Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

(Commercial Loan)

 

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) is made as of the ____ day
of April, 2018, by and among CHICKEN SOUP FOR THE SOUL ENTERTAINMENT INC., a
Delaware corporation, having an address at 132 East Putnam Avenue, Cos Cob,
Connecticut 06807 (“CSSE”) and SCREEN MEDIA VENTURES, LLC, a Delaware limited
liability company, having an address at 800 Third Avenue, 3rd Floor, New York,
New York 10022 (“SMV” and together with CSSE, individually and collectively, the
“Borrower”), jointly and severally, BD PRODUCTIONS, LLC, a Connecticut limited
liability company, having an address at c/o Chicken Soup for the Soul
Entertainment Inc., 132 East Putnam Avenue, Cos Cob, Connecticut 06807 (“BDP”),
757 FILM ACQUISITION LLC, a Delaware limited liability company, having an
address at c/o Screen Media Ventures, LLC, 800 Third Avenue, 3rd Floor, New
York, New York 10022 (“757”), and SCREEN MEDIA FILMS, LLC, a Delaware limited
liability company, having an address at c/o Screen Media Ventures, LLC, 800
Third Avenue, 3rd Floor, New York, New York 10022 (“SMF” and together with BDP
and 757, individually and collectively, the “Guarantor”), and PATRIOT BANK,
N.A., having an address at 900 Bedford Street, Stamford, Connecticut 06901 (the
“Lender”).

 

RECITALS

 

A.       Borrower requested Lender to extend to Borrower financing in the
original principal amount of up to SEVEN MILLION FIVE HUNDRED THOUSAND and
00/100 DOLLARS ($7,500,000.00), in the aggregate, consisting of a (i) term loan
in the original principal amount of FIVE MILLION and 00/100 DOLLARS
($5,000,000.00) (the “Term Loan”), and (ii) commercial revolving line of credit
in the original principal amount of up to TWO MILLION FIVE HUNDRED THOUSAND and
00/100 DOLLARS ($2,500,000.00) (the “LOC Loan” and together with the Term Loan,
collectively, the “Loans”).

 

B.       Lender is willing to extend the Loans to Borrower upon the terms and
conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein,
Borrower, Guarantor and Lender do hereby agree as follows:

 

1.CONSTRUCTION AND DEFINITION OF TERMS

 

All terms used herein without definition which are defined by the Connecticut
Uniform Commercial Code shall have the meanings assigned to them by the
Connecticut Uniform Commercial Code, as in effect on the date hereof, unless and
to the extent varied by this Agreement (provided that the term “document” shall
(except as used in Section 1.7) not have the meaning provided for in the
Connecticut Uniform Commercial Code). All accounting terms used herein without
definition shall have the meanings assigned to them as determined by GAAP (as
defined below). Whenever the phrase “satisfactory to Lender” is used in this
Agreement, such phrase shall mean “satisfactory to Lender in its sole
discretion.” The use of any gender or the neuter herein shall also refer to the
other gender or the neuter and the use of the plural shall also refer to the
singular, and vice versa. In addition to the terms defined elsewhere in this
Agreement, unless the context otherwise requires, when used herein, the
following terms shall have the following meanings:

 

 

 

 

1.1.       “Agreement” shall mean this Loan and Security Agreement, as amended,
amended and restated, supplemented, or otherwise modified.

 

1.2.       “Banking Day” shall mean Monday through Friday, excluding any federal
or Connecticut holiday.

 

1.3.       “Bankruptcy Code” shall mean the United States Bankruptcy Code, as
amended from time to time.

 

1.4.       “Business Premises” shall mean Borrower’s chief executive office
located at 132 East Putnam Avenue, Cos Cob, Connecticut 06807.

 

1.5.       “Certified” shall mean that the information, statement, schedule,
report or other document required to be “Certified” shall contain a
representation of a duly authorized officer of Borrower that such information,
statement, schedule, report or other document is true and complete.

 

1.6.       “Closing” shall mean the date hereof.

 

1.7.       “Collateral” shall mean all of Obligor’s personal property,
intellectual property and fixtures, both now owned and hereafter acquired or
arising, and wherever located, including, but not limited to, all of the
following:

 

a)Accounts;

b)As-extracted collateral;

c)Chattel paper;

d)Deposit accounts;

e)Documents;

f)Equipment;

g)Farm products;

h)Fixtures;

i)General intangibles;

j)Inventory;

k)Instruments;

l)Investment property;

m)Letter-of-credit rights;

n)Other goods;

o)Supporting obligations

p)IP Collateral (as defined in that certain Intellectual Property Security
Agreement, dated of even date herewith, by and among Borrower, Guarantor and
Lender); and

q)Proceeds and products of all of the foregoing.

 

1.8.       “Event of Default” shall mean any of the events described in Section
9 hereof.

 

 2 

 

 

1.9.         “GAAP” shall mean generally accepted accounting principles in the
United States of America in effect from time to time.

 

1.10.       “Governmental Authority” shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

 

1.11.       “Guarantor” shall have the meaning set forth in the preamble.

 

1.12.       “Hazardous Materials” shall mean (a) any “hazardous waste” as
defined by the Resource Conservation and Recovery Act of 1976, as amended from
time to time, and regulations promulgated thereunder; (b) any “hazardous
substance” as defined by the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended from time to time, and regulations
promulgated thereunder; (c) any substance the presence of which on any property
now or hereafter owned, operated or acquired by Borrower are prohibited by any
Law similar to those set forth in this definition; and (d) any other substance
which by Law requires special handling in its collection, storage, treatment or
disposal.

 

1.13.       “Hazardous Materials Contamination” shall mean the contamination
(whether presently existing or occurring after the date of this Agreement) by
Hazardous Materials on any property owned, operated or controlled by Borrower or
for which Borrower has responsibility, including, without limitation,
improvements, facilities, soil, ground water, air or other elements on, or of,
any property now or hereafter owned, operated or acquired by Borrower, and any
other contamination by Hazardous Materials for which Borrower is, or is claimed
to be, responsible.

 

1.14.       “Indebtedness” of any person shall mean any of the following
(without duplication): (a) all indebtedness of such person for borrowed money or
for the deferred purchase price of property or services (other than trade debt
incurred in the ordinary course of business upon normal trade terms) or which is
evidenced by a note, bond, debenture or similar instrument, (b) all obligations
of such person upon which interest charges are customarily paid, (c) all
obligations of such person under conditional sale or other title retention
agreements relating to property or assets purchased by such person, (d) all
obligations of such person under capitalized leases or synthetic leases, (e) all
obligations of such person in respect of acceptances or letters of credit issued
or created for the account of such person, (f) all liabilities secured by any
Lien on any property owned by such person, whether or not such person has
assumed or otherwise become liable for the payment thereof, (g) all obligations
of such person in respect of interest rate protection agreements, interest rate
future agreements, foreign currency exchange agreements and other hedging
arrangements, (h) all obligations of such person to purchase, redeem, retire or
otherwise acquire for value any shares of capital stock of such person, any
warrants, options or other rights to acquire any such shares, or any rights
measured by the value of such shares, warrants, options, or other rights, (i)
every obligation in respect of Indebtedness of any other entity (including any
partnership in which such person is a general partner) to the extent such person
is liable therefore as a result of such person’s ownership interest in or other
relationship with such entity, except to the extent that the terms of such
Indebtedness provide that such person is not liable therefore and such terms are
enforceable under applicable law, and (j) every obligation, contingent or
otherwise, of such person guaranteeing, or having the economic effect of
guaranteeing or otherwise acting as a surety for, any obligation of a type
described in clauses (a)-(i) above (the “primary obligation”), in any manner,
whether directly or indirectly, and including without limitation, (i) any
guarantee, (ii) any obligation to purchase or pay (or advance or supply funds
for the purchase or payment of) such primary obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment
thereof (other than trade debt incurred in the ordinary course of business upon
normal trade terms), (iii) any obligation to purchase or lease property,
securities or services for the purpose of assuring the payment of such primary
obligation, or (iv) any obligation to maintain working capital, equity capital
or other financial statement condition or liquidity of the primary obligor as to
enable the primary obligor to pay such primary obligation.

 

 3 

 

 

1.15.       “Installment A/R” shall mean an account receivable that is invoiced
by Borrower, but payment on such account receivable, by its terms, is made by
the account debtor in agreed upon installment amounts over a period of time.

 

1.16.       “Laws” shall mean all ordinances, statutes, rules, regulations,
orders, injunctions, writs or decrees of any Governmental Authority or political
subdivision or agency thereof, or any court or similar entity established by any
thereof.

 

1.17.       “Lien” or “Liens” shall mean any statutory or common law consensual
or non-consensual mortgage, pledge, security interest, encumbrance, lien, right
of setoff, claim or charge of any kind, including, without limitation, any
conditional sale or other title retention transaction, any lease transaction in
the nature thereof and any secured transaction under the Uniform Commercial Code
of any jurisdiction.

 

1.18.       “Loan Document” or “Loan Documents” shall mean any and all present
and future agreements, contracts, promissory notes, security agreements,
assignments, subordination agreements, pledge or hypothecation agreements,
mortgages, deeds of trust, leases, guaranties, instruments, letters of credit,
letter of credit agreements (whether for reimbursement or otherwise), interest
rate or currency swap, cap or other hedging agreements and all other present and
future documents evidencing, governing, securing, guaranteeing or in any other
manner relating, in any way, at any time, to any of the Obligations, including,
without limitation, the instruments and documents referred to in Section 6.1
hereof.

 

1.19.       “LOC Note” shall mean that certain Commercial Revolving Line of
Credit Promissory Note, dated of even date herewith, evidencing the LOC Loan, as
amended, amended and restated, supplemented, or otherwise modified, and also
including any note(s) given in exchange, renewal, substitution, replacement,
refunding, or refinancing or recasting thereof.

 

1.20.       “Note” or “Notes” shall mean collectively, the LOC Note and the Term
Note.

 

 4 

 

 

1.21.       “Obligations” shall mean the full and timely observance and
performance of all present and future duties, covenants and responsibilities due
to Lender by Obligor of every kind, nature or description and, all present and
future obligations and liabilities of Obligor to Lender for the payment of money
of every kind, nature or description (including without limitation all present
and future principal amounts, interest, premiums, late charges, fees,
reimbursement amounts, termination amounts, indemnities and all other charges
and sums, as well as all attorney fees, court costs and other costs and expenses
payable by Obligor to Lender), whether direct or indirect, contingent or
non-contingent, matured or unmatured, accrued or not accrued, or related or
unrelated to this Agreement, and whether or not now contemplated, and whether or
not any instrument or agreement relating thereto specifically refers to this
Agreement, and including, without limitation, if applicable, overdrafts in any
checking or other account of Obligor at Lender and claims against Obligor
acquired by assignment to Lender, and whether or not any or all of the foregoing
is secured under any other agreement or other document or statutory or common
law provision, as well as all renewals, refundings, refinancings,
consolidations, re-castings and extensions of any of the foregoing. It is the
intent and agreement of the parties that the Obligations include not only the
Loans and all other present obligations and liabilities of Obligor to Lender,
but also all future advances and other future obligations and liabilities of
Obligor to Lender.

 

1.22.       “Obligor” shall mean individually and collectively, Borrower,
Guarantor and each endorser and surety of the Obligations; any person who is
primarily or secondarily liable for the repayment of the Obligations, or any
portion thereof; and any person who has granted security for the repayment of
any of the Obligations.

 

1.23.        “Permitted Liens” shall mean (a) Liens of Lender, (b) Liens for
taxes not delinquent or for taxes being diligently contested in good faith by
Borrower by appropriate proceedings, subject to the conditions set forth in
Section 7.2 hereof, (c) mechanic’s, workman’s, materialman’s, landlord’s,
carrier’s and other like Liens arising in the ordinary course of business and
incidental to Borrower’s ownership of its properties or assets with respect to
obligations which are not due or which are being diligently contested in good
faith by Borrower by appropriate proceedings and for which reasonably adequate
reserves have been set aside by Borrower, provided such Liens did not arise in
connection with the borrowing of money or the obtaining of advances or credit
(other than as set forth on Schedule 1.23) and do not, in Lender’s discretion,
in the aggregate materially detract from the value of Borrower’s assets or
materially impair the use thereof, (d) Liens disclosed in Schedule 1.23 attached
hereto, and (e) liens hereafter approved by Lender in its sole discretion.

 

1.24.       “Person” or “person” shall include natural persons, corporations,
associations, limited liability companies, partnerships, joint ventures, trusts,
governments and agencies and departments thereof and every other entity of every
kind.

 

1.25.       “Prime Rate” shall mean the floating and fluctuating rate of
interest which Lender from time to time announces as and declares to be its
prime rate of interest as set forth in the LOC Note. The Prime Rate may not be
the lowest rate of interest charged by Lender for commercial or other types of
loans.

 

1.26.       “Subordinated Indebtedness” shall mean all Indebtedness incurred, at
any time by Borrower, the repayment of which is subordinated to the payment of
the Obligations by a written agreement in form and substance satisfactory to
Lender in its discretion.

 

 5 

 

 

1.27.       “Subsidiary” shall include any limited liability company,
corporation or unincorporated business entity at least a majority of the
outstanding Voting Interest or interests of which is owned, now or in the
future, by Borrower and/or by one or more Subsidiaries.

 

1.28.       “Term Note” shall mean that certain Term Promissory Note, dated of
even date herewith, evidencing the Term Loan, as amended, amended and restated,
supplemented, or otherwise modified, and also including any note(s) given in
exchange, renewal, substitution, replacement, refunding, or refinancing or
recasting thereof.

 

1.29.       “Voting Interest” shall mean any interests in Borrower having
ordinary voting power to make decisions.

 

2.THE LINE OF CREDIT LOAN

 

2.1.         Line of Credit Loan. Subject to the terms and conditions
hereinafter set forth, Lender agrees to make certain advances of funds to
Borrower and Borrower agrees to receive from Lender certain advances of funds,
known as a commercial revolving line of credit loan in the original principal
amount of up to TWO MILLION FIVE HUNDRED THOUSAND and 00/100 DOLLARS
($2,500,000.00).

