CREDIT AGREEMENT

BETWEEN

CPI AEROSTRUCTURES, INC.
(the “Borrower”)

AND

SOVEREIGN BANK

(the “Bank”)

DATED AS OF AUGUST 13, 2007

 

 

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CREDIT AGREEMENT dated as of August 13, 2007, between CPI AEROSTRUCTURES, INC.,
a New York corporation, with an office at 60 Heartland Boulevard, Edgewood, New
York 11717 (the “Borrower”), and SOVEREIGN BANK, a New York bank, with an office
at 3 Huntington Quadrangle, Melville, New York 11747 (the “Bank”).

The parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS

1.1 Defined Terms. As used herein the following terms shall have the following
meanings:

“Affiliate” as applied to any Person, means any other Person directly or
indirectly through one or more intermediaries controlling, controlled by, or
under common control with, that Person. For the purposes of this definition,
“control” (including with correlative meanings, the terms “controlling”,
“controlled by” and “under common control with”), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through the
ownership of voting securities or by contract or otherwise.

“Agreement” shall mean this Credit Agreement, as the same from time to time may
be amended, supplemented or modified.

“Business Day” or “Banking Day” shall mean, with respect to Libor Rate Loans, a
London Banking Day and, with respect to Prime Rate Loans and in all other cases,
any day other than a day on which commercial banks in New York are required or
permitted by law to close.

“Capital Expenditures” shall mean, for any period, the aggregate amount of all
payments made by any Person directly or indirectly for the purpose of acquiring,
constructing or maintaining fixed assets, real property or equipment, which, in
accordance with GAAP, would be added as a debit to the fixed asset account of
such Person, including, without limitation, all amounts paid or payable with
respect to capitalized lease obligations and interest which are required to be
capitalized in accordance with GAAP.

“Commitment” shall mean the obligation of the Bank to make Revolving Credit
Loans to the Borrower during the Commitment Period pursuant to the terms hereof
as such Commitment is described in Section 2.1 hereof and is subject to
reduction in accordance with the terms hereof.

“Commitment Period” shall mean the period from and including the date hereof to
and including the Termination Date or such earlier date as the Commitment shall
terminate as provided herein.

“Cleanup Laws” shall mean any Federal, state or local statute or regulation
relating to hazardous or toxic wastes or substances or the removal thereof.

 

 

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“Contractual Obligations” shall mean, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of its property is bound.

“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise majority voting power, by contract or otherwise.
“Controlling” and “Controlled” have meanings correlative thereto.

“Default” shall mean any of the events specified in Section 8 hereof, whether or
not any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.

“Dollars” or “$” shall mean dollars in lawful currency of the United States of
America.

“Environmental Laws” shall mean any Federal, state or local statute or
regulation relating to hazardous or toxic wastes or substances or the removal
thereof.

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

“Event of Default” shall mean any of the events specified in Section 8 hereof,
provided that any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.

“GAAP” shall mean generally accepted accounting principles in the United States
applied in a manner consistent with that employed in the preparation of the
financial statements described in Section 3.1.

“Governmental Authority” shall mean any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled (through stock or
capital ownership or otherwise) by any of the foregoing.

“Guaranty” or “Guaranties” shall mean the guaranty or guaranties executed by the
Guarantors on the Bank’s standard form.

“Guarantors” shall mean any Person or Persons who guarantee the payment and
performance of the Borrower’s indebtedness and obligations (including the
Obligations) hereunder, including (without limitation) all Persons required to
guarantee pursuant to Section 5.9 hereof.

“Indebtedness” shall mean, with respect to any Person, (a) all obligations of
such Person for borrowed money or with respect to deposits or advances of any
kind, (b) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (c) all obligations of such Person for the
deferred purchase price of property or services, except current accounts payable

 

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arising in the ordinary course of business and not overdue beyond such period as
is commercially reasonable for such Person’s business, (d) all obligations of
such Person under conditional sale or other title retention agreements relating
to property purchased by such Person, (e) all payment obligations of such Person
with respect to interest rate or currency protection agreements, (f) all
obligations of such Person as an account party under any letter of credit or in
respect of bankers acceptances, (g) all obligations of any third party secured
by property or assets of such Person (regardless of whether or not such Person
is liable for repayment of such obligations), (h) all guarantees of such Person
and (i) the redemption price of all redeemable preferred stock of such Person,
but only to the extent that such stock is redeemable at the option of the holder
or requires sinking fund or similar payments at any time prior to the
Termination Date.

