on the date that is 30 days following the
date on which Lender demands repayment. Borrowers further acknowledge that it is
a necessary inducement to Lender to make any advance hereunder that Borrowers
grant Lender the unconditional right in Lender’s sole discretion to demand
payment in whole or in part of the principal of and accrued interest on the Loan
or of any other demand obligations, which right Borrowers expressly grant
whether or not Borrowers are then in compliance with the provisions hereof. If
any of the Events of Default set forth in Section Seven below shall occur and be
continuing, Lender may, but shall not be obligated to, make such demand; such
events are set forth only for purposes of illustrating certain circumstances in
which Lender may, but shall not be obligated to, make such demand. Such
circumstances are not exclusive and shall not limit Lender’s right of demand in
any other circumstances in which Lender may exercise Lender’s right of demand
including, without limitation, when Lender deems that Lender is insecure or that
the prospects for timely or full payment or performance of any of Borrowers’
obligations have been impaired.

 

SECTION Three. CONDITIONS PRECEDENT TO CLOSING AND LOAN ADVANCES.

 

3.01 Conditions Precedent to Closing. The obligation of Lender to accept the
Note and make advances pursuant to the Loan hereunder on the Closing Date is
subject to the condition precedent that Lender shall have received, on or before
the Closing Date, all of the following in form and substance satisfactory to
Lender:

 

(a) The Note;

 

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(b) The Security Agreement, Trademark Security Agreement and all other Loan
Documents, on forms acceptable to Lender;

 

(c) Lender shall have received and approved executed copies of any Real Property
Leases of real property used by Borrowers in connection with their business;

 

(d) Certified resolutions of each Borrower, authorizing the execution and
delivery of the Note, and the execution and delivery of this Loan Agreement and
the other Loan Documents, and a certificate of good standing for each Borrower,
from the state of its organization, together with a copy of its organizational
documents;

 

(e) A certificate from an insurance broker, satisfactory to Lender, setting
forth the information concerning insurance which is required by Section 5.03 of
this Loan Agreement;

 

(f) Executed ACH debit authorization forms;

 

(g) A certificate of the Secretary or other officer or manager of each Borrower,
dated the date hereof, as to the incumbency and signature of the officers
executing each of the Loan Documents and any other document to be delivered
pursuant to any of such documents, together with evidence of the incumbency of
such Secretary or other officer or manager;

 

(h) A certificate of each Borrower signed by its president, chief executive
officer or chief financial officer (in such officer’s capacity as an officer of
such Borrower and not in his or her personal capacity) stating that to the best
of his knowledge after diligent investigation: (a) as of the date hereof and
giving effect to any Loan, no Default or Event of Default exists hereunder; and
(b) all of such Borrower’s representations and warranties contained in this
Agreement and the other Loan Documents are presently true and correct in all
material respects.

 

(i) Copies of all consents, licenses, and approvals required in connection with
the execution, delivery, performance, validity, and enforceability of this
Agreement, the Note and other Loan Documents, and such consents, licenses, and
approvals shall be in full force and effect and be reasonably satisfactory in
form and substance to Lender and its counsel.

 

(j) Copies, in form and substance reasonably satisfactory to Lender, of written
or other advice relating to such corporate status, financing statement, tax
lien, judgment, and other searches as Lender may reasonably require.

 

(k) (i) A copy of the certificate of incorporation or organization of each
Borrower, certified by the Secretary of State of the state of its organization;
(ii) a certificate of such Secretary of State, dated as of a recent date, as to
the good standing (or the equivalent) of each Borrower and attaching the charter
documents of each Borrower on file in the office of such Secretary of State; and
(iii) a certificate of the Secretary dated the Closing Date and certifying with
respect to each Borrower (A) that attached thereto is a true and complete copy
of the By-laws or Operating Agreement of each Borrower, as in effect on the date
of such certification, and (B) that the certificate of incorporation or
organization of each Borrower has not been amended since the date of the last
amendment thereto indicated on the certificate of the Secretary of State
furnished pursuant to clause (i) above.

 

(l) Borrowers shall have paid all of the fees and expenses of Lender and
Lender’s counsel which are occasioned in connection with the preparation of this
Agreement, and all other Loan Documents and the closing of the transactions
contemplated hereby and thereby.

 

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(m) Borrowers shall deliver a payoff letter from First Republic Bank to Lender;

 

(n) Eastside shall have delivered to Lender the Warrant, duly executed and
delivered by Eastside;

 

(o) Warehouse lien waivers with respect to warehouse facilities where any of
Borrowers’ Eligible Inventory is located, in form acceptable to Lender;

 

(p) An opinion letter from counsel to the Borrowers covering such items as
reasonably requested by Lender and its counsel;

 

(q) A completed Borrowing Base Certificate, in form acceptable to Lender; and

 

(r) Such other information and documentation as Lender shall deem to be
necessary or desirable in connection with the funding of the Loan.

 

3.02 Conditions Precedent to All Advances. The obligation of Lender to make any
advances or other financial accommodation hereunder is subject to fulfillment of
the following additional conditions precedent, to the reasonable satisfaction of
counsel to Lender:

 

(a) Representations and Warranties. The representations and warranties made by
Borrowers herein or in any other of the Loan Documents or which are contained in
any certificate, document or financial or other statement furnished at any time
under or in connection herewith shall be correct in all material respects on and
as of the date of each loan or other financial accommodation hereunder, after
giving effect to such loan or other financial accommodation hereunder, as if
made on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case, such
representations and warranties were correct in all material respects on and as
of such earlier date.

 

(b) No Default. No Event of Default has occurred, and no Default has arisen and
is continuing on the date the loan or other financial accommodation hereunder is
to be made, after giving effect to the loan or other financial accommodation
hereunder.

 

(c) Litigation. No suit, action, investigation, inquiry, or other proceeding by
any governmental authority or other Person or any other legal or administrative
proceeding shall be pending or threatened which (i) questions the validity or
legality of the transactions contemplated by this Agreement, or (ii) seeks
damages in connection therewith and which, in the reasonable judgment of Lender,
(x) involves a significant risk of a preliminary or permanent injunction or
other order by a state or federal court which would prevent, or require
rescission of, the transactions contemplated by this Agreement, or (y) in the
case of any action or proceeding which seeks monetary damages involves a
significant risk of resulting in substantial financial liability of more than
$100,000 to any Borrower and/or Lender.

 

(d) Material Adverse Effect. No Material Adverse Effect shall have occurred
since the date of the most recent financial statements of any Borrower furnished
to Lender.

 

3.03 Post-Closing Matters.

 

(a) Within forty five (45) days of the Closing Date, Borrowers and any
applicable depository institution shall have executed all documents required by
Lender granting Lender control (as defined in the UCC) over Borrowers’ deposit
accounts not maintained with Lender (other than Excluded Accounts).

 

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(b) Within ninety (90) days of the Closing Date, if required by Lender,
Borrowers and each applicable landlord with respect to any Real Property Lease
shall have executed and delivered to Lender a subordination, estoppel and
attornment agreement and/or landlord waiver, in a form acceptable to Lender.

 

SECTION Four. REPRESENTATIONS AND WARRANTIES.

 

Borrowers, jointly and severally, represent to Lender that:

 

4.01 Organization. Eastside is a corporation duly organized, validly existing
and in good standing under the laws of its state of formation; and has the power
and authority to own its properties and assets and is duly qualified to carry on
its business in every jurisdiction wherein such qualification is necessary. Each
of MotherLode, Big Bottom, Craft, Redneck and Outlandish is a limited liability
company duly organized, validly existing and in good standing (or the
equivalent) under the laws of its state of formation; and has the power and
authority to own its properties and assets and is duly qualified to carry on its
business in every jurisdiction where the failure to so qualify could reasonably
be expected to have a Material Adverse Effect on such Borrower.