 

2.2.         Amount. Upon the conditions set forth in this Agreement and the LOC
Note delivered by Borrower to Lender, Lender agrees to lend to Borrower and
Borrower shall have the right to borrow from Lender, from time to time, up to
the maximum sum of TWO MILLION FIVE HUNDRED THOUSAND and 00/100 DOLLARS
($2,500,000.00), which sums Borrower may borrow, repay and reborrow until the
Line of Credit Loan Maturity Date (as defined below).

 

2.3.         Advances. Provided there has been no Event of Default under the LOC
Note or under this Agreement and neither a 90 Day DSCR Cure Period nor an
Additional DSCR Cure Period is in effect, Lender may make one or more revolving
advances of principal (each a “Line of Credit Advance” and collectively the
“Line of Credit Advances”), and all Line of Credit Advances and the Line of
Credit Loan shall be evidenced by LOC Note. Lender’s obligation to make any Line
of Credit Advance is subject to the provisions of Section 6 of this Agreement.
For purposes of determining the aggregate of all Line of Credit Advances
outstanding from time to time, the books and records of Lender shall be presumed
to be conclusive, absent manifest error.

 

The aggregate amount of all outstanding Line of Credit Advances from time to
time shall not exceed the Line of Credit Loan Limit (as defined below).

 

2.4.         Requests for Advances. Borrower shall give to Lender written notice
in the form of a borrowing base certificate (each, a “Borrowing Base
Certificate”), a form of which is attached hereto as Exhibit A or in such form
as may be reasonably required by Lender from time to time, (or telephonic notice
confirmed in a writing with the Borrowing Base Certificate) of each Line of
Credit Advance requested under the LOC Loan on or before 11:00 a.m., New York
time on the date of such Line of Credit Advance requests. Each such notice shall
specify the principal amount of the Line of Credit Advance requested and the
proposed date of such Line of Credit Advance.

 

 6 

 

 

The aggregate amount of all outstanding Line of Credit Advances from time to
time shall not exceed the lesser of (i) the Borrowing Base, as defined herein;
or (ii) Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00)
(the “Line of Credit Loan Limit”).

 

2.5.         Eligible Accounts Receivable. The aggregate of all Line of Credit
Advances under the LOC Loan shall not exceed seventy-five percent (75%) of the
current Eligible Accounts Receivable of Borrower (the “Borrowing Base”).

 

As used herein, “Eligible Accounts Receivable” shall mean an account receivable
arising in the ordinary course of Borrower’s business and which Lender, in its
reasonable judgment, deems to be an Eligible Account Receivable. To be an
Eligible Account Receivable, such account receivable must be subject to Lender’s
perfected security interest and no other lien or security interest and must be
evidenced by an invoice or other documentary evidence satisfactory to Lender. In
addition, but without limiting the discretion of Lender to determine
eligibility, no account receivable shall be deemed to be an Eligible Account
Receivable if: (i) it arises out of a sale made by Borrower to an affiliate of
Borrower; or (ii) it is due for ninety (90) days or more after the original
invoice date; or (iii) any material covenant, representation or warranty
contained with respect to such account receivable has been breached; or (iv) the
account debtor is also Borrower’s creditor or supplier, or the account debtor
has disputed liability, or the account debtor has made any claim with respect to
any other account receivable due from such account debtor to Borrower to the
extent of claim, or the account receivable otherwise is or may become subject to
any right of setoff by the account debtor to the extent of set off claim; or (v)
the account debtor has commenced a voluntary case under the federal bankruptcy
laws, as now constituted or hereafter amended, or made an assignment for the
benefit of creditors, or if a decree or order for relief has been entered by a
court having jurisdiction in the premises in respect of the account debtor in an
involuntary case under the federal bankruptcy laws as now constituted or
hereafter amended, or if any other petition or other application for relief
under the federal bankruptcy laws has been filed against the account debtor, or
if the account debtor has failed, suspended business, ceased to be solvent or
consented to or suffered a receiver, trustee, liquidator or custodian to be
appointed for it or for all or a significant portion of its assets or affairs;
or (vi) the sale is to an account debtor outside of the United States of America
(excluding Canada); or (vii) the sale to the account debtor is on a
sale-and-return, sale on approval, consignment or another repurchase or return
basis, or is evidenced by chattel paper, unless Lender has been advised of such
goods and consented to the account receivable arising therefrom being an
Eligible Account Receivable; or (viii) Lender believes, in its sole judgment,
that collection of such account receivable is insecure or that such account
receivable may not be paid by reason of the account debtor’s financial inability
to pay; or (ix) the account debtor is the United States of America or any
department agency or instrumentality thereof, unless Borrower assigns its right
to payment of such account receivable to Lender pursuant to the Assignment of
Claims Act of 1940 as amended (31 U.S.C. Subsection 3727 et. seq. ); or (x) the
account receivable is subject to any contra accounts, credit memos, accrued
rebates, offset, deduction, defense, dispute or counterclaim, or if the account
receivable is contingent in any respect or for any reason; or (xi) more than
twenty-five percent (25%) of the accounts receivable owed by an account debtor
to Borrower are due or unpaid for ninety (90) days or more after the original
invoice date, in which case all accounts receivable from such account debtor
shall be deemed ineligible hereunder; or (xii) Borrower has made any agreement
with any account debtor for any deduction therefrom except for discounts or
allowances made in the ordinary course of business for prompt payment, all of
which discounts or allowances are reflected in the calculation of the face value
of each respective invoice related thereto. Notwithstanding the foregoing, with
respect to Installment A/R, so long as an Installment A/R meets the other
requirements of the definition of Eligible Accounts Receivable (excluding
subclause (ii) above), that portion of Installment A/R that is then due and
payable (or will become due and payable within the next ninety (90) days) and is
not ninety (90) days or more past due (from the date such portion of such
Installment A/R became due and payable) shall be considered Eligible Accounts
Receivable hereunder.

 

 7 

 

 

2.6.         Over Advances. If at any time the amount of the Line of Credit
Advances outstanding under the LOC Loan exceeds the Line of Credit Loan Limit,
then Borrower shall immediately upon receipt of notice from Lender pay the
amount of such over advance to Lender for application to the Line of Credit
Advances to reduce such over advance.

 

2.7.         Use of Line of Credit Loan. The LOC Loan will be used to for
working capital purposes for further expansion of Borrower’s video library
through fixed asset acquisitions.

 

2.8.         Line of Credit Loan Interest Rate. Borrower shall pay interest on
the outstanding unpaid principal amount of the Line of Credit Advances made by
Lender from the date of any Line of Credit Advance until payment in full, at the
applicable Interest Rate set forth in the LOC Note; provided, that upon
repayment in whole or in part of any Line of Credit Advance, interest shall be
calculated based only on the number of days that such Line of Credit Advance or
portion thereof was owing and outstanding. Upon the occurrence of an Event of
Default or upon the Line of Credit Loan Maturity Date, the per annum interest
rate payable shall be as provided in the LOC Note.

 

2.9.         Repayment of Principal. From the date hereof and for a period of
three (3) years, Borrower shall pay interest only on the LOC Note, provided;
however, during the term of the LOC Note, Borrower shall have the right to pay
any amount of the then outstanding principal balance at any time, all as mort
particularly set forth in the LOC Note.

 

2.10.       Maturity Date. The LOC Loan is payable in full on the Maturity Date
set forth Section 2.1 of the LOC Note (the “Line of Credit Loan Maturity Date”).

 

2.11.       Method of Payment. Borrower hereby authorizes Lender, but Lender
shall not be obligated, to employ undisbursed funds under the LOC Loan to
satisfy all payments due hereunder and under the LOC Note or any Loan Document,
following any notice and/or grace period, if any, and Lender will notify
Borrower of any such application. Any funds so advanced shall be considered to
be Line of Credit Advances of principal under the LOC Note. Line of Credit
Advances so made for interest payments or other payments hereby authorized shall
be credited to Borrower’s Commercial Checking Account at Lender, and all
payments due under the LOC Note or any Loan Document shall be debited from
either such Line of Credit Loan account or Borrower’s Commercial Checking
Account at Lender in accordance with the Automatic Payment Addendum attached to
the LOC Note.

 

 8 

 

 

2.12.       Fee. Borrower shall pay Lender a commitment fee of TWELVE THOUSAND
FIVE HUNDRED and 00/100 DOLLARS ($12,500.00) for the LOC Loan, which shall be
payable on the date hereof if not sooner paid.

 

2.13.       Late Charge; Default Rate.

 

a.       If any payment required to be made by Borrower under the LOC Loan is
not paid within ten (10) days after the date on which such payment is due,
Borrower shall pay to Lender a late charge as more particularly set forth in
Section 5 of the LOC Note. Borrower acknowledges that any such late charges are
reasonable.

 

b.       Upon the occurrence and any time during the continuance of an Event of
Default hereunder, the entire unpaid principal amount of the LOC Loan shall,
anything contained herein to the contrary notwithstanding, bear interest at the
default rate as more particularly set forth in Section 6 of the LOC Note.

 

2.14.       Certain Payment Provisions. Borrower shall pay the principal of, and
interest on, all payment, promises, interest and other amounts due under the LOC
Note or hereunder without any deductions whatsoever, including but not limited
to any deduction for any set-off, recoupment, or counterclaim. All payments
shall be made in United States Dollars and immediately available funds and she
applied as more particularly set forth in Section 4 of the LOC Note. If any
payment under the LOC Note or hereunder shall be specified to be made upon a day
which is not a Business Day, it shall be made on the next succeeding day which
is a Business Day and such extension of time shall in such case be included in
computing any interest in connection with such payment. The records of Lender
shall be prima facie evidence of the LOC Loan, any accrued interest thereon and
all principal and interest payments made in respect thereof; provided, that no
failure of Lender to timely record any transaction shall in any way affect or
impair any liability or other obligations of Borrower to Lender.

 

3.THE TERM LOAN

 

3.1.        Term Loan. Subject to the terms and conditions hereinafter set
forth, Lender agrees to make certain advances of funds to Borrower and Borrower
agrees to receive from Lender certain advances of funds, known as a term loan in
the original principal amount of FIVE MILLION and 00/100 DOLLARS
($5,000,000.00).

 

3.2.         Amount. Upon the conditions set forth in this Agreement and the
Term Note delivered by Borrower to Lender, Lender agrees to lend to Borrower and
Borrower agrees to borrow from Lender the sum of FIVE MILLION and 00/100 DOLLARS
($5,000,000.00), until the Term Loan Maturity Date (as defined below).

 

 9 

 

 

3.3.         Advance. Lender shall advance the full amount of the Term Loan on
the date hereof upon the requires of Borrower, subject to the terms of this
Agreement.

 

3.4.         Use of Term Loan. The Term Loan will be used for the
recapitalization of acquisition equity and to refinance existing debt.

 

3.5.         Term Loan Interest Rate. Borrower shall pay principal and interest
on the Term Loan at the applicable Interest Rate set forth in the Term Note.
Upon the occurrence of an Event of Default or upon the Term Loan Maturity Date,
the per annum interest rate payable shall be as provided in the Term Note.

 

3.6.         Repayment of Principal. From the date hereof and for a period of
five (5) years, Borrower shall pay principal and interest on the Term Note,
provided; however, during the term of the Term Note, Borrower shall have the
right to pay any amount of the then outstanding principal balance at any time,
all as mort particularly set forth in the Term Note.

 

3.7.         Maturity Date. The Term Loan is payable in full on the Maturity
Date set forth Section 2.1(c) of the Term Note (the “Term Loan Maturity Date”).

 

3.8.         Method of Payment. All payments due under the Term Note or any Loan
Document shall be debited from Borrower’s Commercial Checking Account at Lender
in accordance with the Automatic Payment Addendum attached to the Term Note.

 

3.9.         Fee. Borrower shall pay Lender a commitment fee of TWENTY FIVE
THOUSAND and 00/100 DOLLARS ($25,000.00) for the Term Loan, which shall be
payable on the date hereof if not sooner paid.

 

3.10.       Late Charge; Default Rate.

 

a.       If any payment required to be made by Borrower under the Term Loan is
not paid within ten (10) days after the date on which such payment is due,
Borrower shall pay to Lender a late charge as more particularly set forth in
Section 5 of the Term Note. Borrower acknowledges that any such late charges are
reasonable.

 

b.       Upon the occurrence and any time during the continuance of an Event of
Default hereunder, the entire unpaid principal amount of the Term Loan shall,
anything contained herein to the contrary notwithstanding, bear interest at the
default rate as more particularly set forth in Section 6 of the Term Note.

 

3.11.       Certain Payment Provisions. Borrower shall pay the principal of, and
interest on, all payment, promises, interest and other amounts due under the
Term Note or hereunder without any deductions whatsoever, including but not
limited to any deduction for any set-off, recoupment, or counterclaim. All
payments shall be made in United States Dollars and immediately available funds
and she applied as more particularly set forth in Section 4 of the Term Note. If
any payment under the Term Note or hereunder shall be specified to be made upon
a day which is not a Business Day, it shall be made on the next succeeding day
which is a Business Day and such extension of time shall in such case be
included in computing any interest in connection with such payment. The records
of Lender shall be prima facie evidence of the Term Loan, any accrued interest
thereon and all principal and interest payments made in respect thereof;
provided, that no failure of Lender to timely record any transaction shall in
any way affect or impair any liability or other obligations of Borrower to
Lender.

 

 10 

 

 

4.SECURITY

 

4.1.         Security Interest. As security for the payment and performance of
all of the Obligations, whether or not any instrument or agreement relating to
any Obligation specifically refers to this Agreement or the security interest
created hereunder, Obligor hereby assigns, pledges, and grants to Lender a
continuing security interest in the Collateral. Lender’s security interest shall
continually exist until all Obligations have been paid in full in cash and all
credit facilities between Obligor and Lender are terminated.

 

4.2.         Covenants and Representations Concerning Collateral. With respect
to all of the Collateral, Obligor covenants, warrants and represents that:

 

a.       No financing statement covering any of the Collateral is on file in any
State public office or land or financing records except for financing statements
in favor of Lender or holders of Permitted Liens and Obligor is the legal and
beneficial owner of all of the Collateral, free and clear of all Liens, except
for Permitted Liens.