“Intellectual Property” shall mean the collective reference to all rights,
provisions and privileges relating to intellectual property, whether arising
under United States, multinational, or foreign laws or otherwise, including,
without limitation, copyrights, copyright licenses, patents, patent licenses,
trademarks, trademark licenses, technology, know-how and processes, and all
rights to sue at law or in equity for any infringement or other impairment
thereof, including the right to receive all proceeds and damages therefrom.

“Interest Expense” shall mean, with respect to the Borrower and its Subsidiaries
for the applicable period of determination thereof, the interest expense of the
Borrower and its Subsidiaries during such period determined on a consolidated
basis in accordance with GAAP, and shall in any event include without
limitation, (i) the amortization of debt discounts, (ii) the amortization of all
fees payable in connection with the incurrence of Indebtedness to the extent
included in interest expense, and (iii) the portion of any capitalized lease
obligation allocable to interest expense.

“Interest Period” shall mean any period during which a Revolving Credit Loan
bears interest at a Libor Rate as elected by the Borrower in accordance with the
terms of this Agreement.

(a) If any Interest Period would otherwise end on a day which is not a Business
Day, that Interest Period shall be extended to the next succeeding Business Day
unless the result of such extension would be to extend such Interest Period into
another calendar month, in which event such Interest Period shall end on the
immediately preceding Business Day.

(b) No Interest Period shall extend beyond the Termination Date.

“Libor Rate Loan” shall mean Revolving Credit Loans hereunder (or any portion of
the outstanding principal balance thereof) that bear interest for the Interest
Period applicable thereto at a rate of interest based upon the Libor Rate plus
the applicable margin.

“Libor Rate” shall mean as applicable to any Libor Rate Loan and Interest Period
applicable thereto, (i) a rate per annum (rounded upward, if necessary, to the
nearest 1/32 of one percent) equal to the composite London Interbank Offered
Rate which appears on the Telerate page 3750 as of 11:00 a.m. London time on the
day that is two (2) London Banking Days preceding the first day of such Interest
Period (or if not reported thereon, then as determined by the Bank from another
recognized source or interbank quotation). In the event that the Board of
Governors of the

 

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Federal Reserve System shall impose a Reserve Percentage with respect to Libor
deposits of the Bank, then for any period during which such Reserve Percentage
shall apply, Libor shall be equal to the amount determined above divided by an
amount equal to 1 minus the Reserve Percentage. “Reserve Percentage” shall mean
the maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed on member banks of the Federal
Reserve System against “Euro-currency Liabilities” as defined in Regulation D.

“Lien” shall mean any mortgage, pledge, security interest, hypothecation,
assignment, deposit arrangement, encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction).

“Loan Documents” shall mean, collectively, this Agreement, the Revolving Credit
Note, the Security Agreement, the Additional Documents (as defined in Section
10.14 hereof), the Replacement Documents (as defined in Section 10.15 hereof)
and each document, agreement and instrument executed in connection herewith or
pursuant hereto together with each document, agreement and instrument made by
the Borrower or any Guarantor with or in favor of or owing to the Bank.

“London Banking Day” shall mean, with respect to Libor Rate Loans, any day on
which commercial banks are open for international business (including dealing in
U.S. Dollar ($) deposits) in London, England and New York.

“Obligations” shall have the meaning set forth in Section 9.1.

“Person” shall mean any individual, corporation, partnership, joint venture,
trust, unincorporated organization or any juridical entity, or a government or
state or any agency or political subdivision thereof.

“Plan” shall mean any plan described in Section 4021(a) of ERISA in respect of
which the Borrower is an “employer” as defined in Section 3(5) of ERISA.