 

4.02 Power and Authority of Borrower. The execution, delivery and performance of
this Loan Agreement, the Note, the Security Agreement and all other documents
required by Lender have been duly authorized by each Borrower and will not
violate any provision of law, any order of any court or other agency of
government, the organizational documents of Borrowers, any provision of any
indenture, agreement or other instrument to which any Borrower is a party, or by
which any Borrower’s properties or assets are bound, or be in conflict with,
result in a breach or constitute (with due notice or lapse of time or both) a
default under any such indenture, agreement or other instrument, or result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of Borrowers (other than the
security interests in favor of Lender).

 

4.03 Title to Assets. Borrowers have good and marketable title to all their
properties and assets, and except for Permitted Liens, and the security
interests in favor of Lender, all such properties and assets are free and clear
of mortgages, pledges, liens, charges and other encumbrances.

 

4.04 Litigation. Except as set forth on Schedule 4.04, there is no action, suit
or proceeding at law or in equity or by or before any governmental
instrumentality or other agency now pending, or, to the knowledge of any
Borrower, threatened against or affecting any Borrower, or any properties or
rights of Borrowers, which, if adversely determined, would materially and
adversely affect the financial or any other condition of any Borrower.

 

4.05 Taxes. Borrowers have filed or caused to be filed all federal, state or
local tax returns which are required to be filed, and have paid all taxes as
shown on said returns or on any assessment received by any Borrower, to the
extent that such taxes have become due, except to the extent such taxes are
being contested in good faith and by appropriate proceedings and with respect to
which reserves have been taken by a Borrower to the extent required by GAAP.

 

4.06 Financial Statements.

 

(a) The Financial Statements fairly present in all material respects the
financial condition of Eastside and its consolidated subsidiaries, including
each of the Borrowers, and the Financial Statements have been prepared in
accordance with GAAP (subject in the case of quarterly financials to changes
resulting from normal year-end adjustments and the absence of footnotes). As of
the date of this Loan Agreement, there has not been any adverse material change
in the financial conditions of any Borrower since October 25, 2019.

 

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(b) Borrowers have no liabilities of a type required by GAAP to be disclosed on
Eastside’s consolidated balance sheet other than (i) liabilities that are
accrued or reserved against in the Financial Statements, and (ii) liabilities
incurred in the ordinary course of business consistent with past practice since
the date of the Financial Statements.

 

(c) Borrowers maintain a system of internal controls over financial reporting
which is designed to provide reasonable assurance regarding the reliability of
financial reporting.

 

(d) Except as set forth on Schedule 4.06(f) attached hereto, there are no off
balance sheet transactions, arrangements or relationships attributable to the
businesses of Borrowers, including any joint ventures, obligations, partnership
agreements or similar contracts relating to any transactions, contracts or
relationships between any Borrower, on the one hand, and any Affiliate of any
Borrower, including any structured finance, special purpose or limited purpose
entity, on the other hand.

 

(e) The projections delivered by Borrowers to Lender on the Closing Date were
prepared reasonably and in good faith, it being acknowledged and agreed that
forward-looking information and projections are not a guarantee of future
performance, and actual results may differ from the forward-looking information
or projections.

 

(f) Since September 30, 2019, there have been no events or changes in facts or
circumstances affecting Borrowers or any of their respective businesses that
have resulted (or reasonably would be expected to result), either individually
or in the aggregate, in a Material Adverse Effect.

 

4.07 No Default. No Borrower is in default in the performance, observance or
fulfillment of any of the obligations, covenants, or conditions contained in any
agreement or instrument to which any of them are a party, which could reasonably
be expected to materially and adversely affect the business or operations of any
Borrower.

 

4.08 [Reserved].

 

4.09 ERISA. Each Borrower is in compliance in all material respects with all
applicable provisions of the ERISA and all other laws, state or federal,
applicable to any employees’ retirement plan maintained or established by it.

 

4.10 Subsidiaries. Eastside owns 100% of the Equity Interests of MotherLode, Big
Bottom, Craft, Redneck and Outlandish. MotherLode, Big Bottom, Craft, Redneck
and Outlandish do not own all or a substantial part of the Equity Interests in
any other corporation (or other form of business organization).

 

4.11 Hazardous Substances. No Hazardous Substances (except in amounts and
concentrations which comply with Environmental Law) are located on or have been
stored, processed or disposed of on or released or discharged (including ground
water contamination) from any property leased by any Borrower, and no above
ground or underground storage tanks exist on such property, in each case, in a
manner that violates any Environmental Laws in any material respects. No private
or governmental lien or judicial or administrative notice or action related to
Hazardous Substances or other environmental matters has been filed and remains
effective against any property leased by any Borrower or otherwise issued or
received by any Borrower. Each Borrower is in material compliance with all
applicable Environmental Laws, and has all Environmental Permits required for
its operations.

 

4.12 Compliance With Wage Laws. All inventory of Borrowers has been produced in
compliance with the minimum wage and overtime pay provisions of the Fair Labor
Standards Act in all material respects.

 

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4.13 Reaffirmation. Each and every request for an advance or other financial
accommodation hereunder shall be deemed as an affirmation by Borrowers that no
Default nor Event of Default exists hereunder and that the representations and
warranties contained in this Section Four are true and accurate in all material
respects as of the date of each such request.

 

4.14 Leased Real Property. Schedule 4.14 contains a list and brief description
of each Real Property Lease pursuant to which any Borrower is the lessor or the
lessee (or has an equivalent interest in the case of usufructs or other
arrangements which may not be leases under applicable law) of any real property.
As to each Real Property Lease, (a) no Borrower has either delivered or received
notice that any material breach or Event of Default exists, and (b) no condition
or event has occurred that with the giving of notice, the lapse of time, or both
would constitute a material breach or Event of Default by any Borrower or any
other person or entity.

 

4.15 Place of Business; Location of Inventory.

 

(a) Unless otherwise disclosed to Lender in writing after the Closing Date, each
Borrower’s chief executive office is at the address specified as such in the
first paragraph of this Loan Agreement unless Borrower Representative provides
Lender written notice of any change therein at least thirty (30) days prior to
such change.

 

(b) Each Borrower’s records concerning the Collateral are kept at the address or
addresses specified in the first paragraph of this Loan Agreement unless
Borrower Representative provides Lender written notice of any change therein at
least thirty (30) days prior to such change.

 

(c) Borrowers maintain Inventory at the locations set forth on Schedule 4.15
attached hereto.

 

4.16 Contracts.

 

(a) No Borrower has agreed nor consented to cause or permit in the future (upon
the happening of a contingency or otherwise) any of its property, whether now
owned or hereafter acquired, to be subject to a lien which is not a Permitted
Lien.

 

(b) The contracts entered into between Borrowers and their third party
distributors (“Distributor Contracts”) are listed on Schedule 4.16(b) attached
hereto. Each Distributor Contract is valid and binding on such Borrower and, to
such Borrower’s Knowledge, its customer in accordance with its terms and is in
full force and effect. No Borrower nor, to any Borrower’s Knowledge, any other
party thereto is in breach of or default under (or is alleged to be in breach of
or default under) in any material respect, or has provided or received any
notice of any intention to terminate, any Distributor Contract. No event or
circumstance has occurred that, with notice or lapse of time or both, would
constitute an Event of Default under any Distributor Contract or result in a
termination thereof or would cause or permit the acceleration or other changes
of any right or obligation or the loss of any benefit thereunder. There are no
material disputes pending or, to any Borrower’s Knowledge, threatened under any
Distributor Contracts.