 

b.       The security interest granted Lender hereunder shall constitute a valid
attached, perfected and first priority security interest upon the Collateral.
Obligor shall not, and Lender does not authorize Obligor to, sell, lease,
license, or assign any interest in the Collateral except, if no Event of Default
then exists, the sale of inventory in the ordinary course of business, the
disposal of obsolete or worn out equipment in the ordinary course of business
and the license of intellectual property in the ordinary course of business.
Obligor shall not grant or otherwise permit any other Lien to be created or
remain on any Collateral thereon except for Permitted Liens.

 

c.       Obligor shall maintain the Collateral in good order and condition,
ordinary wear and tear excepted, and will use, operate and maintain the
Collateral in compliance with all laws, regulations and ordinances and in
compliance with all applicable insurance requirements and regulations. Obligor
will promptly notify Lender in writing of any litigation involving or affecting
the Collateral which Obligor knows or has reason to believe is pending or
threatened. Obligor will promptly pay when due all taxes and all transportation,
storage, warehousing and other such charges and fees affecting or arising out of
or relating to the Collateral and shall defend the Collateral, at Obligor’s
expense, against all claims and demands of any persons claiming any interest in
the Collateral adverse to Obligor or Lender.

 

d.       Upon at least one (1) Business Days’ advance notice, and during normal
business hours, Lender and its agents and designees may enter the Business
Premises and any other premises of Obligor and inspect the Collateral and all
books and records of Obligor (in whatever form), and Obligor shall pay the
reasonable costs of such inspections); provided, that unless an Event of Default
has occurred, such inspection shall not be allowed more than twice per calendar
year.

 

 11 

 

 

e.       Obligor shall maintain at all times (and whether the applicable
Collateral is in the possession of Obligor, Lender, a third party, or otherwise)
comprehensive casualty insurance on the Collateral against such risks, in such
amounts, with such loss deductible amounts and with such companies as may be
reasonably satisfactory to Lender and in amounts in accordance with Lender’s
customary and usual requirements for its borrowers, and each such policy shall
contain a clause or endorsement satisfactory to Lender naming Lender as loss
payee and lender’s loss payee and a clause or endorsement satisfactory to Lender
that such policy may not be cancelled or altered and Lender may not be removed
as loss payee or lender’s loss payee without at least 30 days’ prior written
notice to Lender. In all events, the amounts of such insurance coverage’s shall
conform to prudent business practices and shall be in such minimum amounts that
Obligor will not be deemed a co-insurer under applicable insurance laws,
regulations, policies or practices. Obligor hereby acknowledges and agrees that
the security interest hereunder includes a security interest in any and all
proceeds of such policies and Obligors authorize and empower Lender (if in
Lender’s discretion it elects to do so) to adjust or compromise any loss under
such policies and to collect and receive all such proceeds and Obligor hereby
appoints Lender as Obligor’s attorney-in-fact for such purposes. Obligor hereby
authorizes and directs each insurance company to pay all such proceeds directly
and solely to Lender and not to Obligor and Lender jointly during the term of
this Agreement. Obligor authorizes and empowers Lender to execute and endorse in
Obligor’s name all proofs of loss, drafts, checks and any other documents or
instruments necessary to accomplish such collection, and any persons making
payments to Lender under the terms of this paragraph are hereby relieved
absolutely from any obligation or responsibility to see to the application of
any sums so paid. After deduction from any such proceeds of all costs and
expenses (including reasonable attorneys’ fees) incurred by Lender in the
collection and handling of such proceeds, the net proceeds shall be applied in
accordance with the terms hereof. If no Event of Default shall have occurred and
be continuing, such net proceeds may be applied, at Obligor’s option, either
toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to Lender, or as a credit against such of the Obligations, whether
matured or unmatured, as Lender shall determine in Lender’s sole discretion. In
the event that Obligor may and does elect to replace or restore as aforesaid,
then such net proceeds shall be deposited in a segregated account of Obligor at
Lender (or at a bank selected by Lender) and subject to the sole order (and
control of) of Lender and shall be disbursed therefrom by Lender in such manner
and at such times as Lender deems appropriate to complete such replacement or
restoration; provided; however, that if an Event of Default shall occur at any
time before or after replacement or restoration has commenced, then thereupon
Lender shall have the option to apply all remaining net proceeds either toward
replacing or restoring the Collateral, in a manner and on terms satisfactory to
Lender, or as a credit against such of the Obligations, whether matured or
unmatured, as Lender shall determine in Lender’s sole discretion. If an Event of
Default shall occur prior to such deposit of the net proceeds, then Lender may,
in its sole discretion, apply such net proceeds either toward replacing or
restoring the Collateral, in a manner and on terms satisfactory to Lender, or as
a credit against such of the Obligations, whether matured or unmatured, as
Lender shall determine in Lender’s sole discretion. Obligor hereby indemnifies
Lender against any loss or damage to Collateral not insured by Obligor and for
any deficiency in any effective insurance coverage required to be maintained by
Obligor pursuant to this Agreement, which indemnification obligation shall
constitute part of the Obligations. Lender shall not be liable for any
insufficiency in the insurance coverage of Obligor.

 

 12 

 

 

f.       All books and records pertaining to the Collateral are located at the
Business Premises and Obligor will not change the location of such books and
records without the prior written consent of Lender, which consent shall not be
unreasonably withheld. Obligor shall make notations, satisfactory to Lender, on
its books and records disclosing the existence of Lender’s security interest in
the Collateral.

 

g.       Obligor shall do, make, execute and deliver all such additional and
further acts, things, deeds, assurances, instruments and documents as Lender may
request to vest in and assure to Lender its rights hereunder or in any of the
Collateral, including, without limitation, placing legends on Collateral stating
that Lender has a security interest therein. Obligor will not create any chattel
paper without placing a legend on the chattel paper acceptable to Lender
indicating that it has a security interest in the chattel paper.

 

h.       Upon an Event of Default, Obligor shall cooperate with Lender to obtain
and keep in effect one or more control agreements (in form and substance
satisfactory to Lender) in deposit account, electronic chattel paper, investment
property and letter-of-credit rights Collateral.

 

i.       Obligor authorizes Lender to file financing statements covering the
Collateral (including without limitation financing statements which describe any
of all of the Collateral and/or indicate that the financing statement covers
“all assets” or “all personal property” (or the like) of Obligor) and containing
such legends as Lender shall deem reasonably necessary or desirable to protect
Lender’s interest in the Collateral. Obligor agrees to pay all taxes, fees and
costs (including attorneys’ fees) paid or incurred by Lender in connection with
the preparation, filing or recordation thereof.

 

j.       Whenever required by Lender, Obligor shall promptly deliver to Lender,
with all endorsements and/or assignments required by Lender, all instruments,
chattel paper, guaranties and the like received by Obligor constituting,
evidencing or relating to any of the Collateral or proceeds of any of the
Collateral. Where Collateral is in the long-term possession of a third party
(e.g., other than standard distribution channels), Obligor will join in with
Lender in notifying the third party of Lender’s security interest and obtaining
an acknowledgment from the third party that it is holding the Collateral for the
benefit of Lender.

 

k.       Obligor shall not file any amendments, correction statements or
termination statements concerning the Collateral without the prior written
consent of Lender; provided, that upon Obligor’s repayment in full of all
Obligations hereunder and the termination of the LOC Loan and the Term Loan, any
and all Liens in favor of Lender with respect to the Collateral shall be deemed
automatically terminated, and Lender shall authorize Obligor to file any
termination statements with respect to any outstanding Liens concerning such
Collateral.

 

 13 

 

 

l.       If any Collateral arises out of a contract with the United States
Government or any department, agency or instrumentality thereof, Obligor shall
immediately notify Lender thereof and shall execute and deliver to Lender
specific assignments, of those contracts and the related United States
Government accounts of Obligor and shall do such other things as may be
satisfactory to Lender in order that all sums due and to become due to Obligor
under such contract shall be duly assigned to Lender in accordance with the
Federal Assignment of Claims Act (31 United States Code §3727; 41 United States
Code §15) as in effect on the date hereof and as hereafter amended and/or any
other applicable laws and regulations relating to the assignment of governmental
obligations. Payments on United States Government contracts or United States
Government accounts which have been specifically assigned to Lender by means of
a direct assignment, as provided herein, shall be made directly to Lender, for
payment to the Loans. The separate assignment of specific United States
Government contracts to Lender, as contemplated herein, shall not be deemed to
limit Lender’s security interest to the payments under those particular United
States Government contracts and the related United States Government accounts,
but rather Lender’s security interest shall extend to any and all United States
Government contracts and the related United States Government accounts and
proceeds thereof, now or hereafter owned or acquired by Obligor. During the term
of this Agreement, Obligor agrees and covenants not to make any assignment of
any of the United States Government contracts to any party other than Lender
without Lender’s prior written consent.

 

m.      In the event that Collateral is in the possession of a bailee or other
third party, Obligor shall (and in form and content reasonably satisfactory to
Lender), either: (i) to the extent applicable, cause a document of title, in
form and content satisfactory to Lender, to be issued in Lender’s name or (ii)
obtain the written acknowledgment of the bailee or third party that it is
holding or controlling such Collateral for the benefit of Lender.

 

n.       With respect to any Collateral which is subject to a certificate of
title, Obligor shall: (i) cause a certificate of title to be issued perfecting
the security interest of Lender, unless such Collateral is inventory held for
sale in the ordinary course of Obligor’s business by Obligor and until such
Collateral ceases to be such inventory; and (ii) not cause or permit a
certificate of title to be issued in another state which does not list Lender’s
security interest.

 

o.       If Obligor shall at any time acquire a commercial tort claim, as
defined in the Uniform Commercial Code, then Obligor shall immediately notify
Lender, in a writing signed by Obligor, of the brief details of the commercial
tort claim and shall grant to Lender a security interest therein and in all
proceeds thereof in accordance with the terms of this Agreement. All terms and
provisions of such written notification and grant of such security interests
shall be in form and content reasonably satisfactory to Lender.

 

p.       If any part of the Collateral is or becomes a fixture, Obligor shall,
upon demand, furnish Lender with a disclaimer, release or subordination
agreement, in form and content reasonably satisfactory to Lender, signed by all
persons having an interest in the real property or any interest in such
Collateral which may be senior to Lender’s security interest.

 

 14 

 

 

q.       The Collateral consisting of the letter-of-credit rights include
without limitation the right to draw under letters-of-credits, to effect which
rights a power of attorney is hereby granted by Obligor to Lender.

 

4.3.         Collateral Collections. Upon an Event of Default, Lender shall have
the right at any and all times to enforce Obligor’s rights against account
debtors and other parties obligated on Collateral, including, but not limited
to, the right to: (a) notify and/or require Obligor to notify any or all account
debtors and other parties obligated on Collateral to make payments directly to
Lender or in care of a post office lock box under the sole control of Lender
established at Obligor’s expense subject to Lender’s customary arrangements and
charges therefor, and to take any or all action with respect to Collateral as
Lender shall determine in its sole discretion, including, without limitation,
the right to demand, collect, sue for and receive any money or property at any
time due, payable or receivable on account thereof, compromise and settle with
any person liable thereon, and extend the time of payment or otherwise change
the terms thereof, without incurring liability or responsibility to Obligor; (b)
require Obligor to segregate and hold in trust for Lender and, on the day of
Obligor’s receipt thereof, transmit to Lender in the exact form received by
Obligor (except for such assignments and endorsements as may be required by
Lender), all cash, checks, drafts, money orders and other items of payment
constituting Collateral or proceeds of Collateral; and/or (c) establish and
maintain at Lender a “Repayment Account,” which shall be under the exclusive
control of and subject to the sole order of Lender and which shall be subject to
the imposition of such customary charges as are imposed by Lender from time to
time upon such accounts, for the deposit of cash, checks, drafts, money orders
and other items of payments constituting Collateral or proceeds of Collateral
from which Lender may, in its sole discretion, at any time and from time to
time, withdraw all or any part. Lender’s collection and enforcement of
Collateral against account debtors and other persons obligated thereon shall be
deemed to be commercially reasonable if Lender exercises the care and follows
the procedures that Lender generally applies to the collection of obligations
owed to Lender. All cash and non-cash proceeds of the Collateral may be applied
by Lender upon Lender’s actual receipt of cash proceeds against such of the
Obligations, matured or unmatured, as Lender shall determine in Lender’s sole
discretion.

 

4.4.         Care of Collateral. Obligor shall have all risk of loss of the
Collateral. Lender shall have no liability or duty, either before, upon or after
the occurrence of an Event of Default, on account of loss of or damage to, to
collect or enforce any of its rights against, the Collateral, to collect any
income accruing on the Collateral, or to preserve rights against account debtors
or other parties with prior interests in the Collateral. If Lender actually
receives any notices requiring action with respect to Collateral in Lender’s
possession, Lender shall forward such notices to Obligor. Obligor is responsible
for responding to notices concerning the Collateral, voting the Collateral, and
exercising rights and options, calls and conversions of the Collateral. Lender’s
sole responsibility is to take such action (with respect to Collateral in its
possession) as is reasonably requested by Obligor in writing, however, Lender is
not responsible to take any action that, in Lender’s sole judgment, would affect
the value of the Collateral as security for the Obligations adversely (nothing
contained in this Section 4.4 shall be interpreted or construed to limit any
rights or remedies of Lender if an Event of Default has occurred). While Lender
is not required to take certain actions, if action is needed, in Lender’s sole
discretion, to preserve and maintain the Collateral, Obligor authorizes Lender
to take such actions, but Lender is not obligated to do so.

 

 15 

 

 

4.5.        Authorization and Power-of-Attorney. Obligor authorizes Lender,
following an Event of Default, to request other secured parties of Obligor to
provide accountings, confirmations of Collateral and confirmations of statements
of account concerning Obligor. Obligor hereby designates and appoints Lender and
its designees as attorney-in-fact of Obligor, irrevocably and with power of
substitution, with authority, following an Event of Default, to endorse
Obligor’s name on requests to other secured parties of Obligor for accountings,
confirmations of collateral and confirmations of statements of account.

 

4.6.        Obligor’s Security for Loans. The Loans are to be secured by a valid
lien and first security interest on all of Obligor’s tangible and intangible
personal property, intellectual property and business assets wherever located,
now owned or hereafter acquired, including but not limited to all machinery,
equipment, inventory, accounts receivable, fixtures and general intangibles,
regardless of how titled or held. The Collateral is subject to no prior security
interest except in favor of Lender. Lender is hereby authorized to file all
financing statements as it deems necessary or appropriate.