“Post Default Rate” shall mean at any time a rate of interest equal to four (4%)
percent per annum in excess of the rate that would then be applicable to the
Revolving Credit Loans.

“Prime Rate” shall mean the rate per annum from time to time established by the
Bank as the Prime Rate and made available by the Bank at its main office or, in
the discretion of the Bank, the base, reference or other rate then designated by
the Bank for general commercial loan reference purposes, it being understood
that such rate is a reference rate, not necessarily the lowest, established from
time to time, which serves as the basis upon which effective interest rates are
calculated for loans making reference thereto (the “Index”). The Index is not
necessarily the lowest rate charged by the Bank on its loans and is set by the
Bank in its sole discretion. If the Index becomes unavailable during the term of
this Agreement, the Bank may designate a substitute index after notifying the
Borrower. The Bank will tell the Borrower the current Index rate upon the

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Borrower’s request. The interest rate change will not occur more often than each
time as and when the Index changes.

“Prime Rate Loan” shall mean Revolving Credit Loans hereunder (or any portion of
the outstanding principal balance thereof) which bear interest based upon the
Prime Rate.

“Real Property” shall mean any real property owned or leased by any Specified
Person.

“Reportable Event” shall mean any of the events set forth in Section 4043(b) of
ERISA or the regulations thereunder.

“Requirements of Law” shall mean, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation, or determination of any
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

“Revolving Credit Loan” shall mean a loan made pursuant to Section 2.1 hereof.

“Revolving Credit Note” shall mean the note referred to in Section 2.2 hereof.

“Security Agreement” shall mean the security agreement referred to in Section
4.1(b) hereof.

“Specified Person” shall mean the Borrower, any Guarantor, any Subsidiaries of
the Borrower or any Guarantor, or the Subsidiaries of any of their Subsidiaries.

“Subordination Agreement” shall mean the Subordination Agreement by the Borrower
and the Bank in favor of the United States of America of even date herewith.

“Subsidiary” or “Subsidiaries” shall mean, with respect to any Person (the
“parent”) at any date, any corporation, limited liability company, partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent’s consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership,
association or other entity of which securities or other ownership interests
representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the partnership
interests are, as of such date, owned, controlled or held, directly or
indirectly, by the parent.

“Termination Date” shall mean August 13, 2009 or, if such date is not a Business
Day, the Business Day next succeeding such date.

 

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1.2 Accounting Terms. As used herein and in any certificate or other document
made or delivered pursuant hereto, accounting terms not specifically defined
herein shall have the respective meanings given to them under GAAP.

SECTION 2.

AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENT

2.1 Revolving Credit Commitment. Subject to the terms and conditions hereof, the
Bank agrees to make revolving credit loans to the Borrower (collectively, the
“Revolving Credit Loans”) from time to time during the Commitment Period in the
aggregate principal amount at any one time outstanding of up to (but not
exceeding) $2,500,000.00, as such maximum available amount may be hereafter
reduced as provided in this Agreement (the “Commitment”). During the Commitment
Period, the Borrower may use the Commitment for obtaining Revolving Credit Loans
by borrowing, paying, prepaying in whole or in part and reborrowing on a
revolving basis, all in accordance with the terms and conditions hereof provided
that no more than three (3) types of Libor Rate Loans may be outstanding at any
time.

2.2 Revolving Credit Note. The Revolving Credit Loans made by the Bank to the
Borrower pursuant to Section 2.1 hereof shall be evidenced by a promissory note
of the Borrower substantially in the form of Exhibit A hereto with appropriate
insertions (the “Revolving Credit Note”), payable to the order of the Bank and
representing the obligation of the Borrower to pay the lesser of (a) the amount
of the Commitment, or (b) the aggregate unpaid principal amount of all Revolving
Credit Loans made by the Bank to the Borrower, with interest thereon as
hereinafter prescribed. The Revolving Credit Note shall (i) be dated the date
hereof, (ii) be stated to mature on the Termination Date and (iii) bear interest
with respect to the unpaid principal balance thereof from time to time
outstanding at a rate per annum to be elected by the Borrower in accordance with
the notice provisions set forth in Section 2.3 hereof, and, in the case of Libor
Rate Loans, for the Interest Period therein specified, equal to (y) 2.0% in
excess of the Libor Rate, or (z) the Prime Rate. All computations of interest
under this Agreement shall be made on the basis of a three hundred sixty (360)
day year and the actual number of days elapsed. In all cases, interest shall be
payable as provided in Section 2.9(a) hereof, subject to Section 10.13 hereof.
After any stated or accelerated maturity, the Revolving Credit Note shall bear
interest at the rate set forth in Section 2.9(c) hereof, subject to Section
10.13 hereof.