 

(c) No Borrower is a party to any collective bargaining agreement or, except as
listed on Schedule 4.16(c) attached hereto, to any existing or threatened (in
writing) labor dispute or controversies.

 

4.17 Anti-Corruption Laws and Sanctions. None of (i) any Borrower or, to the
knowledge of any such Borrower, any of its respective directors, officers or
employees, or (ii) to the knowledge of any such Borrower, any agent of such
Borrower that will act in any capacity in connection with or benefit from the
credit facilities established hereby, is a Sanctioned Person. No Loan, use of
proceeds, or other transaction contemplated by this Agreement or the other Loan
Documents will violate Anti-Corruption Laws or applicable Sanctions. No part of
the proceeds of the Loan will be used, directly or indirectly, for any payments
to any governmental official or employee, political party, official of a
political party, candidate of political office, or anyone else in an official
capacity, in order to obtain, retain, direct business or obtain any improper
advantage, in violation of the United States Foreign Corrupt Practices Act of
1977, as amended.

 

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SECTION Five. AFFIRMATIVE COVENANTS OF BORROWERS.

 

The Borrowers, jointly and severally, covenant and agree that Borrowers,
individually and/or collectively (as the context requires), will from the date
hereof and until payment in full of the principal of and interest on the Loan,
unless Lender shall otherwise consent in writing, such consent to be at the
discretion of Lender:

 

5.01 Business and Existence. Perform all things necessary to preserve and keep
in full force and effect its existence and comply with all laws applicable to it
in all material respects; provided, however, that any Borrower may voluntarily
dissolve if all of its assets are transferred to other Borrowers (excluding
Craft).

 

5.02 Maintain Property. Maintain, preserve and protect all material franchises,
and material tradenames and preserve all the remainder of its material
properties used or useful in the conduct of its business; preserve all the
remainder of its material properties used or useful in the conduct of its
business and keep the same in good repair, working order and condition (other
than wear and tear occurring in the ordinary course of business), and from time
to time make, or cause to be made, all needed, proper and cost-justified
repairs, renewals, replacements, betterments and improvements thereto so that
the business carried on in connection therewith may be properly conducted at all
times.

 

5.03 Insurance. At all times maintain in some company or companies (having a
Best’s rating of A+ or better):

 

  (i) Comprehensive public liability insurance covering claims for bodily
injury, death, and property damage, with a minimum limit of $1,000,000.00;      
  (ii) Hazard insurance insuring Borrowers’ property and assets against loss by
fire (with extended coverage) and against such other hazards and perils
(including but not limited to loss by windstorm, hail, explosion, riot,
aircraft, smoke, vandalism, malicious mischief and vehicle damage) as Lender may
reasonably require, for the amount of the replacement cost of such property and
assets, all such insurance to be issued in such form, with such deductible
provision, as shall be satisfactory to Lender;         (iii) If any of the
Collateral is or will be located in an area designated by the Director of the
Federal Emergency Management Agency as a Special Flood Hazard Area Zone, a flood
insurance policy in form and substance satisfactory to Lender;         (iv)
Worker’s compensation insurance in an amount meeting all state requirements,
with an insurance company satisfactory to Lender;         (v) Business personal
property insurance on the business contents of in the amount of the replacement
cost of the Collateral; and

 

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  (vi) Such other insurance as may, from time to time, be reasonably required by
Lender against other insurance hazards which at the time are commonly insured
against in the case of premises similarly situated, due regard being or to be
given to the height or type of building, its location, construction, use and
occupancy.

 

All policies of liability insurance shall name Lender as an additional insured,
as its interests may appear, and all policies of hazard insurance shall name
Lender as loss payee. All insurance provided for in this Section shall be
effected under valid and enforceable policies. Prior to the Closing Date, and at
all relevant times during the term hereof, Borrowers shall cause a certificate
evidencing same to be delivered to Lender. All policies of insurance provided
for in this Section shall, to the extent obtainable, contain clauses or
endorsements to the effect that such policies shall not be changed or canceled
without at least thirty (30) days’ prior written notice to Lender.

 

5.04 Obligations, Taxes and Liens. Pay all of its indebtedness and obligations
promptly in accordance with normal terms and practices of its business and pay
and discharge or cause to be paid and discharged promptly all taxes,
assessments, and governmental charges or levies imposed upon it or upon any of
its income, profits, or properties, real, personal or mixed, or upon any part
thereof, before the same shall become in default, as well as all lawful claims
for labor, materials, and supplies which otherwise, if unpaid, could reasonably
be expected to become a lien or charge upon such properties or any part thereof;
provided, however, that Borrowers shall not be required to pay and discharge or
to cause to be paid and discharged any such tax, assessment, trade payable,
charge, levy or claim so long as the validity thereof shall be contested in good
faith by appropriate proceedings, and Lender shall be furnished, if Lender shall
so request, bond or other security protecting it against loss in the event that
such contest should be adversely determined.

 

5.05 Financial Reports and Other Data. Furnish to Lender as soon as available,
and in any event: (A) within ninety (90) days after the end of each Fiscal Year,
a consolidated balance sheet and statement of income and surplus of Eastside and
its Subsidiaries which have been certified by an independent certified public
accountant, showing the financial condition of Eastside and its Subsidiaries, on
a consolidated basis, at the close of such Fiscal Year and the results of
operations during such year; (B) within forty five (45) days after the end of
each of the first three Fiscal Quarters of each Fiscal Year, consolidated
financial statements for Eastside and its Subsidiaries, certified by the
President or Treasurer or other appropriate financial officer of Eastside as
fairly presenting in all material respects the financial condition, results of
operations and cash flows of Eastside and its Subsidiaries in accordance with
GAAP, subject only to normal year-end audit adjustments and the absence of
footnotes, such balance sheets to be as of the end of such Fiscal Quarter, and
such statements of income and surplus to be for the period from the beginning of
the Fiscal Year to the end of such Fiscal Quarter, in each case subject only to
audit and year-end adjustment; (C) within thirty (30) days after the end of each
calendar month, consolidated financial statements for Eastside and its
Subsidiaries, certified by the President or Treasurer or other appropriate
financial officer of Eastside as fairly presenting in all material respects the
financial condition, results of operations and cash flows of Eastside and its
Subsidiaries in accordance with GAAP, subject only to normal year-end audit
adjustments and the absence of footnotes, such balance sheets to be as of the
end of such calendar month, and such statements of income and surplus to be for
the period from the beginning of the Fiscal Year to the end of such calendar
month, in each case subject only to audit and year-end adjustment; (D) within
thirty (30) days after the end of each Fiscal Year, board-approved quarterly
projections of Eastside and its Subsidiaries (income statement and balance
sheet); (E) within forty five (45) days after the end of each Fiscal Quarter, an
Accounts Receivable aging report, accounts payable aging report, and Inventory
report (including a listing of any warehouses or bailees holding Eligible
Inventory) for the Borrowers; (F) concurrently with the delivery of the
financial statements required by subsection (C) above, a compliance certificate
executed by the President or Treasurer of Borrower Representative or other
financial officer satisfactory to Lender in the form of Exhibit B attached
hereto and made a part hereof; (G) updated financial statements and/or balance
sheets from time to time upon Lender’s request; and (H) within thirty (30) days
after the end of each calendar month, bank statements for all deposit accounts
of Borrowers maintained outside of Live Oak Bank. All financial statements
prepared and provided to Lender pursuant to this Section 5.05 shall be prepared
in accordance with GAAP, subject, in the case of unaudited financial statements,
to normal year-end audit adjustments and the absence of footnotes. Documents
required to be delivered pursuant to the terms hereof (to the extent any such
documents are included in materials otherwise filed with the SEC) may be
delivered electronically and if so delivered, shall be deemed to have been
delivered on the date on which Borrower posts such documents, or provides a link
thereto, on Borrower’s website on the internet at Borrower’s website address.