 

5.REPRESENTATIONS AND WARRANTIES

 

To induce Lender to enter into this Agreement, Obligor represents and warrants
to Lender that:

 

5.1.        State of Formation and Legal Name. Obligor’s state of formation and
exact legal name is set forth in the first paragraph of this Agreement.

 

5.2.        Good Standing. Obligor is a corporation or a limited liability
company, as applicable, duly organized, legally existing and in good standing
under the laws of the State of its formation, have the power to own its property
and to carry on its business and is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the properties owned by
it therein or in which the transaction of its business makes such qualification
necessary.

 

5.3.        Authority. Obligor has full power and authority to enter into this
Agreement, to make or guaranty (as applicable) the borrowings hereunder, to
execute and deliver all documents and instruments required hereunder and to
incur and perform the obligations provided for herein, all of which have been
duly authorized by all necessary and proper company and other action, and no
consent or approval of any person, including, without limitation, shareholders
or members of Obligor, as is applicable, and any public authority or regulatory
body, which has not been obtained is required as a condition to the validity or
enforceability hereof or thereof.

 

5.4.        Binding Agreements. This Agreement has been duly and properly
executed by Obligor, constitutes the valid and legally binding obligation of
Obligor and is fully enforceable against Obligor in accordance with its terms,
subject only to laws affecting the rights of creditors generally and application
of general principles of equity.

 

 16 

 

 

5.5.        No Conflicting Agreements. The execution, delivery and performance
by Obligor of this Agreement and the borrowings hereunder will not (a) violate
(i) any provision of law or any order, rule or regulation of any court or agency
of government, (ii) any award of any arbitrator, (iii) the Certificate of
Incorporation or Bylaws, Certificate of Organization or Limited Liability
Company Agreement, as is applicable, of Obligor or (iv) any indenture, contract,
mortgage, deed of trust or other agreement or instrument to which Obligor is a
party or by which Obligor or any of its property is bound, or (b) be in conflict
with, result in a breach of or constitute (with due notice and/or lapse of time)
a default under, any such award, indenture, contract, mortgage, deed of trust or
other instrument or agreement, or result in the creation or imposition of any
Lien upon any of the property or assets of Obligor except for Liens created in
favor of Lender under or pursuant to this Agreement.

 

5.6.        Litigation. Except as disclosed to Lender in Schedule 5.6 attached
hereto, there are no judgments, injunctions or similar orders or decrees,
claims, actions, suits or proceedings pending or, to the knowledge of Obligor,
threatened against or affecting Obligor or any property of Obligor, at law or in
equity, by or before any court or any federal, State, county, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which could result in any material adverse change in the
business, operations, prospects, properties or in the condition, financial or
otherwise, of Obligor, and Obligor is not, to Obligor’s knowledge, in default
with respect to any judgment, order, writ, injunction, decree, rule or
regulation of any court or any federal, State, county, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which could have a material adverse effect on Obligor.

 

5.7.        Financial Condition. The financial statements of Borrower heretofore
delivered to Lender are true and complete, fairly present the financial
condition of Borrower as at such dates and the results of its operations for the
respective periods then ended and were prepared in accordance with GAAP applied
on a consistent basis for such prior periods. There is no Indebtedness of
Borrower as of the date of such statements which, in accordance with GAAP,
should be, but is not reflected therein and no material adverse change in
Borrower’s financial condition, operations, business or prospects has occurred
since the date of the latest of such statements.

 

5.8.        Taxes. Obligor has paid or caused to be paid all federal, State and
local taxes to the extent that such taxes have become due and has filed or
caused to be filed all federal, State and local tax returns which are required
to be filed by Obligor.

 

5.9.        Title to Properties. Obligor has good and marketable title to all of
its properties and assets (including the Collateral) and all of the properties
and assets of Obligor are free and clear of Liens, except for Permitted Liens.

 

 17 

 

 

5.10.       Place of Business; Name; State of Formation; Location of Goods.
Obligor’s principal place of business and chief executive office is located at
the Business Premises and has been located at the Business Premises for at least
the past five (5) years, and Obligor currently does not have, and in the past
has not had, any other offices or places of business, except as provided on
Schedule 5.10.1. Obligor’s exact legal name and state of formation are as set
forth in the first paragraph of this Agreement. Obligor has not had any other
legal name. Obligor does not use, and has not used, any other name in the
conduct of its business. Obligor has not changed its state of formation, been a
party to a merger and/or otherwise changed its identity or structure. All
Collateral consisting of inventory, equipment or other goods is presently
located in the following places: the address set forth above and as set forth on
Schedule 5.10.2.

 

5.11.      Financial Information. All financial statements, schedules, reports
and other information supplied to Lender by or on behalf of Borrower heretofore
and hereafter are and will be true and complete in all material respects.

 

5.12.       Licenses and Permits. Obligor has duly obtained and now holds all
licenses, permits, certifications, approvals and the like required by federal,
State and local laws of the jurisdictions in which Obligor conducts its
business, and each remains valid and in full force and effect.

 

5.13.       Certain Indebtedness. There is no Indebtedness of Borrower owing to
any employee, officer, member or manager of Borrower other than set forth on
Schedule 5.13.

 

5.14.       Broker’s or Finder’s Commissions. Except for a $25,000.00 broker’s
fee paid to Siena Lending Group LLC, a Delaware limited liability company
(“Siena”) for the LOC Loan, and a $50,000.00 broker’s fee paid to Siena for the
Term Loan, no broker’s or finder’s fee or commission is or will be payable in
connection with this Agreement or the transactions contemplated hereby. Borrower
agrees to save harmless and indemnify Lender from and against any claim, demand,
action, suit, proceeding or liability for any broker’s or finder’s fee or
commission, including any costs and expenses (including attorneys’ fees)
incurred by Lender in connection therewith. The provisions of this Section 5.14
shall survive the termination of this Agreement and Lender’s security interest
hereunder and the payment of all other Obligations.

 

5.15.       Outstanding Indebtedness. Borrower has no outstanding Indebtedness
except as permitted by Section 8.1 hereof and there exists no default under the
provisions of any instrument evidencing such Indebtedness or under the
provisions of any agreement relating thereto.

 

5.16.       Regulation U. Obligor does not own or presently intend to acquire
any “margin stock” as defined in Regulation U (12 CFR Part 221) of the Board of
Governors of the Federal Reserve System. None of the proceeds of any of the
Loans hereunder will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin stock or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or carry a
margin stock or for any other purpose which might constitute this transaction a
“purpose credit” within the meaning of Regulation U. Neither Obligor nor any
agent acting on its behalf has taken or will take any action which might cause
this Agreement to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934, in each case as in effect now or as the same may hereafter be in
effect.

 

 18 

 

 

5.17.       Government Contracts. Obligor is not now, and has not been within
the past three (3) years, in receipt of any communication from any of officer or
employee of the United States Government regarding Obligor’s actual or possible
disqualification, suspension or debarment from contracting with the United
States Government. Further, Obligor has no information, in relation to the
obtaining, formation, pricing, performance, billing or administration of any one
of its contracts with the United States Government of: (a) a violation of law,
regulation or contract provision, or any such fact(s) or circumstance(s)
reasonably indicating any such violation; (b) a pending or threatened
investigation; (c) an existing or threatened adverse audit finding, whether
draft or final; (d) an existing or threatened cost disallowance or finding of
defective pricing; (e) a pending or threatened claim or action seeking a fine,
penalty or damages; (f) a communication regarding, or actual initiation of,
payment withholding or suspension, setoff, recoupment or debt collection; or (g)
a contract termination or a communication reasonably indicating the potential
for such a termination.

 

5.18.       Presence of Hazardous Materials or Hazardous Materials
Contamination. To the best of Obligor’s knowledge, no Hazardous Materials are
located on any real property owned, operated or controlled by Obligor or for
which Obligor is responsible and for which remedial or corrective action would,
be required under applicable Laws or with respect to which Obligor has any
“clean-up,” remedial or other liability. No property owned, operated or
controlled by Obligor has, during Obligor’s period of ownership, operation or
control, been used as a manufacturing, storage, or dump site for Hazardous
Materials.

 

5.19.       Patents, Trademarks, etc. Obligor owns, possesses, or has the right
to use all necessary patents, patent rights, licenses, trademarks, trade names,
trade name rights, copyrights and franchises to conduct its business as now
conducted and, except as disclosed to Lender on Schedule 5.19 attached hereto,
without any known conflict with any patent, patent right, license, trademark,
trademark rights, trade name right, trade name, copyright or franchise right of
any other person.

 

5.20.       Perfection and Priority of Collateral. Lender has or upon proper
recording of any financing statement, execution of any control agreement or
delivery of Collateral to Lender’s possession, will have and will continue to
have as security for the Obligations, a valid and perfected Lien on and security
interest in all Collateral free of all other Liens, claims and rights of third
parties whatsoever except Permitted Liens.

 

5.21.       Commercial Purpose. The Loans are not a “consumer transaction” as
defined in the Uniform Commercial Code and none of the Collateral was or will be
purchased or held primarily for personal, family or household purposes.

 

5.22.       Survival; Representations and Warranties. All representations and
warranties contained in or made in connection with this Agreement and the other
Loan Documents shall survive the Closing.

 

 19 

 

 

6.CONDITIONS OF LENDING

 

Unless Lender shall otherwise agree in writing, Lender shall have no obligation
to make the Loans unless each of the following conditions precedent shall be
satisfied by Borrower by Closing or such later date, if any, as Lender in its
discretion may permit:

 

6.1.         Documents. There shall have been delivered to Lender, appropriately
completed and duly executed (when applicable), the following, each in form and
substance satisfactory to Lender:

 

a.       The Loan Documents, in form and substance satisfactory to Lender and
negotiated by the parties.

 

b.       A Certificate of the Secretary of CSSE in form and content acceptable
to Lender certifying as to its Certificate of Incorporation, Bylaws, incumbency,
authorizing resolutions, and such other matters as Lender or its counsel may
require.

 

c.       Certificate of Legal Existence of CSSE issued by the Secretary of State
of CSSE’s state of organization dated within 30 days of Closing and a copy of
the Certificate of Organization certified by such Secretary of State within 30
days of the Closing.

  

d.       A Certificate of the Manager of SMV in form and content acceptable to
Lender certifying as to its Certificate of Formation, Limited Liability Company
Agreement, incumbency, authorizing resolutions, and such other matters as Lender
or its counsel may require.

 

e.       Certificate of Legal Existence of SMV issued by the Secretary of State
of SMV’s state of organization dated within 30 days of Closing and a copy of the
Certificate of Formation certified by such Secretary of State within 30 days of
the Closing.

 

f.       Evidence satisfactory to Lender that all insurance coverage and all
insurance clauses or endorsements required pursuant to this Agreement and the
other Loan Documents are in effect, together with copies of all insurance
policies and endorsements or certificates in satisfactory form to Lender with
respect thereto.

 

g.       A written opinion of counsel to Borrower, dated as of Closing and
addressed to Lender and satisfactory to Lender and Lender’s counsel in all
respects.

 

h.       Such financing statements and control agreement as may be required by
Lender.

 

i.        Copies of all leases, equipment leases, and/or warehouse leases for
the Collateral locations, together with executed Landlord Lien Waivers, as
applicable.

 

j.        Uniform Commercial Code search reports, intellectual property reports,
title reports and any other search reports required by Lender.

 

k.       All other agreements and documents reasonably required and requested by
Lender.

 

 20 

 

 

l.        Approval of all legal matters incident to the transactions hereby
contemplated shall be satisfactory to Lender’s counsel.

 

6.2.        No Default. (a) All of the covenants, conditions, warranties and
representations set forth herein and in the Loan Documents have been complied
with and are true and complete in all material respects on and as of such time
with the same effect as though such covenants, conditions, warranties and
representations had been made on and as of such time, and (b) no Event of
Default nor any event which, upon the giving of notice and/or the lapse of time,
would constitute an Event of Default shall have occurred.

 

Any request by Borrower for the making of the Loans and the receipt by Borrower
of the proceeds of the Loans shall be deemed a representation and warranty
hereunder by Borrower to Lender that the conditions set forth in the preceding
clauses (a) and (b) above have been complied with.

 

6.3.        Legal Matters. At Closing, all legal matters in connection therewith
or incidental thereto shall be fully satisfactory to Lender’s counsel.

 

6.4.        No DSCR Cure Period. Neither a 90 Day DSCR Cure Period nor an
Additional DSCR Cure Period shall be in effect.

 

 21 

 

 

7.AFFIRMATIVE COVENANTS

 

Obligor covenants and agrees with Lender that, until (a) all Obligations have
been paid in full, and (b) and all credit facilities between Borrower and Lender
are terminated, Obligor will:

 

7.1.        Financial Statements. Furnish to Lender in writing: (a) as soon as
available, but in no event more than ninety (90) days after the close of each
fiscal year (December 31st), a copy of the consolidated annual financial
statements of Borrower, prepared in accordance with GAAP and audited by an
independent certified public accountant satisfactory to Lender, which financial
statement shall include a Management Discussion and Analysis of the financial
statements and notes balance sheet of Borrower as of the end of such fiscal year
and related statements of operations, cash flows and changes in shareholder’s
equity, of Borrower for such fiscal year and a statement (including all
calculations) that Borrower is in compliance with all of the covenants contained
in Section 7.16 herein and, if not, stating the facts with respect thereto and
certifying that to its knowledge no Event of Default exists (or, if an Event of
Default does exist, describing such Event of Default), together with such other
information reasonably requested by Lender; (b) as soon as available, but not
more than sixty (60) days after the close of each fiscal year (December 31st), a
management prepared income statement and balance sheet showing information in
detail acceptable to Lender; (c) as soon as available, but not more than forty
five (45) days after the close of each fiscal quarter a management prepared
income statement and balance sheet showing information in detail acceptable to
Lender; (d) as soon as available but in no event later than ten (10) days after
the end of each month, monthly aging of all accounts receivable and Eligible
Accounts Receivable for the month then ended, certified by the Chief Operating
Officer or an officer of Borrower; (e) in addition to the obligation to provide
Lender with a Borrowing Base Certificate for each Line of Credit Advance
requested as more particularly set forth in Section 2.4 herein, as soon as
available, but in no event more than ten (10) days after end of each month, a
Borrowing Base Certificate verifying, among other things, the balance of
applicable assets and resulting loan-to-value ratio of the outstanding principal
balance on the LOC Loan; (f) as soon as available but in no event later than two
(2) days after filing, a copy of CSSE’s Form 10-Q and Form 10-K; and (g) such
additional information, reports or statements as Lender may from time to time
reasonably request within fifteen (15) days of such request.

 

7.2.       Taxes. Pay and discharge all taxes, assessments and governmental
charges upon Obligor, its income and properties, prior to the date on which
penalties attach thereto unless and to the extent only that the same are being
diligently contested by Obligor in good faith in the normal course of business
by appropriate proceedings, provided, however, that: (a) Lender shall have been
given reasonable prior written notice of intention to contest; (b) nonpayment of
the same will not, in Lender’s sole discretion, materially impair any of the
Collateral or Lender’s rights or remedies with respect thereto or the prospect
for full and punctual payment of all of the Obligations; (c) Obligor at all
times effectively stays or prevents any official or judicial sale of or action
or filing against any of the Collateral by reason of nonpayment of the same; and
(d) Obligor establishes reasonable reserves for any liabilities being contested
and for expenses arising out of such contest.

 

 22 

 

 

7.3.       Corporate Existence, Continuation of Business and Compliance with
Laws. Maintain its corporate existence in good standing, as is applicable;
continue its business operations as now being conducted; and comply with all
applicable federal, State and local laws, rules, ordinances, regulations and
orders unless and to the extent only that the validity or applicability thereof
is being diligently contested by Obligor in good faith by appropriate
proceedings, provided, however, that: (a) Lender shall have been given
reasonable prior written notice of intention to contest; (b) such noncompliance
will not, in Lender’s sole discretion, materially impair any of the Collateral
or Lender’s rights or remedies with respect thereto or the prospect for full and
punctual payment of all of the Obligations; (c) Obligor at all times effectively
stays or prevents any official or judicial sale of or action or filing against
any of the Collateral by reason of such noncompliance; and (d) Obligor
establishes reasonable reserves for any liabilities or expenses which may arise
out of such noncompliance and contest.

 

7.4.       Civil and Criminal Proceedings. Promptly notify Lender in writing of
(a) the filing of any Criminal Referral Form or the threatened or actual
commencement of a criminal proceeding or investigation or (b) any action, suit
or proceeding at law or in equity by or before any court, governmental agency or
instrumentality which could result in any material adverse change in the
business, operations, prospects, properties or assets or in the condition,
financial or otherwise, of Obligor.

 

7.5.       Extraordinary Loss. Promptly notify Lender in writing of any event
causing extraordinary loss or depreciation of the value of Obligor’s assets
(whether or not insured) and the facts with respect thereto.

 

7.6.       Books and Records. Keep and maintain proper and current books and
records in accordance with GAAP and permit access by Lender to, reproduction by
Lender of and copying by Lender from, such books and records during normal
business hours. All reasonable costs and expenses of such inspections and
examinations shall be paid by Borrower.

 

7.7.       Conferences with Officers. Permit Lender to discuss Borrower’s
affairs, finances and accounts with any officers of Borrower, upon reasonable
notice and at reasonable times.

 

7.8.       Maintenance of Properties. Maintain all properties and improvements
necessary to the conduct of its business in good working order and condition,
ordinary wear and tear excepted, and cause replacements and repairs to be made
when necessary for the proper conduct of its business.

 

7.9.       Patents, Franchises, etc. Maintain, preserve and protect all
licenses, patents, franchises, trademarks, copyrights and trade names of Obligor
or licensed by Obligor which are necessary to the conduct of the business of
Obligor as now conducted, free of any conflict with the rights of any other
person.

 

 23 

 

 

7.10.       Insurance. Maintain with duly licensed insurers and in amounts
reasonably satisfactory to Lender such insurance against such risks and with
such loss deductible amounts as may be satisfactory to Lender, including,
without limitation, commercial general liability insurance and such insurance as
is described in Section 4.2(e). Lender shall be named as an additional insured
with respect to all liability policies and a loss payee and lender’s loss payee
with respect to all property/casualty policies. Nothing contained herein shall
result in Lender being liable for the failure of Obligor to maintain adequate
insurance.

 

7.11.       Evidence of Insurance. Deliver to Lender from time to time, and
periodically if Lender shall so require, evidence satisfactory to Lender that
all insurance and endorsements required pursuant to this Agreement and the Loan
Documents are in effect, as described in Section 4.2(e).

 

7.12.       Further Assurances and Corrective Instruments. Promptly execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered, to
Lender from time to time such supplements hereto and such other instruments and
documents as may be requested by Lender to protect and preserve the Collateral,
Lender’s security interest therein, perfection of Lender’s security interest
and/or Lender’s rights and remedies hereunder.

 

7.13.       Financial Information. Deliver to Lender promptly upon Lender’s
request, and periodically if Lender shall so require, such written statements,
schedules or reports (which shall be Certified if required by Lender) in such
form, containing such information and accompanied by such documents as may be
satisfactory to Lender from time to time concerning the Collateral, Borrower’s
financial condition or business operations or any other matter or matters,
including, without limitation, copies of federal, State and local tax returns of
Borrower, and permit Lender, its agents and designees, to discuss Borrower’s
financial condition and business operations with Borrower’s officers and
employees.

 

7.14.       Notice of Event of Default. Immediately notify Lender in writing of
the occurrence of any Event of Default or any event or existing condition which,
with the giving of notice and/or the lapse of time, could constitute an Event of
Default or which might materially and adversely affect the financial conditions
or operations of Obligor and the facts with respect thereto.

 

 24 

 

 

7.15.       ERISA. (a) At all times maintain each of its employee pension
benefit plans, as that term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended from time to time (“ERISA”),
in conformity with all applicable provisions of ERISA and other federal and
State statutes relating to employee benefit plans; (b) at all times make prompt
payments of contributions required to meet the minimum funding standards set
forth in Sections 302 and 305 of ERISA with respect to each such plan; (c) if
requested by Lender, promptly after the filing thereof, furnish to Lender copies
of each annual report required to be filed pursuant to Section 103 of ERISA in
connection with each such plan for each plan year, including any certified
financial statements or actuarial statements required pursuant to said Section
103; (d) notify Lender immediately of any fact, including, without limitation,
any “Reportable Event” (as that term is defined in Section 4043(b) of ERISA)
arising in connection with any such plan which might constitute grounds for the
termination thereof by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States District Court of a trustee to
administer the plan; and (e) furnish to Lender, promptly upon its request
therefor such additional information concerning any such plan as Lender may
request.

 

7.16.       Debt Service Coverage Ratio.

 

(a)           Maintain a Debt Service Coverage Ratio of not less than 2.00 to
1.0, measured quarterly and annually during the term of the Loans at the end of
each fiscal quarter (with respect to quarterly tests) and at the end of the
calendar year (as to annual tests), beginning with the quarter ending June 30,
2018 (with respect to the first quarterly test) and with the year ending
December 31, 2018 (with respect to the first annual test). Each quarterly test
shall be based on Borrower’s Form 10-Q and each annual test shall be based on
Borrower’s Form 10-K.

 

(b)           “Debt Service Coverage Ratio” shall mean the ratio of Borrower’s
EBITDA on a consolidated basis for the applicable rolling four quarter period to
the sum of (1) all interest expense of Borrower for such period, and (2) all
regularly scheduled payments or prepayments of principal of indebtedness of
Borrower paid or that were required to be paid during such period, all in
accordance with GAAP consistently applied.

 

(c)           “EBITDA” shall mean, for any period, net income (loss) for such
period before provision for interest expense and federal income taxes plus,
without duplication and to the extent deducted in determining such net income
(loss), (a) interest expense, and (b) depreciation and amortization expense, all
in accordance with GAAP consistently applied, plus non-recurring, one-time
operating costs as reported in Borrower’s Form 10-Qs and Form 10-Ks for the
applicable period, less dividends, distributions and stock repurchases, in each
case as determined by Lender.

 

7.17.       Continuance of Business. Continue to operate the business as set
forth in Obligor’s loan application to Lender and not to acquire or operate any
other business enterprise without notice to Lender; provided, that any
acquisition or operation of any other business enterprise that could materially
alter Obligor’s existing business shall require Lender’s prior consent.

 

7.18.       Proceeds. Use of the proceeds of the Loans only for the purposes set
forth herein.

 

 25 

 

 

7.19.       Hazardous Materials: Contamination. Obligor agrees to, (a) give
notice to Lender immediately upon Obligor acquiring knowledge of the presence of
any Hazardous Materials (other than those stored in compliance with applicable
Laws and are in Obligor’s possession in the ordinary course of business) on any
property owned or controlled by Obligor or for which Obligor is responsible or
of any Hazardous Materials Contamination with a full description thereof for
which remedial or corrective action is required; (b) promptly take action to
comply with any Laws requiring the removal, treatment or disposal of Hazardous
Materials or Hazardous Materials Contamination and provide Lender with
satisfactory evidence of such action, which action must be in all respects
sufficient to avoid any penalty, assessment or notice of non-compliance with any
required remedial or corrective action on the part of any Governmental
Authority; (c) provide Lender, within thirty (30) days after a demand by Lender,
with a bond, letter of credit or similar financial assurance evidencing to
Lender’s reasonable satisfaction that the necessary funds are available to pay
the cost of removing, treating and disposing of Hazardous Materials described in
item (b) or Hazardous Materials Contamination and discharging any Lien which may
be established as a result thereof on any property owned or controlled by
Obligor or for which Obligor is responsible; and (d) defend, indemnify and hold
harmless Lender and its employees, trustees, successors and assigns from any and
all claims which may now or in the future (whether before or after the
termination of this Agreement) be asserted as a result of the presence of any
Hazardous Materials on any property owned or controlled by Obligor for which
Obligor is responsible for any Hazardous Materials Contamination.

 

7.20.       Lender as Depository. Maintain on deposit with Lender in a
non-interest bearing account, Account Number 890166911, a minimum average
collected balance of no less than SEVEN HUNDRED FIFTY THOUSAND and 00/100
DOLLARS ($750,000.00) over a trailing ninety (90) days, until all Obligations
are fully satisfied (the “Minimum Deposit”). The Minimum Deposit shall be tested
on a quarterly basis.

 

7.21.       Subordinated Debt. All present and future loans from shareholders or
affiliates of Borrower to Borrower shall be subordinated to the Loans and such
junior creditors shall execute Loan Subordination Agreements in form and
substance acceptable to Lender.

 

7.22.       Field Audits. Permit Lender or its designee to perform and conduct
field examinations, not to unreasonably interfere with Borrower’s business, to
(i) audit the books and records of Borrower and to conduct or cause to be
conducted valuations of Borrower’s assets in such manner and detail as Lender
shall determine, and using valuation consultants acceptable to Lender, and (ii)
enter the offices and facilities of Borrower to examine or inspect any of the
properties, books and records or extracts therefrom, and to discuss the affairs,
finances and accounts thereof with Borrower all at such reasonable times and as
often as Lender or any representative of Lender may request (but, provided no
Event of Default has occurred, not more than twice per fiscal year in the
aggregate including any other inspections or audits conducted by Lender during
such fiscal year as provided herein) upon not less than one (1) Business Days’
notice.

 

 26 

 

 

7.23.       Minimum Liquidity Covenant. Upon the occurrence of a default under
the terms of Section 7.16 above (without respect to the cure period provided in
Section 9.2), and for so long as such default is continuing, Borrower shall
continuously maintain at least TWO MILLION and 00/100 DOLLARS ($2,000,000.00)
(based on Borrower’s financial statements, in form and substance reasonably
acceptable to Lender) in liquid assets comprised of marketable securities, cash
or cash equivalents (excluding retirement accounts and personal and corporate
lines of credit), each as reasonably determined by Lender.

 

8.NEGATIVE COVENANTS

 

Obligor covenants and agrees with Lender that, until (a) all Obligations have
been paid in full and (b) and all credit facilities between Borrower and Lender
are terminated, Obligor will not, directly or indirectly, without Lender’s prior
written consent:

 

8.1.        Indebtedness. Create, incur, assume or permit to exist, directly or
indirectly, any indebtedness to its shareholders or create, incur, assume or
permit to exist, directly or indirectly, any Indebtedness in excess of
$250,000.00, except Indebtedness to Lender, other than the Indebtedness set
forth on Schedule 8.1.

 

8.2.        Liens. Create, incur, assume or permit to exist, directly or
indirectly, any Lien upon any of Obligor’s properties or assets, now owned by
Obligor, other than Permitted Liens and Liens to Lender.

 

8.3.        Merger. Enter into or be a party to any merger, consolidation,
reorganization or exchange of stock or assets.

 

8.4.        Sale or Purchase of Assets, etc. Sell, assign, transfer, convey or
lease any interest in any or all of its assets, other than in the ordinary
course of business or in connection with the disposal of obsolete or worn out
equipment in the ordinary course of business; or purchase or otherwise acquire
all or substantially all of the assets of any other person or persons, or any
shares of stock of, or similar interest in, any other person or persons.

 

8.5.        Investments. Except as may be explicitly permitted in Section 7.17
hereof, make any capital contribution to any other person or purchase or acquire
a beneficial interest in any stock, securities or evidences of Indebtedness of,
or make any investment or acquire any interest in, or a business of, any other
person, except investments in federally insured certificates of deposit or in
direct obligations of the United States of America maturing within one (1) year
from the date of acquisition or in AAA or better rated investments.

 

8.6.        Fiscal Year. Change Borrower’s fiscal year.

 

8.7.       Subsidiaries. Organize or cause to exist any Subsidiaries (other than
those Subsidiaries in existence on the date hereof) without Lender’s prior
written consent, which consent may be conditioned, without limitation, upon the
granting by such Subsidiary of a guarantee of payment of the Notes and all other
indebtedness of Borrower to Lender. Lender shall have the right at any time and
from time to time at its sole discretion to require any existing Subsidiaries to
guarantee the Obligations.

 

 27 

 

 

8.8.         Change of Name. (i) Change the name of Obligor or (ii) change or
open any office or place of business or location of any inventory, other goods
or other Collateral without (in each case) giving Lender at least thirty (30)
days prior written notice of such change.