 

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5.06 Taxes. Promptly pay and discharge all of its material taxes, assessments,
and other governmental charges prior to the date on which penalties are attached
thereto, establish adequate reserves for the payment of such taxes, assessments,
and other governmental charges to the extent required by GAAP, make all required
withholding and other tax deposits, and, upon request, provide Lender with
receipts or other proof that such taxes, assessments, and other governmental
charges have been paid in a timely fashion.

 

5.07 Reserved.

 

5.08 Notice of Default. Promptly, and in any event within 5 Business Days of any
Borrower’s first knowledge thereof, furnish Lender with written notice of the
occurrence of any event or the existence of any event, circumstance, or
condition which constitutes or upon notice, lapse of time, or both, would
constitute an Event of Default under the terms of this Loan Agreement.

 

5.09 Inventory in Possession of Third Parties. If any Inventory remains in the
hands or control of any of Borrowers’ agents, finishers, contractors, or
processors, or any other third party, notify such party of Lender’s Security
Interest in the Inventory and shall use commercially reasonable efforts to
obtain such agreements and documents from such third parties with respect to
such Inventory as reasonably requested by Lender.

 

5.10 Verification and Valuation of Collateral. Lender shall have the right to
verify all or any Collateral in any manner and through any medium Lender may
consider appropriate, and Borrowers agree to furnish all assistance and
information and perform any acts which Lender may reasonably request in
connection therewith. Borrowers agree to furnish Lender from time to time upon
request, statements and schedules further identifying and describing the
Collateral and such other information, reports and evidence concerning the
Collateral as Lender may reasonably request, all in reasonable detail. Lender
shall have the right to receive a third party valuation of all or any Collateral
(i) up to two (2) times during each year following the Closing Date, (ii) upon
and during the continuance of an Event of Default, and (iii) at Lender’s sole
cost and expense, at any other time as Lender may request. Such valuations shall
be (a) requested by and prepared for Lender; (b) completed by an appraiser
approved by Lender; and (c) completed within five (5) business days to the
extent commercially practicable. Lender will conduct a field exam within ninety
(90) days of the Closing Date and at least once per year thereafter. Lender
retains the rights to perform additional field exams at its discretion and,
unless an Event of Default has occurred and is continuing, at its sole cost and
expense.

 

5.11 Litigation.

 

(a) Promptly notify Lender in writing of any litigation, proceeding, or
counterclaim against, or of any investigation of any Borrower if: (i) the
outcome of such litigation, proceeding, counterclaim, or investigation could
reasonably be expected to have a Material Adverse Effect; or (ii) such
litigation, proceeding, counterclaim, or investigation questions the validity of
any Loan Document or any action taken, or to be taken, pursuant to any Loan
Document.

 

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(b) Furnish to Lender such information regarding any such litigation,
proceeding, counterclaim, or investigation as Lender shall request, provided,
however, that Borrowers will not be required to furnish any information if,
based on the advice of counsel, withholding such information is required to
preserve the attorney-client or other legal privilege.

 

5.12 Compliance with Laws and Contractual Obligations. Comply with all
applicable laws, rules, regulations, and other legal requirements with respect
to its business and the use, maintenance, and operation of the real and personal
property owned or leased by it in the conduct of its business if noncompliance
would reasonably be expected to have a Material Adverse Effect. Borrowers shall
comply with the obligations, covenants and conditions contained in all
Contractual Obligations if noncompliance would reasonably be expected to have a
Material Adverse Effect.

 

5.13 Maintenance of Property. Maintain its property, including, without
limitation, the Collateral, in good condition, working order and repair,
ordinary wear and tear excepted, and shall prevent the Collateral, or any part
thereof, from being or becoming an accession to other goods not constituting
Collateral.

 

5.14 Licenses, Permits, Etc. Maintain or obtain all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates, and
orders, necessary to conduct its business in compliance with applicable laws,
including but not limited to TTB Permits and ABC Licenses.

 

5.15 Other Information. Provide such additional information as Lender may from
time to time reasonably request regarding the financial and business affairs of
Borrowers, provided, however, that Borrowers will not be required to provide any
information if, based on the advice of counsel, withholding such information is
required to preserve the attorney-client or other legal privilege.

 

5.16 Power of Attorney. Hereby appoints and constitutes Lender its lawful
attorney-in-fact with full power of substitution to, upon the occurrence and
during the continuance of an Event of Default, endorse such Borrower’s name on
any checks, notes, acceptances, drafts or any other instrument or document
requiring said endorsement and to sign such Borrower’s name on any invoice or
bills of lading relating to any Account, or drafts against its customers, or
schedules or confirmatory assignments on Accounts, prepare, execute, file,
record or deliver financing statements, continuation statements, termination
statements, statements of assignment, applications for registration, or similar
instruments to perfect, preserve, or release Lender’s interests in the
Collateral, cause any Collateral to be transferred to Lender’s name or the name
of Lender’s nominee, and to do all things and execute all documents in the name
of such Borrower or otherwise, in each case, as Lender deems necessary, proper
or convenient in order to preserve, perfect, or enforce its rights in the
Collateral; it being understood and agreed that this power of attorney shall be
coupled with an interest and cannot be revoked.

 

5.17 [Reserved].

 

5.18 [Reserved].

 

5.19 [Reserved].

 

5.20 Payments on Collateral. If any Borrower receives any payments or
remittances on Eligible Inventory, such Borrower agrees to receive any and all
such payments and remittances on Eligible Inventory, including cash, checks,
drafts, notes, acceptances, or other forms of payment, in trust for Lender and
to deliver such payments to Lender in the identical form in which they were
received, together with any necessary endorsement in favor of Lender and with
collection reports in form satisfactory to Lender.

 

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5.21 Application of Payments. All proceeds of any Eligible Inventory which are
delivered to or otherwise received by Lender for application to the loans
provided for herein shall be deemed received as of the date of actual receipt by
Lender, and shall be applied by Lender on account of the Indebtedness upon
Lender’s receipt of same; provided, however, that no checks, drafts, or other
Instruments received by Lender shall constitute payment to Lender unless and
until such item of payment has actually been collected by Lender. For the sole
purpose of calculation of interest due to Lender from Borrowers, all such
proceeds and other payments on account of the loans provided for in this
Agreement, irrespective of the type or form of payment thereof shall not be
considered applied on account of the Indebtedness until three (3) Business Days
after Lender’s application of same to the Indebtedness.

 

SECTION Six. NEGATIVE COVENANTS OF BORROWERS.