 

8.9.         Trade Names; State of Formation. (i) Use any trade name other than
Obligor’s true corporate names or current d/b/a’s without giving Lender at least
thirty (30) days prior written notice of same or (ii) change the state of
Obligor’s state of formation.

 

8.10.       ERISA Compliance. Engage in any “prohibited transaction” (as defined
in Section 406 or Section 2003(a) of ERISA and not otherwise exempted under
Title I, Part 4 of ERISA), any “accumulated funding deficiency” (as defined in
Section 302 of ERISA), whether or not waived, or terminate any pension plan in a
manner which could result in the imposition of a Lien on the property of Obligor
pursuant to Section 4068 of ERISA.

 

8.11.       Loans and Guaranties. Loan or make advances to any other person or
guarantee, indorse or otherwise be or become liable or contingently liable in
connection with the obligations or Indebtedness of any other person, firm or
corporation, directly or indirectly, except:

 

a.       as an endorser of negotiable instruments for the payment of money
deposited to Borrower’s bank account for collection in the ordinary course of
business;

 

b.       trade credit extended in the ordinary course of Borrower’s business; or

 

c.       advances made in the usual course of business to officers and employees
of Borrower for travel and other out-of-pocket expenses incurred by them on
behalf of Borrower in connection with such business.

 

8.12.       Sale Leaseback. Except for leases existing on the date hereof and
previously disclosed to Lender in writing, and renewals or extension thereof,
become or be liable as lessee with respect to any lease of any property (real,
personal or mixed) which has been or is to be sold or transferred by Borrower to
any person or which Borrower intends to use for substantially the same purpose
as any other property which has been or is to be sold or transferred by Borrower
to any person in connection with such lease.

 

8.13.       Leases. Become liable as lessee with respect to any lease of any
property, real, personal or mixed, except for leases in existence on the date
hereof and previously disclosed to Lender in writing and renewals and extensions
thereof, and others entered into in the ordinary course of business.

 

8.14.       Asset Investments. Make any investments or expenditure for
non-current assets (which shall include fixed assets and capitalized value of
leased equipment and leased real property).

 

 28 

 

 

8.15.       Funded Debt. Redeem, call for redemption, purchase or otherwise
acquire or retire, directly or indirectly, or make any optional prepayment of
principal on, any Funded Debt (as defined below), or amend, alter or otherwise
modify the provisions relating to any Funded Debt if the effect of such
amendment, alteration or modification would or might be to accelerate (or
otherwise result in earlier payment of) such Funded Debt and/or if such
amendment, alteration or modification could be expected to impair the interests
of Lender. For the purposes of this Section 8.15, “Funded Debt” shall include
any obligation of Borrower to any person other than Lender payable more than one
(1) year from the date of its creation which, under GAAP, is shown on the
balance sheet as a liability (excluding reserves for deferred income taxes and
other reserves to the extent that such reserves do not constitute an
obligation).

 

8.16.       Management, Control, Company Structure. Make a material change in
the manner in which the business of Obligor is conducted, permit or suffer any
change in ownership of Obligor which would result in a material change in the
company structure of Obligor or result in a change in control of Obligor.

 

8.17.       Distributions. Make dividends, earning distributions, expenditures
related to stock repurchases, payments on subordinated loans, or other payments
(excluding payments of wages and wage-related benefits or bonuses (or the
equivalents thereof paid to consultants under a Form 1099)) to shareholders or
members or any other Person, as applicable, if such payment or expenditure would
(i) result in an Event of Default under this Agreement or any other
Indebtedness, or (ii) with respect to the applicable Borrower, exceed,
individually or in the aggregate with all other payments and expenditures of
such Borrower, such Borrower’s net earnings in excess of such Borrower’s debt
service obligations on all Indebtedness.

 

8.18.       Use of Loan Proceeds for Subsidiaries. Use any portion of the
proceeds received from Lender hereunder (i) to make a loan or advance to any
other subsidiary or affiliate of Borrower (other than as between CSSE and SMV)
or (ii) in connection with the business or operations of any subsidiary or
affiliate of Borrower, or transfer any collateral to any subsidiary or affiliate
(other than as between CSSE and SMV), in either case without the prior written
consent of Lender and without adding such subsidiary or affiliate as an
additional borrower or guarantor under the Loans.

 

9.EVENTS OF DEFAULT

 

The occurrence of any one or more of the following events shall constitute an
“Event of Default”:

 

9.1.       Failure to Pay. The failure of Borrower, or other Obligor, to pay any
of the Obligations as and when due and payable (whether by acceleration,
declaration, extension or otherwise) and the same shall remain unpaid for ten
(10) days.

 

 29 

 

 

9.2.       Covenants and Agreements. The failure of Borrower, or other Obligor,
to perform, observe or comply with any of the covenants of this Agreement, the
Notes or any of the other Loan Documents, other than the payment of money under
the Notes, if such failure remains uncured for thirty (30) days after receipt of
written notice thereof from Lender (or ninety (90) days with regard to a default
under Section 7.16 if (i) Borrower is in compliance with Section 7.23 and (ii)
Borrower has pledged all accounts (and cash deposits therein) at Lender to
Lender, pursuant to a deposit account security and pledge agreement in form and
substance reasonably satisfactory to Lender (the “90 Day DSCR Cure Period”)); in
the case of any such failure that is not capable of being cured within such
thirty (30)-day period (other than a failure under Section 7.16), provided
Borrower, or other Obligor, shall have commenced such cure within said thirty
(30)-day period and continue to use its best efforts to cure then such failure
shall not constitute an Event of Default until the expiration of ninety (90)
days after written notice from Lender.

 

9.3.       Information, Representations and Warranties. If any representation or
warranty made herein or if any information contained in any financial statement,
application, schedule, report or any other document given by Borrower, Obligor
or by any person in connection with the Obligations, with the Collateral, or
with any of the Loan Documents is not in all material respects true and accurate
or if Borrower, Obligor or such other person omitted to state any material fact
or any fact necessary to make such information not misleading.

 

9.4.       Default under Loan Documents. The occurrence of an event of default
(or similar event) under any of the other Loan Documents after application of
any applicable notice and grace periods.

 

9.5.       Default on Other Obligations. Any failure of Obligor (after any
applicable notice and grace periods) to pay any Indebtedness when due or the
occurrence of any default or other event under any note, loan agreement or other
agreement evidencing, governing, securing or otherwise relating to such
Indebtedness if the result of such event of default or other event would permit
the acceleration of the maturity (or other early payment) of such Indebtedness,
after application of any applicable notice and grace periods, if any.

 

9.6.       Insolvency. Borrower, or other Obligor, shall be or become insolvent
(as defined in Section 101 of the United States Bankruptcy Code) or unable to
pay their debts as they become due, or admit in writing to such insolvency or to
such inability to pay their debts as they become due.

 

9.7.       Involuntary Bankruptcy. There shall be filed against Borrower, or
other Obligor, an involuntary petition or other pleading seeking the entry of a
decree or order for relief under the United States Bankruptcy Code or any
similar federal or state insolvency or similar laws ordering: (a) the
liquidation of Borrower or such Obligor, or (b) a reorganization of Borrower or
such Obligor, or the business and affairs of Borrower or such Obligor, or (c)
the appointment of a receiver, liquidator, assignee, custodian, trustee or
similar official for Borrower or such Obligor of the property of Borrower or
such Obligor and the failure to have such petition or other pleading denied or
dismissed within sixty (60) calendar days from the date of filing.

 

9.8.       Voluntary Bankruptcy. The commencement by Borrower or other Obligor
of a voluntary case under the federal bankruptcy laws or any federal or state
insolvency or similar laws or the consent by Borrower or other Obligor to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian or similar official for Borrower or other Obligor of any of
the property of Borrower or other Obligor or the making by Borrower or other
Obligor of an assignment for the benefit of creditors, or the failure by
Borrower or other Obligor generally to pay their debts as the debts become due.

 

 30 

 

 

9.9.         Judgments, Awards. The entry of any judgment, order, award or
decree against Borrower or other Obligor and a determination by Lender, in good
faith but in its sole discretion, that the same, when aggregated with all other
judgments, orders, awards and decrees outstanding against Borrower or other
Obligor, could have a material adverse effect on the prospect for Lender to
fully and punctually realize the full benefits conferred on Lender by this
Agreement, unless such judgment, order or award or decree is vacated,
discharged, stayed or bonded pending appeal within thirty (30) days from the
entry or Borrower sets aside adequate reserves and deposit them with Lender
within thirty (30) days from the entry thereof.

 

9.10.       Injunction. The injunction or restraint of Borrower or other Obligor
in any manner from conducting its business in whole or in part and a
determination by Lender, in good faith but in its sole discretion, that the same
could have a material adverse effect on the prospect for Lender to fully and
punctually realize the full benefits conferred on Lender by this Agreement
unless such injunction or restraint has been vacated, discharged, stayed or
bonded pending appeal within thirty (30) days from the entry thereof.

 

9.11.       Attachment by Lenders. Any assets of Borrower or other Obligor shall
be attached, levied upon, seized or repossessed, or come into the possession of
a trustee, receiver or other custodian and a determination by Lender, in good
faith but in its sole discretion, that the same could have a material adverse
effect on the prospect for Lender to fully and punctually realize the full
benefits conferred on Lender by this Agreement unless such attachment, levy,
seizure or repossession is released and the assets of Borrower or other Obligor,
are returned within thirty (30) days from such action.

 

9.12.       Dissolution, Merger, Consolidation, Reorganization. The voluntary or
involuntary dissolution, merger, consolidation, winding up or reorganization of
Borrower or other Obligor or the occurrence of any action preparatory thereto.

 

9.13.       Adverse Change in Financial Condition. The determination in good
faith by Lender that a material adverse change has occurred in the financial
condition of Borrower or other Obligor from the conditions set forth in the most
recent financial statement of Borrower or such Obligor heretofore furnished to
Lender or from the financial condition of Borrower or such Obligor as heretofore
most recently disclosed to Lender in any other manner unless Borrower set aside
adequate reserves and deposit them with Lender within thirty (30) days from
Lender’s determination and notice to Borrower.

 

9.14.       Adverse Change in Value of Collateral. The determination in good
faith by Lender that the security for the Obligations is or has become
inadequate and Borrower fails to provide additional collateral as reasonably
required by Lender within thirty (30) days from Lender’s determination and
notice to Borrower.

 

 31 

 

 

9.15.       Prospect of Payment or Performance. The determination in good faith
by Lender that the prospect for payment or performance of any of the Obligations
is impaired for any reason.

 

9.16.       Death. Death of any Obligor who is a natural person.

 

9.17.       Contest Validity. Borrower shall contest the legal, valid, binding
or enforceable nature of any Loan Document or the validity or priority of any
Lien thereunder.

 

10.RIGHTS AND REMEDIES

 

10.1.       Rights and Remedies of Lender. Upon and after the occurrence of an
Event of Default, Lender may, without notice or demand, exercise in any
jurisdiction in which enforcement hereof is sought, the following rights and
remedies, in addition to the rights and remedies available to Lender under the
Loan Documents, the rights and remedies of a secured party under the Connecticut
Uniform Commercial Code and all other rights and remedies available to Lender
under applicable law, all such rights and remedies being cumulative and
enforceable alternatively, successively or concurrently provided, however, that
in the case of any Event of Default referred to in Sections 9.6, 9.7, and 9.8
above, the unpaid principal balance of the Notes, together with all accrued and
unpaid interest and all other Obligations then outstanding shall be
automatically due and payable by Borrower to Lender without notice, presentment
or demand:

 

a.       Declare the Notes, all interest accrued and unpaid thereon and all
other Obligations to be immediately due and payable and the same shall thereupon
become immediately due and payable without presentment, demand for payment,
protest or notice of any kind, all of which are hereby expressly waived.

 

b.       Institute any proceeding or proceedings to enforce the Obligations
and/or any Liens of Lender.

 

c.       Take possession of the Collateral, and for that purpose, so far as
Obligor may give authority therefor, enter upon (and remain without liability to
pay any rent or occupancy charge) any premises on which the Collateral or any
part thereof may be situated and remove the same therefrom without any liability
for suit, action or other proceeding, Obligor HEREBY WAIVING, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO PRIOR NOTICE AND TO
JUDICIAL HEARING OR PROCESS WITH RESPECT TO REPOSSESSION OF COLLATERAL, and/or
require Obligor, at Obligor’s expense, to assemble and deliver the Collateral to
such place or places as Lender may designate. Obligor shall make available to
Lender all premises, locations and facilities necessary for Lender’s taking
possession (whether under this paragraph or otherwise) of the Collateral or for
removing or putting the Collateral in saleable form.

 

 32 

 

 

d.       Operate, manage and control the Collateral (including use of the
Collateral and any other property or assets of Obligor in order to continue or
complete performance of Obligor’s obligations under any contracts of Obligor),
or permit the Collateral or any portion thereof to remain idle or store the
same, and collect all rents and revenues therefrom; and sell or otherwise
dispose of any or all of the Collateral (whether such disposition is at
Obligor’s premises or not at such premises) upon such terms and under such
conditions as Lender, in its sole discretion, may determine, and purchase or
acquire any of the Collateral at any such sale or other disposition, all to the
fullest extent permitted by applicable law.

 

e.       Enforce Obligor’s rights against any account debtors and other
obligors.

 

f.       Apply (or change any application already made) the proceeds of any
Collateral to any Obligations in such order and manner as Lender may elect.

 

g.       Locate, disable or to take possession of the Collateral by electronic,
digital, magnetic or wireless optical electromagnetic or similar means after
giving any notices required under applicable law.

 

h.       Lender shall not be required to apply non-cash Proceeds of any
disposition of Collateral until cash is actually received by Lender.

 

Notwithstanding anything contained herein to the contrary, and in addition to
Lender’s rights set forth herein and at law and in equity, in addition to the 90
Day DSCR Cure Period, Borrower shall be granted an additional sixty (60) day
cure period (the “Additional DSCR Cure Period”) within which to bring Borrower
into compliance with the terms of Section 7.16, and during the pendency of such
Additional DSCR Cure Period (or such shorter time as such default or Event of
Default remains uncured), (i) the Interest Rate as set forth in the Notes shall
increase by one half of one percent (0.50%), (ii) Borrower shall promptly pay
Lender a fee in the amount of one half of one percent (0.50%) of the
then-outstanding balance of the Obligations, and (iii) Borrower shall promptly
make cash payments to Lender to reduce the principal balance of the Loans in an
amount sufficient to bring Borrower into compliance with the terms of Section
7.16, as determined by Lender (each, a “Principal Reduction”). Any Principal
Reduction shall first be applied to the then-outstanding balance of the Term
Loan. Upon the payment of a Principal Reduction, Lender shall determine whether
Borrower has satisfied the terms of Section 7.16 based on the remaining
principal balance amortization being recast of the remaining term of the Term
Loan.