 

Each Borrower, jointly and severally, covenants and agrees that it will not,
directly or indirectly, at all times from and after the Closing Date, unless
Lender shall otherwise consent in writing, such consent to be at the discretion
of Lender:

 

6.01 Debt. Incur, create, assume or permit to exist any Debt or liability for
borrowed money, or on account of deposit, advance or progress payments under
contracts, or any other indebtedness or liability, including, but not limited
to, indebtedness evidenced by notes, bonds, debentures or similar obligations,
except:

 

(a) Indebtedness to Lender arising under this Loan Agreement and evidenced by
the Note;

 

(b) Debt owing to ENGS Commercial Capital, LLC in a principal amount not to
exceed $3,000,000, which is secured by Borrowers’ Accounts only;

 

(c) capital leases and other Debt incurred to finance the acquisition,
construction or improvement of any equipment or capital assets in an aggregate
principal amount not to exceed $2,000,000 at any time outstanding;

 

(d) unsecured intercompany Debt of one Borrower to another Borrower;

 

(e) Debt listed on Schedule 6.01(d) attached hereto;

 

(f) trade accounts payable, taxes payable, deferred sales, accrued employees’
bonuses and withheld amounts, accrued liabilities with respect to short-term
obligations incurred by Borrowers in the normal course of operating their
businesses, provided that the amount of such obligations shall not be unduly
large, in the reasonable judgment of Lender, considering the size and nature of
Borrowers’ businesses, and provided that Borrowers shall not be in default with
respect to any of such obligations;

 

(g) any replacement, refinancing, refunding, renewal or extension of any of the
foregoing permitted Debt, provided that the principal amount thereof does not
exceed the principal amount of the Debt so replaced, refinanced, refunded,
renewed or extended except by an amount equal to unpaid accrued interest plus
other reasonable amounts paid, and fees and expenses reasonably incurred, in
connection with such replacement, refinancing, refunding, renewal or extension.

 

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6.02 Mortgages, Liens, Etc. Create, assume or suffer to exist any mortgage,
pledge, lien, charge or other encumbrance of any nature whatsoever, other than
Permitted Liens, on any of its assets, now or hereafter owned.

 

6.03 Guaranties. Guarantee or otherwise in any way become or be responsible for
the indebtedness or obligations of any other Person (other than another Borrower
so long as the underlying Debt is otherwise permitted pursuant to Section 6.01
above), by any means whatsoever, whether by agreement to purchase the
indebtedness of any other Person or agreement for the furnishing of funds to any
other Person through the purchase of goods, supplies or services (or by way of
stock purchase, capital contribution, advance or loan) for the purpose of paying
or discharging the indebtedness of any other Person, or otherwise, except for
the endorsement of negotiable instruments by the Borrowers in the ordinary
course of business for collection.

 

6.04 Sale of Assets. Sell, lease, transfer or dispose of all or a substantial
part of its assets, excluding sales of Inventory, other than Eligible Inventory,
in the normal course of business.

 

6.05 Consolidation or Merger; Acquisition of Assets. Enter into any transaction
of merger or consolidation, acquire any other business or corporation, or
acquire all or substantially all of the property or assets of any other Person
(except that a Borrower may merge or consolidate with, or be acquired by,
another Borrower).

 

6.06 Loans and Investments. Make any loans to or investments in, or purchase any
stock, other securities or evidence of indebtedness of any person, except as
follows: (i) direct obligations of the United States of America or obligations
for which the full faith and credit of the United States of America is pledged
to provide for the payment of principal and interest, (ii) marketable securities
issued by an agency of the United States government, (iii) commercial paper
rated A-1 by Standard and Powers corporation, or P-1 by Moody’s Investors
Service, Inc., (iv) certificates of deposit of or bankers’ acceptances accepted
by domestic commercial banks in the United States of America having a combined
capital and surplus of at least $90,000,000.00, (v) repurchase agreements of any
of the foregoing or (vi) investments in another Borrower.

 

6.07 [Reserved].

 

6.08 [Reserved].

 

6.09 Salaries. Either individually or in the aggregate, pay salaries, fees,
bonuses or other forms of compensation to its Affiliates or members of the
families of the Affiliates of any Borrower in excess of the amounts, taken as a
whole, paid by businesses of similar size and conducting similar business
activities.

 

6.10 Contracts Prohibiting Compliance. Enter into any contract or other
agreement which would prohibit or in any way restrict the ability of any
Borrower to comply with the provisions of this Loan Agreement.

 

6.11 [Reserved].

 

6.12 Loans to Officers and Employees. Shall not permit or allow loans to
officers and employees of Borrowers, in the aggregate, to exceed the amount of
the loans to officers and employees reflected on Borrowers’ Financial
Statements, if any.

 

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6.13 Prohibited Use of Loans. No portion of any advance or any Loan made
hereunder shall be used for any purpose not expressly permitted under Section
Two of this Agreement. No part of the proceeds of any Loan will be used, whether
directly or indirectly, for any purpose that entails a violation of any of the
Regulations of the Board, including Regulations T, U and X. No Borrower will
request any Loan, nor shall any Borrower use, and each Borrower shall ensure
that its Subsidiaries and its or their respective directors, officers, employees
and agents shall not use, the proceeds of any Loan (a) in furtherance of an
offer, payment, promise to pay, or authorization of the payment or giving of
money, or anything else of value, to any Person in violation of any
Anti-Corruption Laws, (b) for the purpose of funding, financing or facilitating
any activities, business or transaction of or with any Sanctioned Person, or in
any Sanctioned Country, or (c) in any manner that would result in the violation
of any Sanctions applicable to any party hereto.

 

6.14 USA Patriot Act. No Loan Party shall (a) be or become subject at any time
to any law, regulation, or list of any government agency (including, without
limitation, the U.S. Office of Foreign Asset Control list) that prohibits or
limits Lender from making any advance or extension of credit to Borrowers or
from otherwise conducting business with any Borrower, or (b) fail to provide
documentary and other evidence of any Borrower’s identity as may be requested by
Lender at any time to enable Lender to verify any Borrower’s identity or to
comply with any applicable law or regulation, including, without limitation,
Section 326 of the USA Patriot Act of 2001, 31 U.S.C. § 5318.

 

6.15 Special Covenants as to Assets. Until satisfaction in full of all
Indebtedness of Borrowers to Lender and until termination of this Agreement: (A)
no Eligible Inventory shall be stored with a bailee, warehouseman, or similar
party without Lender’s prior written consent and, if Lender gives such consent,
Borrowers will concurrently therewith cause any such bailee, warehouseman, or
similar party to issue and deliver to Lender, in form and substance acceptable
to Lender, warehouse receipts therefor in Lender’s name; (B) Borrowers will not
hold any goods belonging to third parties or in which other parties have an
interest, including any goods sold on a bill and hold basis, except as set forth
on Schedule 6.15; (C) Borrowers will not purchase or otherwise hold goods on a
consignment basis except as set forth on Schedule 6.15; (D) none of Borrowers’
Inventory will be of a nature that contains any labels, trademarks, trade names,
or other identifying characteristics which are the property of third parties,
and the use of which by Borrowers is in violation of the rights of such third
parties or a violation of any license, royalty, or similar agreements with any
third parties; (E) except as set forth on Schedule 6.15, Borrowers will not
allow any Eligible Inventory of Borrowers to be held by any Person in the future
without the prior written consent of Lender; (F) except upon prior written
notice to Lender, Borrowers will not in the future purchase any Inventory except
in the ordinary course of business from Persons customarily in the business of
selling such Inventory; (G) Borrowers will not, without prior written consent of
Lender, remove the Eligible Inventory from its present location, except for the
removal of Eligible Inventory upon its sale; and (H) Borrowers will not cause
any surety bonds to be issued on its behalf in connection with any contracts or
purchase orders except upon not less than ten (10) days prior written notice to
Lender.

 

SECTION Seven. EVENTS OF DEFAULT.

 

An “Event of Default” shall exist if any of the following shall occur:

 

7.01 Payment of Principal, Interest. Borrowers default in the prompt payment as
and when due (whether by reason of demand, acceleration, maturity or otherwise)
of the principal of or interest on the Loan, or (if there is any applicable cure
period regarding such default) such default is not cured within the applicable
cure period, or in the prompt payment when due of any other indebtedness,
liabilities, or obligations to Lender, whether now existing or hereafter created
or arising, direct or indirect, absolute or contingent; or

 

7.02 Payment of Other Obligations. Any Borrower shall default with respect to
any other agreement to which it is a party or with respect to any other
indebtedness in a principal amount of at least $250,000 when due or the
performance of any other obligation incurred in connection with any such
indebtedness for borrowed money, if the effect of such default is to accelerate
the maturity of such indebtedness, or if the effect of such default is to permit
the holder thereof to cause such indebtedness to become due prior to its stated
maturity; or

 

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7.03 Representation or Warranty. Any representation or warranty made by a
Borrower herein, or in any report, certificates, financial statement or other
writing furnished in connection with or pursuant to this Loan Agreement shall
prove to be false, misleading or incomplete in any material respect on the date
as of which made; or

 

7.04 Covenants. Any Borrower shall default in the performance or observance of
any covenant, agreement or undertaking on the part of it to be performed or
observed, whether contained herein or in any other instrument or document which
now or hereafter evidences, secures or relates to all or any part of the Loan
and such default continues unremedied for a period of 30 days after written
notice to Borrowers by Lender; provided, however, that no such grace period
shall apply to any default of a covenant contained in the Security Agreement or
Section 5.01, Section 5.03, Section 5.05, Section 5.08 or Section 6 hereof; or

 

7.05 Bankruptcy, Etc. Any Borrower shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, petition or apply to any tribunal for
the appointment of a custodian, receiver or a trustee for it or a substantial
part of its or his assets, or shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, whether now or hereafter in
effect; or if there shall have been filed any such petition or application, or
any such proceeding shall have been commenced against any Borrower, in which an
order for relief is entered or which remains undismissed for a period of sixty
(60) days or more; or any Borrower by any act or omission shall indicate its
consent to, approval of or acquiescence in any such petition, application or
proceeding or order for relief or the appointment of a custodian, receiver or
any trustee for it or any substantial part of any of its properties, or shall
suffer any such custodianship, receivership or trusteeship to continue
undischarged for a period of sixty (60) days or more; or any Borrower shall
generally not pay its debts as such debts become due;

 

7.06 Change in Control. There shall occur a Change in Control; or

 

7.07 Collateral; Impairment. There shall occur with respect to the Collateral
any (i) fraud; (ii) misappropriation, conversion or diversion; (iii) levy,
seizure, or attachment; or (iv) material loss, theft, or damage not covered by
insurance that, in each case, could reasonably be expected to cause or result in
a Material Adverse Effect.

 

Upon the occurrence of any event, circumstance or condition which constitutes or
would with the giving of notice, lapse of time, or both constitute an Event of
Default, as specified herein, the Lender shall, at its option, be relieved of
any obligation to make further loan advances or extensions of credit under this
Loan Agreement, and if such event, circumstance or condition becomes an Event of
Default, Lender may, at its option, thereupon declare the entire Loan to be
immediately due and payable for all purposes, and may exercise all rights and
remedies available to it under the Security Agreement or any other instrument or
document which secures the Loan, or available at law or in equity.

 

SECTION Eight. MISCELLANEOUS.

 

8.01 Amendments. The provisions of the Loan Documents, or any instrument or
document executed pursuant hereto or securing the Loan, may be amended or
modified only by an instrument in writing signed by the parties hereto.

 

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8.02 Notices. All notices and other communications provided for hereunder
(except for routine informational communications) shall be in writing and shall
be mailed, certified mail, return receipt requested, sent by recognized national
overnight courier service, or delivered, addressed to the Borrower
Representative or Lender (or other holder of the Note) at such party’s address
as set forth in the first paragraph of this Agreement, or to any such person at
such other address as shall be designated by such person in a written notice to
the other parties hereto complying as to delivery with the terms of this Section
8.02. All such notices and other communications shall be effective (i) if
mailed, when received or three (3) business days after mailing, whichever is
earlier; or (ii) if sent by overnight courier service, on the first business day
after sending, or (iii) if delivered, upon delivery.

 

8.03 No Waiver, Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of Lender, any right, power or privilege hereunder,
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. Waiver of any
right, power or privilege hereunder or under any instrument or document now or
hereafter securing the indebtedness evidenced hereby or under any guaranty at
any time given with respect thereto is a waiver only as to the specified item.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by laws.

 

8.04 Survival of Agreements. All agreements, representations and warranties made
herein shall survive the delivery of the Note. This Loan Agreement shall be
binding upon, and inure to the benefit of the parties hereto and their
respective heirs, successors, and assigns, except that the Borrowers shall not
have the right to assign their rights hereunder or any interest therein.

 

8.05 Liens; Setoff by Lender. Borrowers hereby grant to Lender a continuing
lien, as security for the Note and all other indebtednesses and obligations of
Borrowers to the Lender, upon any of their monies, securities and other property
and the proceeds thereof, now or hereafter held by Lender or in transit to
Lender, and also upon any and all deposits (general or special, matured or
unmatured) and credits of Borrowers against the Lender, at any time existing.
Upon the occurrence of an Event of Default, Lender is hereby authorized at any
time and from time to time, without notice to Borrowers, to set off,
appropriate, and apply any and all items hereinabove referred to against any or
all indebtednesses of Borrowers to Lender.

 

8.06 Governing Law. This Loan Agreement shall be governed and construed in
accordance with the laws of the State of New York.

 

8.07 Execution in Counterparts. This Loan Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.

 

8.08 Terminology; Section Headings. All personal pronouns used in this Loan
Agreement whether used in the masculine, feminine, or neuter gender, shall
include all other genders; the singular shall include the plural, and vice
versa. Section headings are for convenience only and neither limit nor amplify
the provisions of this Loan Agreement.

 

8.09 Enforceability of Agreement. Should any one or more of the provisions of
this Loan Agreement be determined to be illegal or unenforceable, all other
provisions, nevertheless, shall remain effective and binding on the parties
hereto.

 

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8.10 Fees and Expenses; Indemnity.

 

(a) Borrowers, jointly and severally, agree to pay or reimburse Lender for the
actual out-of-pocket expenses, including reasonable counsel fees and fees of any
accountants, inspectors or other similar experts, as deemed necessary by Lender,
incurred by Lender in connection with the development, preparation, execution,
amendment, recording, administration or enforcement of, or the preservation of
any rights under this Loan Agreement, the Note, and any other instrument or
document which now or hereafter secures the Loans. In addition, the Borrowers,
jointly and severally, agree to pay to Lender the following:

 

  (i) a loan origination fee of $40,000.00;         (ii) valuations of
Collateral conducted pursuant to Section 5.10(i) and (ii); and         (iii) all
other costs and expenses as set forth in the commitment letter with respect to
the Loan issued by Lender.