 

Notwithstanding anything contained herein to the contrary, and in addition to
Lender’s rights set forth herein and at law and in equity, if Borrower fails to
maintain the Minimum Deposit required by Section 7.20, and does not cure such
failure within the thirty (30) day cure period set forth in Section 9.2 above,
the Interest Rate as set forth in the Notes shall increase by one half of one
percent (0.50%).

 

 33 

 

 

10.2.       Power of Attorney. Effective upon the occurrence of any Event of
Default, Obligor hereby designates and appoints Lender and its designees as
attorney-in-fact of Obligor, irrevocably and with power of substitution, with
authority to endorse Obligor’s name on any notes, acceptances, checks, drafts,
money orders, instruments or other evidences of payment or proceeds of the
Collateral that may come into Lender’s possession; to execute proofs of claim
and loss; to assign or otherwise transfer ownership of, or otherwise dispose of,
any patents, patent applications, trademarks, trademark applications, copyrights
and copyright applications and/or any other Collateral; to adjust and compromise
any claims under insurance policies; and to perform all other acts necessary and
advisable, in Lender’s sole discretion, to carry out and enforce this Agreement
and the Loan Documents. All acts of said attorney or designee are hereby
ratified and approved by Obligor and said attorney or designee shall not be
liable for any acts of commission or omission nor for any error of judgment or
mistake of fact or law. This power of attorney is coupled with an interest and
is irrevocable so long as any of the Obligations remain unpaid or unperformed or
there exists any commitment by Lender which could give rise to any Obligations.

 

10.3.       Notice of Disposition of Collateral. It is mutually agreed that
commercial reasonableness and good faith require Lender to give Obligor no less
than ten (10) days’ prior written notice of the time and place of any public
disposition of Collateral or of the time after which any private disposition or
any other intended disposition is to be made. It is mutually agreed that it is
commercially reasonable for Lender to disclaim all warranties which arise with
respect to the disposition of the Collateral and Lender shall have the right to
do so.

 

10.4.       Costs and Expenses. From and after the closing, Obligor agrees to
pay to Lender on demand the amount of all expenses reasonably paid or incurred
by Lender in consulting with counsel concerning any of its rights or remedies
hereunder, under the Loan Documents or under applicable law, all expenses,
including attorneys’ fees and court costs reasonably paid or incurred by Lender
in exercising or enforcing any of its rights or remedies hereunder, under the
Loan Documents or under applicable law together with interest on all such
amounts paid by Lender at the highest rate and calculated in the manner provided
in the Notes. The provisions of this Section 10.4 shall survive the termination
of this Agreement and Lender’s security interest hereunder and the payment of
all other Obligations.

 

10.5.       Voting, etc. Effective upon the occurrence of an Event of Default,
Lender may vote, collect distributions and otherwise exercise any rights of
ownership with respect to any Collateral consisting of investment property.

 

 34 

 

 

10.6.       Collateral. To the extent that applicable law imposes duties on
Lender to exercise remedies in a commercially reasonable manner, Obligor
acknowledges and agrees that it is not commercially unreasonable for Lender (a)
to fail to incur expenses reasonably deemed significant by Lender to prepare
Collateral for disposition or otherwise to fail to complete raw material or work
in process into finished goods or other finished products for disposition (b) to
fail to obtain third party consents for access to Collateral to be disposed of,
or to obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (c) to fail to exercise collection remedies against
account debtors or other persons obligated on Collateral or to fail to remove
liens or encumbrances on or any adverse claims against Collateral, (d) to
exercise collection remedies against account debtors and other persons obligated
on Collateral directly or through the use of collection agencies and other
collection specialists, (e) to advertise dispositions of collateral through
publications or media of general circulation, whether or not the Collateral is
of a specialized nature, (f) to contact other persons, whether or not in the
same business as Obligor, for expressions of interest in acquiring all of any
portion of the applicable Collateral, (g) to hire one or more professional
auctioneers to assist in the disposition of Collateral, whether or not the
Collateral is of a specialized nature, (h) to dispose of Collateral by utilizing
Internet sites that provide for the auction of assets of the types included in
the Collateral or that have the reasonable capability of doing so, or that match
buyers and sellers of assets, (i) to dispose of assets in wholesale rather than
retail markets, (j) to purchase insurance or creditor enhancements to insure
Lender against risks of loss, collection or disposition of Collateral or to
provide to Lender a guaranteed return from the collection or disposition of
Collateral, or (k) to the extent deemed appropriate by Lender, to obtain the
services of brokers, investment bankers, consultants and other professionals to
assist Lender in the collection or disposition of any of the Collateral. Obligor
acknowledges that the purpose of this paragraph is to provide non-exhaustive
indications of what actions or omissions by Lender would fulfill Lender’s duties
under the Uniform Commercial Code in Lender’s exercise of remedies against the
Collateral and that other actions or omissions by Lender shall not be deemed to
fail to fulfill such duties solely on account of not being indicated in this
paragraph. Without limitation upon the foregoing, nothing contained in this
paragraph shall be construed to grant any rights to Obligor or to impose any
duties on Lender that would not have been granted or imposed by this Agreement
or by applicable law in the absence of this paragraph.

 

10.7.       Grant of License. Obligor hereby grants to Lender an irrevocable,
non-exclusive license (exercisable without payment of royalty or other
compensation to Obligor) to use, license or sublicense any patents, trademarks,
copyrights, or other licenses with respect to any of the foregoing, now owned or
licensed or hereafter acquired or licensed by Obligor, wherever the same may be
located throughout the world, for such term or terms, on such conditions and in
such manner as Lender shall reasonably determine, whether general, special or
otherwise, based upon a commercially reasonable standard for such license(s),
and including in such license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer software and
programs used for the compilation or printout thereof. Notwithstanding the
foregoing, the use of such license or sublicense by Lender shall only be
exercised, at the option of Lender, after the occurrence of an Event of Default,
in a commercially reasonable manner as follows: (a) Lender shall implore
substantially similar standards of screening, quality control and protection
over Obligor’s patents, trademarks, and copyrights with respect to any proposed
license as established by Obligor with respect to Obligor’s brand and
intellectual property and as used by Obligor in the ordinary course of business;
(b) any actions taken by Lender shall be reasonably proportionate to the nature
of the default, the sum due on the obligations, and the value of the proposed
license(s); and (c) Lender shall make reasonable efforts to consult with Obligor
to achieve the foregoing, and upon repayment in full of all owing and
outstanding Obligations, the license granted to Lender hereunder shall terminate
in full. Provided that Lender is in compliance with the foregoing, then any
license, sublicense or other transaction entered into by Lender in accordance
herewith shall be binding upon Obligor notwithstanding any subsequent cure of an
Event of Default.

 

 35 

 

 

11.MISCELLANEOUS

 

11.1.       Performance for Borrower. Borrower agrees and hereby authorizes that
Lender may, in Lender’s sole discretion, but Lender shall not be obligated to,
whether or not an Event of Default shall have occurred, advance funds on behalf
of Borrower, without prior notice to Borrower, in order to insure Borrower’s
compliance with any covenant, warranty, representation or agreement of Borrower
made in or pursuant to this Agreement or any of the Loan Documents, to continue
or complete, or cause to be continued or completed, performance of Borrower’s
obligations under any contracts of Borrower, to cover overdrafts in any checking
or other accounts of Borrower at Lender or to preserve or protect any right or
interest of Lender in the Collateral or under or pursuant to this Agreement or
any of the Loan Documents, including, without limitation, the payment of any
insurance premiums or taxes and the satisfaction or discharge of any judgment or
any Lien upon the Collateral or other property or assets of Borrower; provided,
however, that the making of any such advance by Lender shall not constitute a
waiver by Lender of any Event of Default with respect to which such advance is
made nor relieve Borrower of any such Event of Default. Borrower shall pay to
Lender upon demand all such advances made by Lender with interest thereon at the
highest rate and calculated in the manner provided in the Notes. Any funds so
advanced shall be considered to be Line of Credit Advances of principal under
the applicable LOC Note. All such advances shall be deemed to be included in the
Obligations and secured by the security interest granted Lender hereunder;
provided, however, that the provisions of this Section 11.1 shall survive the
termination of this Agreement and Lender’s security interest hereunder and the
payment of all other Obligations.

 

11.2.       Expenses. Following the Closing, Obligor agrees to pay to Lender on
demand the amount of all expenses paid or incurred by Lender (including the
reasonable fees and expenses of its counsel) in connection with all expenses
paid or incurred by Lender in connection with the filing or recordation of all
financing statements and instruments as may be required by Lender at the time
of, or subsequent to, the execution of this Agreement, including, without
limitation, all documentary stamps, recordation and transfer taxes and other
costs and taxes incident to recordation of any document or instrument in
connection herewith. Obligor agrees to save harmless and indemnify Lender from
and against any liability resulting from the failure to pay any required
documentary stamps, recordation and transfer taxes, recording costs or any other
expenses incurred by Lender in connection with this Agreement. The provisions of
this Section 11.2 shall survive the termination of this Agreement and Lender’s
security interest hereunder and the payment of all other Obligations.

 

11.3.       Applications of Payments and Collateral. Except as may be otherwise
specifically provided in this Agreement, all Collateral and proceeds of
Collateral coming into Lender’s possession and all payments made by any Obligor
may be applied by Lender to any of the Obligations, whether matured or
unmatured, as Lender shall determine in its sole but reasonable discretion.
Lender may defer the application of non-cash proceeds of Collateral, including,
but not limited to, non-cash proceeds collected under Section 4.3 hereof, to the
Obligations until cash proceeds are actually received by Lender.

 

 36 

 

 

11.4.       Waivers by Obligor. Obligor hereby waives, to the extent the same
may be waived under applicable law, and in accordance with the provisions
hereof: (a) notice of acceptance of this Agreement; (b) all claims, causes of
action and rights of Obligor against Lender on account of actions taken or not
taken by Lender in the exercise of Lender’s rights or remedies hereunder, under
the Loan Documents or under applicable law; (c) all claims of Obligor for
failure of Lender to comply with any requirement of applicable law relating to
enforcement of Lender’s rights or remedies hereunder, under the Loan Documents
or under applicable law; (d) all rights of redemption of Obligor with respect to
the Collateral; (e) in the event Lender seeks to repossess any or all of the
Collateral by judicial proceedings, any bond(s) or demand(s) for possession
which otherwise may be necessary or required; (f) presentment, demand for
payment, protest and notice of non-payment and all exemptions and all rights to
the marshalling of assets; (g) any and all other notices or demands which by
applicable law must be given to or made upon Obligor by Lender; (h) settlement,
compromise or release of the obligations of any person primarily or secondarily
liable upon any of the Obligations; (i) the right to trial by jury in any action
or proceeding of any kind or nature in connection with any of the Obligations,
this Agreement or any of the other Loan Documents; and (j) substitution,
impairment, exchange or release of any Collateral for any of the Obligations.
Obligor agrees that Lender may exercise any or all of its rights and/or remedies
hereunder, under the Loan Documents and under applicable law without resorting
to and without regard to any Collateral or sources of liability with respect to
any of the Obligations. Lender shall have no obligation to clean-up or otherwise
prepare the Collateral for sale. Upon termination of this Agreement and Lender’s
security interest hereunder and payment of all Obligations, within sixty (60)
days following Obligor’s written request to Lender, Lender shall release control
of any security interest in the Collateral perfected by control and Lender shall
send Obligor a statement terminating any financing statement filed against the
Collateral.

 

11.5.       Waivers by Lender. Neither any failure nor any delay on the part of
Lender in exercising any right, power or remedy hereunder, under any of the Loan
Documents or under applicable law shall operate as a waiver thereof, nor shall a
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or remedy.

 

11.6.       Lender’s Setoff. Lender shall have the right, in addition to all
other rights and remedies available to it, following an Event of Default, to set
off, without the need for notice or demand, against any Obligations (whether or
not material) due Lender, any debt owing to Obligor by Lender, including,
without limitation, any funds in any checking or other account now or hereafter
maintained by Obligor at Lender. Obligor hereby confirms Lender’s right to
banker’s lien and setoff, and nothing in this Agreement or any of the other Loan
Documents shall be deemed a waiver or prohibition of Lender’s right of banker’s
lien and setoff.

 

11.7.       903a Waiver. OBLIGOR ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS
AGREEMENT IS A PART IS A “COMMERCIAL TRANSACTION” WITHIN THE MEANING OF CHAPTER
903a OF THE CONNECTICUT GENERAL STATUTES, AS AMENDED, AND THAT ANY MONIES,
PROPERTY OR SERVICES WHICH ARE THE SUBJECT OF SUCH TRANSACTION ARE NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES. OBLIGOR WILLINGLY, VOLUNTARILY AND
KNOWINGLY WAIVES ANY RIGHT WHICH OBLIGOR MIGHT HAVE TO A NOTICE AND HEARING
UNDER SECTIONS 52-278a TO 52-278g, INCLUSIVE, OF THE CONNECTICUT GENERAL
STATUTES, AS AMENDED, OR OTHER APPLICABLE FEDERAL OR STATE LAW, IN THE EVENT
THAT LENDER (OR ITS SUCCESSORS, ASSIGNS AND/OR REPRESENTATIVES) SEEKS ANY
PREJUDGMENT REMEDY IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
AND/OR THE OBLIGATIONS.

 

 37 

 

 

11.8.       Modifications. No modifications or waiver of any provision of this
Agreement or any of the Loan Documents, and no consent by Lender to any
departure by Obligor therefrom, shall in any event be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand upon Obligor in any case shall entitle Obligor to any other or further
notice or demand in the same, similar or other circumstances.