 

(b) Borrowers, jointly and severally, agree to indemnify and hold harmless the
Lender, its Affiliates and the directors, officers, employees, partners, agents,
trustees, administrators, managers, advisors and representatives of it and its
Affiliates (each, an “Indemnified Party”) from and against, any and all claims,
damages, losses, liabilities and related expenses (including the reasonable
fees, charges and disbursements of counsel), incurred by any Indemnified Party
or asserted against any Indemnified Party by any Person arising out of, in
connection with, or by reason of:

 

  (i) the execution or delivery of any Loan Document or any agreement or
instrument contemplated in any Loan Document, the performance by the parties
thereto of their respective obligations under any Loan Document or the
consummation of the transactions contemplated by the Loan Documents;        
(ii) any Loan or the actual or proposed use of the proceeds therefrom;        
(iii) any actual or alleged presence or release of Hazardous Substance on or
from any property currently or formerly owned or operated by any Borrower; or  
      (iv) any actual or prospective claim, investigation, litigation or
proceeding relating to any of the foregoing, whether based on contract, tort or
any other theory, and regardless of whether any Indemnified Party is a party
thereto;

 

provided that, such indemnity shall not be available to any Indemnified Party to
the extent that such claims, damages, losses, liabilities or related expenses
(A) are determined by a court of competent jurisdiction by final and
non-appealable judgment to have resulted from the gross negligence or willful
misconduct of such Indemnified Party or (B) result from a claim brought by a
Borrower against any Indemnified Party for breach in bad faith of such
Indemnified Party’s obligations under any Loan Document, if a court of competent
jurisdiction has rendered a final and non-appealable judgment in favor of such
Borrower on such claim.

 

(c) Each Borrower agrees, to the fullest extent permitted by applicable law, not
to assert, and hereby waives, any claim against any Indemnified Party, on any
theory of liability, for special, indirect, consequential or punitive damages
(including any loss of profits or anticipated savings), as opposed to actual or
direct damages, resulting from this Agreement or any other Loan Document or
arising out of such Indemnified Party’s activities in connection herewith or
therewith (whether before or after the Closing Date).

 

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(d) All amounts due under Section 8.10(b) shall be payable not later than 15
days after demand is made for payment by the Lender.

 

(e) Each Borrower agrees that it will not settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
in respect of which indemnification or contribution could be sought under
Section 8.10(b) (whether or not any Indemnified Party is an actual or potential
party to such claim, action or proceeding) without the prior written consent of
the applicable Indemnified Party, unless such settlement, compromise or consent
includes an unconditional release of such Indemnified Party from all liability
arising out of such claim, action or proceeding, which consent shall not be
unreasonably withheld or delayed.

 

8.11 Time of Essence. Time is of the essence as to the Borrowers’ obligations
under this Loan Agreement, the Note and the other instruments and documents
executed and delivered in connection herewith.

 

8.12 Confidentiality. Lender agrees to maintain the confidentiality of the
Information (as defined below) and to not use the Information for any purpose
except in connection with the Loan Documents, except that Information may be
disclosed (i) to its and its Affiliates’ directors, officers, employees, and
agents, including accountants, legal counsel and other professionals, experts or
advisors, or to any credit insurance provider relating to the Borrowers and
their obligations, in each case whom it reasonably determines needs to know such
information in connection with this Loan Agreement and the transactions
contemplated hereby and who are informed of the confidential nature of such
Information and instructed to keep such Information confidential, (ii) to the
extent requested by any rating agency or regulatory authority, examiner
regulating banks or banking, or other self-regulatory authority having or
claiming oversight over the Lender or any of its Affiliates, (iii) pursuant to
the order of any court or administrative agency or in any pending legal,
judicial or administrative proceeding, or otherwise as required by applicable
laws or regulations or by any subpoena or similar legal process based on the
advice of counsel (in which case the Lender agrees, to the extent permitted by
applicable law, to inform the Borrower promptly thereof), (iv) to any other
party to this Loan Agreement, (v) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Loan
Agreement or the enforcement of rights hereunder, (vi) subject to an agreement
containing provisions substantially the same as those of this Section, to (A)
any assignee of or participant in, or any prospective assignee of or prospective
participant in, any of its rights or obligations under this Loan Agreement or
(B) any actual or prospective counterparty (or its advisors) to any swap or
derivative transaction relating to the Borrower and its obligations, (vii) with
the consent of the Borrowers, or (viii) to the extent such Information (A)
becomes publicly available other than as a result of a breach of this Section,
(B) becomes available to the Lender on a nonconfidential basis from a source
other than the Borrower or (C) is independently developed by the Lender se. In
addition, the Lender may disclose the existence of this Loan Agreement and
information about this Loan Agreement to market data collectors, similar service
providers to the lending industry and service providers to the Lender in
connection with the administration of this Loan Agreement, the other Loan
Documents and the Loans. For the purposes of this Section, “Information” means
all memoranda, reports or other information received from or on behalf of the
Borrowers relating to the Borrowers or their businesses, other than any such
information that is available to the Lender on a nonconfidential basis prior to
disclosure by the Borrowers. Any Person required to maintain the confidentiality
of Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.

 

8.13 WAIVER OF RIGHT TO TRIAL BY JURY/JURISDICTION. EACH PARTY TO THIS AGREEMENT
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE
OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALING OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR COPY OF
THIS SECTION WITH ANY COURT AS EVIDENCE OF SUCH AGREEMENT.

 

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EACH BORROWER AGREES THAT THE STATE COURTS LOCATED IN NEW HANOVER COUNTY, NORTH
CAROLINA, AND THE FEDERAL COURTS LOCATED IN THE EASTERN DISTRICT OF NORTH
CAROLINA, HAVE JURISDICTION OVER ANY AND ALL ACTIONS AND PROCEEDINGS INVOLVING
THIS AGREEMENT OR ANY OTHER AGREEMENT MADE IN CONNECTION HEREWITH AND SUCH
BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES TO SUBMIT TO THE
JURISDICTION OF SUCH COURTS FOR PURPOSES OF ANY SUCH ACTION OR PROCEEDING. EACH
BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION THAT SUCH
BORROWER MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING, INCLUDING ANY CLAIM THAT SUCH COURT IS AN INCONVENIENT FORUM, AND
CONSENTS TO SERVICE OF PROCESS PROVIDED THE SAME IS IN ACCORDANCE WITH THE TERMS
HEREOF. FINAL JUDGMENT IN ANY SUCH PROCEEDING AFTER ALL APPEALS HAVE BEEN
EXHAUSTED OR WAIVED SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT. NOTHING IN THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT LENDER MAY OTHERWISE HAVE TO BRING ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
AGAINST ANY BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

 

8.14 Patriot Act. Lender hereby notifies Borrowers that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the “Act”), it is required to obtain, verify and record
information that identifies each Borrower, which information includes the name
and address of Borrowers and other information that will allow Lender to
identify Borrowers in accordance with the Act.

 

8.15 Borrower Representative. Eastside is hereby appointed by each of the
Borrowers as its contractual representative hereunder and under each other Loan
Document, and each of the Borrowers irrevocably authorizes the Borrower
Representative to act as the contractual representative of such Borrower, and
the Borrower Representative agrees to act as such contractual representative.
The Borrowers hereby empower and authorize the Borrower Representative, on
behalf of the Borrowers, to execute and deliver to Lender, the Loan Documents
and all related agreements, certificates, documents, or instruments as shall be
necessary or appropriate to effect the purposes of the Loan Documents and to
receive notices on their behalf. Each Borrower agrees that any action taken by
the Borrower Representative or the Borrowers in accordance with the terms of
this Agreement or the other Loan Documents, and the exercise by the Borrower
Representative of its powers set forth therein or herein, together with such
other powers that are reasonably incidental thereto, shall be binding upon all
of the Borrowers. Lender, and its officers, directors, agents or employees,
shall not be liable to the Borrower Representative or any Borrower for any
action taken or omitted to be taken by the Borrower Representative or the
Borrowers pursuant to this appointment under this Agreement.

 

[Signatures are on the following page(s)]

 

 27 

 

 

Signature Page to Loan Agreement

 

IN WITNESS WHEREOF, Borrowers and the Lender have executed this Loan Agreement,
or caused this Loan Agreement to be executed by their respective officers, duly
authorized so to do, all as of the day and year first above written.