 

11.9.       Notices. Any notice, request or other communication in connection
with this Agreement, shall be in writing or written electronic format and shall
be deemed sufficient and commercially reasonable notice and shall be effective
if given as follows:

 

a.       If to Obligor: If sent by certified mail, shall be deemed to have been
given when received by the party to whom directed, or when receipt is refused,
if sent by mail but not certified, three (3) days after being deposited in the
mail, postage prepaid, if sent by a nationally recognized overnight courier
service one (1) Business Day after being deposited with such courier, if sent by
personal delivery, electronic mail, or facsimile before 5:00 p.m. (Connecticut
time) the same day or if after 5:00 p.m. (Connecticut time) the following
Business Day, or when receipt is refused, provided that any such notice or
communication shall be addressed to a party hereto as provided below (or at such
other address as such party shall specify in writing to the other party hereto):
(i) if to CSSE, 132 East Putnam Avenue, Cos Cob, CT 06807, Attn: William J.
Rouhana, Jr., Chief Executive Officer, Facsimile: (203) 861-4060, (ii) if to
SMV, 800 Third Avenue, 3rd Floor, New York, New York 10022, Attn: William J.
Rouhana, Jr., Chief Executive Officer, Facsimile: (203) 861-4060, (iii) if to
BDP, c/o Chicken Soup for the Soul Entertainment Inc., 132 East Putnam Avenue,
Cos Cob, CT 06807, Attn: William J. Rouhana, Jr., Chief Executive Officer,
Facsimile: (203) 861-4060, and (iv) if to SMF and/or 757, c/o Screen Media
Ventures, LLC, 800 Third Avenue, 3rd Floor, New York, New York 10022, Attn:
William J. Rouhana, Jr., Chief Executive Officer, Facsimile: (203) 861-4060; or,
directed to Obligor at the last address furnished in writing to Lender, or
directed to the address at which Lender customarily communicates with Obligor
with a copy to: Graubard Miller, The Chrysler Building, 405 Lexington Avenue,
11th Floor, New York, New York 10174, Attn: Brian L. Ross, Esq., Facsimile:
(212) 818-8881.

 

b.       If to Lender: Any notice to Lender hereunder shall be effective only
upon its receipt by Lender in writing at the following address: Patriot Bank,
N.A., 900 Bedford Street, Stamford, Connecticut 06901, Attn: Commercial Loan
Department, Facsimile: (203) 823-4471, with a copy to: Shipman & Goodwin LLP,
300 Atlantic Street, Stamford, CT 06901, Attn: Scott R. Gerard, Esq., Facsimile:
(203) 324-8199.

 

11.10.     Applicable Law and Consent to Jurisdiction. The performance and
construction of this Agreement and the Loan Documents shall be governed by the
internal laws of the State of Connecticut without regard to principles of
conflict of law or choice of law. Obligor agrees that any suit, action or
proceeding instituted against Obligor with respect to any of the Obligations,
the Collateral, this Agreement or any of the Loan Documents may be brought in
any state or federal court of competent jurisdiction located in the State of
Connecticut. By its execution hereof, Obligor hereby irrevocably waives any
objection and any right of immunity on the ground of venue, the convenience of
the forum or the jurisdiction of such courts or from the execution of judgments
resulting therefrom. Obligor hereby irrevocably accepts and submits to the
jurisdiction of the aforesaid courts in any such suit, action or proceeding.
Nothing contained herein shall, or shall be interpreted to, limit the right of
Lender to bring any suit, action or proceeding in any other court.

 

 38 

 

 

11.11.       Survival: Successors and Assigns. All covenants, agreements,
representations and warranties made herein and in the Loan Documents shall
survive the execution and delivery hereof and thereof, shall survive Closing and
shall continue in full force and effect until all Obligations have been paid in
full in cash and there exists no credit facility between Lender and Borrower.
Whenever in this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns of such party.
All covenants, agreements, representations and warranties by or on behalf of
Obligor which are contained in this Agreement and the Loan Documents shall inure
to the benefit of Lender, its successors and assigns. Obligor may not assign
this Agreement or any of its rights or obligations hereunder without the prior
written consent of Lender.

 

11.12.       Severability. If any term, provision or condition, or any part
thereof, of this Agreement or any of the Loan Documents shall for any reason be
found or held invalid or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term, provision or
condition, and this Agreement and the Loan Documents shall survive and be
construed as if such invalid or unenforceable term, provision or condition had
not been contained therein.

 

11.13.       Merger and Integration. This Agreement and the attached Exhibits
and Schedules (if any) contain the entire agreement of the parties hereto with
respect to the matters covered and the transactions contemplated hereby, and no
other agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not contained
herein shall be valid or binding.

 

11.14.       WAIVER OF JURY TRIAL. OBLIGOR HEREBY (a) COVENANTS AND AGREES NOT
TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (b) WAIVES
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH LENDER AND OBLIGOR MAY BE
PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS
AGREEMENT, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES,
COMMUNICATIONS OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING
IN ANY WAY TO THE BORROWER-LENDER OR GUARANTOR-LENDER RELATIONSHIP BETWEEN THE
PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF
TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS,
INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS
WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY
MADE BY OBLIGOR AND OBLIGOR HEREBY AGREES THAT NO REPRESENTATIONS OF FACT OR
OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY
OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. LENDER IS HEREBY AUTHORIZED TO
SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER
AND OBLIGOR AND LENDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. OBLIGOR REPRESENTS AND WARRANTS THAT IT HAS BEEN
REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY
INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD
THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

 

 39 

 

 

11.15.       Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.

 

11.16.       Headings. The headings and sub-headings contained in the titling of
this Agreement are intended to be used for convenience only and shall not be
used or deemed to limit or diminish any of the provisions hereof.

 

11.17.       Recitals. The Recitals hereto are hereby incorporated into and made
a part of this Agreement.

 

11.18.       Joint and Several Obligations. CSSE and SMV hereby are jointly and
severally liable for (i) the Obligations, (ii) all amounts which become due
hereunder and under the other Loan Documents, and (iii) the performance of all
obligations hereunder and under the other Loan Documents. The term “the
Borrower” shall include each as well as all of CSSE and SMV.

 

SIGNATURE PAGE FOLLOWS

 

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

 40 

 

 

IN WITNESS WHEREOF, the undersigned have executed this Loan and Security
Agreement as of the date and year first written above.

 

SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF: 

  BORROWER:    

CHICKEN SOUP FOR THE SOUL ENTERTAINMENT INC.,

a Delaware corporation

        Name:   By:         Name: Scott W. Seaton       Title: Vice Chairman    
  Duly Authorized Name:                  

SCREEN MEDIA VENTURES, LLC,

a Delaware limited liability company

    By:

Chicken Soup for the Soul Entertainment Inc.

a Delaware corporation

Name:     Its Manager             By:   Name:     Name: Scott W. Seaton    
Title: Vice Chairman       Duly Authorized

 

 41 

 

 

IN WITNESS WHEREOF, the undersigned have executed this Loan and Security
Agreement as of the date and year first written above.

 

SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF: 

  GUARANTORS:          

BD PRODUCTIONS, LLC,

a Connecticut limited liability company

    By:

Chicken Soup for the Soul Entertainment Inc.,

a Delaware corporation

Name:     Its Manager                     By:   Name:     Name: Scott W. Seaton
      Title: Vice Chairman       Duly Authorized                     757 FILM
ACQUISITION LLC, Name:   a Delaware limited liability company     By:

Chicken Soup for the Soul Entertainment Inc.,

a Delaware corporation

      Its Manager Name:         By:         Name: Scott W. Seaton       Title:
Vice Chairman       Duly Authorized

 

 42 

 

 

    SCREEN MEDIA FILMS, LLC,     a Delaware limited liability company Name:  
By: Screen Media Ventures, LLC,       a Delaware limited liability company,    
  Its Manager                 By:

Chicken Soup for the Soul Entertainment Inc.,

a Delaware corporation

Name:       Its Manager                   By:                 Name: Scott W.
Seaton         Title: Vice Chairman         Duly Authorized

 

 43 

 

 

STATE OF CONNECTICUT   )   ) ss: Cos Cob COUNTY OF FAIRFIELD )

  

On this the ____ day of April, 2018 before me, the undersigned officer,
personally appeared Scott W. Seaton, who acknowledged himself to be the Vice
Chairman of Chicken Soup for the Soul Entertainment Inc., a Delaware
corporation, and that he, as such officer, being authorized so to do executed
the foregoing instrument for the purposes therein contained, by signing the name
of the corporation by himself as Vice Chairman.

 

In Witness Whereof, I hereunto set my hand.

 

      Notary Public   My Commission Expires:   Commissioner of the Superior
Court

 

STATE OF CONNECTICUT   )   ) ss: Cos Cob COUNTY OF FAIRFIELD )

  

On this the ____ day of April, 2018 before me, the undersigned officer,
personally appeared Scott W. Seaton, who acknowledged himself to be the Vice
Chairman of Chicken Soup for the Soul Entertainment Inc., a Delaware
corporation, the Manager of Screen Media Ventures, LLC, a Delaware limited
liability company, and that he, as such officer, being authorized so to do
executed the foregoing instrument for the purposes therein contained, by signing
the name of the limited liability company by himself as Vice Chairman.

 

In Witness Whereof, I hereunto set my hand.

 

      Notary Public   My Commission Expires:   Commissioner of the Superior
Court

 

[Acknowledgment Page to Guaranty Agreement]

 

 44 

 

 

STATE OF CONNECTICUT   )   ) ss: Cos Cob COUNTY OF FAIRFIELD )

  

On this the ____ day of April, 2018 before me, the undersigned officer,
personally appeared Scott W. Seaton, who acknowledged himself to be the Vice
Chairman of Chicken Soup for the Soul Entertainment Inc., a Delaware
corporation, the Manager of BD Productions, LLC, a Connecticut limited liability
company, and that he, as such officer, being authorized so to do executed the
foregoing instrument for the purposes therein contained, by signing the name of
the limited liability company by himself as Vice Chairman.

 

In Witness Whereof, I hereunto set my hand.

 

      Notary Public   My Commission Expires:   Commissioner of the Superior
Court

 

STATE OF CONNECTICUT   )   ) ss: Cos Cob COUNTY OF FAIRFIELD )

  

On this the ____ day of April, 2018 before me, the undersigned officer,
personally appeared Scott W. Seaton, who acknowledged himself to be the Vice
Chairman of Chicken Soup for the Soul Entertainment Inc., a Delaware
corporation, the Manager of 757 Film Acquisition LLC, a Delaware limited
liability company, and that he, as such officer, being authorized so to do
executed the foregoing instrument for the purposes therein contained, by signing
the name of the limited liability company by himself as Vice Chairman.

 

In Witness Whereof, I hereunto set my hand.

 

      Notary Public   My Commission Expires:   Commissioner of the Superior
Court

 

 45 

 

 

STATE OF CONNECTICUT   )   ) ss: Cos Cob COUNTY OF FAIRFIELD )

 

On this the ____ day of April, 2018 before me, the undersigned officer,
personally appeared Scott W. Seaton, who acknowledged himself to be the Vice
Chairman of Chicken Soup for the Soul Entertainment Inc., a Delaware
corporation, the Manager of Screen Media Ventures, LLC, a Delaware limited
liability company, the Manager of Screen Media Films, LLC, a Delaware limited
liability company, and that he, as such officer, being authorized so to do
executed the foregoing instrument for the purposes therein contained, by signing
the name of the limited liability company by himself as Vice Chairman.

 

In Witness Whereof, I hereunto set my hand.

 

      Notary Public   My Commission Expires:   Commissioner of the Superior
Court

 

 46 

 

 

Exhibit A

 

BORROWING BASE CERTIFICATE

 

As of ________________, 2018

 

CHICKEN SOUP FOR THE SOUL ENTERTAINMENT INC., a Delaware corporation, having an
address at 132 East Putnam Avenue, Cos Cob, Connecticut 06807 (“CSSE”) and
SCREEN MEDIA VENTURES, LLC, a Delaware limited liability company, having an
address at 800 Third Avenue, 3rd Floor, New York, New York 10022 (“SMV” and
together with CSSE, the “Borrower”), jointly and severally, in connection with
the Loan and Security Agreement (as defined below), hereby certifies to PATRIOT
BANK, N.A., (the “Lender”) that:

 

1.       As of the date of execution of this Certificate, the undersigned is the
duly appointed Chief Executive Officer, Vice Chairman or Chief Financial Officer
of CSSE or of CSSE as Manager of SMV on whose behalf he has executed this
Certificate.

 

2.        The undersigned is familiar with that certain Loan and Security
Agreement dated as of April ___ , 2018 by and between Borrower and Lender.

 

3.       As of the date set forth above (the “Certificate Date”), the aggregate
Eligible Accounts Receivable of Borrower are $ ____________.

 

4.       As of the Certificate Date, the Borrowing Base was/is:

 

 

1.

Total Eligible Accounts Receivable

 

75% of Eligible Accounts Receivable

$______________

 

$______________

2. Total Borrowing Base $______________ 3.

Maximum Advance Amount

(not to exceed $2,500,000.00)

$______________   Less principal balance presently outstanding ($_____________)
4. Maximum Current Availability $______________

 

5.       Attached hereto is a detail trial balance and aging report of the
Eligible Accounts Receivable of Borrower as of the Certificate Date.

 

6.       No Default or Event of Default has occurred.

 

7.       No 90 Day DSCR Cure Period or Additional DSCR Cure Period has occurred.

 

8.       Borrower acknowledges and confirms that the outstanding LOC Loan is in
compliance with the terms and conditions of the Agreement.

 

9.       Capitalized terms used herein shall have the meanings ascribed to them
in the Agreement unless otherwise defined herein or unless the context otherwise
requires.

 

 47 

 

 

10.       Borrowers hereby acknowledges and agrees that Lender will rely on this
Certificate in its continuing evaluation of the creditworthiness of Borrower,
including whether or not Lender will make any advances of funds to Borrower
under the Agreement.

 

IN WITNESS WHEREOF, Borrower has caused this Certificate to be duly executed
this _____ day of _________, 20___ .

 

  BORROWER:       CHICKEN SOUP FOR THE SOUL ENTERTAINMENT INC., a Delaware
corporation         By:       Name:     Title:     Duly Authorized        
SCREEN MEDIA VENTURES, LLC, a Delaware limited liability company       By:
Chicken Soup for the Soul Entertainment Inc., a Delaware corporation, its
Manager         By:       Name:     Title:     Duly Authorized

 

 48