 

  BORROWERS:           EASTSIDE DISTILLING INC.           By: /s/ Lawrence
Firestone     Name: Lawrence Firestone     Title: CEO             REDNECK
RIVIERA WHISKEY CO., LLC             By: Eastside Distilling Inc., its sole
Member             By: /s/ Lawrence Firestone     Name: Lawrence Firestone    
Title: CEO           MOTHERLODE LLC             By: Eastside Distilling Inc.,
its sole Member             By: /s/ Lawrence Firestone     Name: Lawrence
Firestone     Title: CEO           BIG BOTTOM DISTILLING, LLC           By:
Eastside Distilling Inc., its Manager             By: /s/ Lawrence Firestone    
Name: Lawrence Firestone     Title: CEO  

 

 

 

 

Signature Page to Loan Agreement

 

  OUTLANDISH BEVERAGES LLC           By: Eastside Distilling Inc., its sole
Member             By: /s/ Lawrence Firestone     Name: Lawrence Firestone    
Title: CEO             CRAFT CANNING + BOTTLING, LLC             By: Eastside
Distilling Inc., its sole Member             By: /s/ Lawrence Firestone    
Name: Lawrence Firestone     Title: CEO             LENDER:           LIVE OAK
BANKING COMPANY             By: /s/ Roxana J. Rice     Name: Roxana J. Rice    
Title: Vice President  

 

 

 

 

EXHIBIT A

 

Form of Borrowing Base Certificate

 

[Date]

 

Live Oak Banking Company

 

1741 Tiburon Drive

 

Wilmington, NC 28403

 

Ladies and Gentlemen:

 

In order to induce you to make, or continue to make, loan advances to Eastside
Distilling, Inc., a Nevada corporation (“Eastside”), the Borrower Representative
for MotherLode LLC, an Oregon limited liability company (“MotherLode”), Big
Bottom Distilling, LLC, an Oregon limited liability company (“Big Bottom”),
Craft Canning + Bottling, LLC, an Oregon limited liability company (“Craft”),
Redneck Riviera Whiskey Co., LLC, a Tennessee limited liability company
(“Redneck”) and Outlandish Beverages LLC, an Oregon limited liability company
(“Outlandish” and together with Eastside, MotherLode, Big Bottom, Craft and
Redneck, collectively, the “Borrowers”) pursuant to that certain Loan Agreement
(the “Loan Agreement”) between you and Borrowers, and the Note (as defined in
the Loan Agreement), the undersigned, as Borrower Representative hereby
certifies that on the ____ day of ___________, 20__, the Inventory Value of
Borrowers’ Inventory was as follows:

 

Finished Whiskey in Barrels or Totes   $_______________  

 

The Inventory Value has been calculated based on the definition of Inventory
Value in the Loan Agreement, subject to your determination of Inventory Value.

 

The undersigned further certifies that the Borrowers’ Inventory is subject to a
valid and effective security interest in your favor, and other than the
Permitted Liens (as such term is defined in the Loan Agreement), there are no
liens upon, claims to, or security interests in any Inventory, except for the
security interest in your favor.

 

Based upon the forgoing, Borrower Representative hereby submits this Certificate
for a loan advance based upon the Inventory Value as follows:

 

(a) for the initial advance as of the Closing Date:                   Inventory
Value X 65%:   $________________             (b) for the advance after receipt
of the final appraisal:                   Inventory Value X 85%:  
$________________             (c) Less reserves:   $________________            
(d) Lesser of (a) or (b), as applicable, minus (c),
or $8,000,000.00:   $________________             (e) Less aggregate of
outstanding principal advances:   $________________             (f)

Current Loan Availability:

(d) minus (e):

  $________________             (g) Request for loan advance   $________________
 

 

Attached hereto as “Exhibit A to Borrowing Base Certificate” is the Inventory
Report to substantiate the amounts contained herein.

 

Sincerely,

 

EASTSIDE DISTILLING INC.

 

By:     Name:     Title:    

 

 

 

 

Exhibit A to Borrowing Base Certificate

 

See attached.

 

 

 

 

EXHIBIT B

 

Form of Compliance Certificate

 

TO: LIVE OAK BANKING COMPANY Date: _________________

 

FROM: EASTSIDE DISTILLING INC., as Borrower Representative

 

The undersigned authorized officer of Eastside Distilling Inc., a Nevada
corporation (“Borrower Representative”), as Borrower Representative for the
Borrowers (as defined below), certifies that under the terms and conditions of
the Loan Agreement (the “Loan Agreement”), dated as of January ___, 2020, by and
among Borrower Representative, MotherLode LLC, an Oregon limited liability
company (“MotherLode”), Big Bottom Distilling, LLC, an Oregon limited liability
company (“Big Bottom”), Craft Canning + Bottling, LLC, an Oregon limited
liability company (“Craft”), Redneck Riviera Whiskey Co., LLC, a Tennessee
limited liability company (“Redneck”) and Outlandish Beverages LLC, an Oregon
limited liability company (“Outlandish” and together with Borrower
Representative, MotherLode, Big Bottom, Craft and Redneck, collectively, the
“Borrowers”), and Live Oak Banking Company (the “Lender”):

 

(1) Borrowers are in complete compliance for the period ending _______________
with all required covenants under the Loan Agreement except as noted below; (2)
there are no existing Events of Default; (3) all representations and warranties
in the Loan Agreement are true and correct in all material respects on this date
except as noted below; provided, however, that such materiality qualifier shall
not be applicable to any representations and warranties that already are
qualified or modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a specific date
shall be true, accurate and complete in all material respects as of such date;
(4) Borrowers, and each of their Subsidiaries, have timely filed all required
tax returns and reports, and Borrowers have timely paid all foreign, federal,
state and local taxes, assessments, deposits and contributions owed by Borrowers
except as otherwise permitted pursuant to the terms of Section 5.06 of the Loan
Agreement; and (5) no liens have been levied or claims made against Borrowers or
any of their Subsidiaries relating to unpaid employee payroll or benefits of
which Borrowers have not previously provided written notification to the Lender.

 

Attached are the required documents supporting the certification for the period
identified above. The undersigned certifies that these are prepared in
accordance with GAAP consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The undersigned acknowledges
that no borrowings may be requested at any time or date of determination that
Borrowers are not in compliance with any of the terms of the Loan Agreement, and
that compliance is determined not just at the date this certificate is
delivered. Capitalized terms used but not otherwise defined herein shall have
the meanings given them in the Loan Agreement.

 

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenants Required Complies       Monthly financial statements with
Compliance Certificate Monthly within 30 days Yes   No Quarterly financial
statements Quarterly within 45 days Yes    No Annual financial statements FYE
within 90 days   A/R & A/P Agings Quarterly within 45 days Yes    No Inventory
Reports (including locations of Eligible Inventory) Quarterly within 45 days
Yes    No Board projections FYE within 30 days Yes    No

 

 

 

 

Other Matters

 

Have there been any amendments of or other changes to the capitalization table
of Borrowers or to the organizational or operating documents of Borrowers or any
of their Subsidiaries? If yes, provide copies of any such amendments or changes
with this Compliance Certificate.

 

The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)

 

 

 

 

 

EASTSIDE DISTILLING INC., as Borrower
Representative   BANK USE ONLY         Received by:             AUTHORIZED
SIGNER               By:                Date:     Name:           Title:    
Verified:             AUTHORIZED SIGNER                   Date:  

 

  Compliance Status: Yes      No