2.3 Procedure for Borrowing. The Borrower may borrow under the Commitment during
the Commitment Period on any Business Day by giving the Bank irrevocable written
notice of a request for a Revolving Credit Loan hereunder (a) in the case of
Libor Rate Loans, three (3) Business Days before a proposed borrowing or
continuation or conversion and (b) in the case of all other Revolving Credit
Loans, not less than one (1) nor more than five (5) Business Days before a
proposed borrowing or continuation or conversion, setting forth (i) the amount
of the loan request, which shall not be less than $100,000.00, (ii) the
requested borrowing date or Interest Period commencement date, as the case may
be, (iii) whether the borrowing or Interest Period is to be for a Libor Rate
Loan or a Prime Rate Loan or a combination thereof, and (iv) if entirely or
partially a Libor Rate Loan, the length of the Interest Period therefor, which
shall be one (1), two (2), three (3), four (4), five (5) or six (6) months. As
used in this Section 2.3, “conversion” shall mean the conversion from one
interest rate to another interest rate as more fully described in Section 2.7

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hereof. Such notice shall be written (including, without limitation, via
facsimile transmission) and shall be sufficient if received by 1:00 p.m. on the
date on which such notice is to be given. If any such request is sent by
facsimile it shall be confirmed in writing sent by the Borrower to the Bank
within two (2) Business Days thereafter. Unless notification is otherwise
furnished by the Borrower to the Bank (in a manner consistent with the
requirements of this Section 2.3), Revolving Credit Loans will be made by
credits to the Borrower’s demand deposit account maintained with the Bank. If
the Borrower furnishes such notice but no election is made as to the type of
loan or the Interest Period to be applicable thereto, the Revolving Credit Loan
will automatically then be made as a Prime Rate Loan until such required
information is furnished pursuant to the terms hereof.

2.4 Commitment Fee. As additional compensation for the Commitment on the
revolving basis provided for herein, the Borrower agrees to pay the Bank a
commitment fee for the Commitment Period at the rate of .25% per annum on the
average daily unused portion of the Commitment hereunder. Such commitment fee
shall be payable quarterly, on the last day of each March, June, September and
December during the Commitment Period, commencing September 30, 2007, and on the
Termination Date. If the Borrower so fails to pay any such amount to the Bank
the obligations to make such payment shall bear interest from such date not paid
when due at the Post Default Rate. The obligation to so pay interest shall not
be construed so as to waive the requirement to pay the commitment fees as
hereinabove set forth.

2.5 Regulatory Changes in Capital Requirements. If, after the date hereof, the
Bank reasonably determines that (i) the adoption of a change in law, rule,
regulation or guideline regarding capital requirements for banks or bank holding
companies, or any change in the interpretation or application thereof by any
Governmental Authority charged with the administration thereof, or (ii)
compliance by the Bank or its parent bank holding company with any guideline,
request, or directive of any such entity regarding capital adequacy (whether or
not having the force of law), the effect of reducing the return on the Bank’s or
such holding company’s capital as a consequence of the Bank’s Commitment
hereunder to a level below that which the Bank or such holding company could
have achieved but for such adoption, change or compliance (taking into
consideration the Bank’s or such holding company’s then existing policies with
respect to capital adequacy and assuming the full utilization of such entity’s
capital) by any amount deemed by the Bank to be material, then the Bank may
notify the Borrower thereof. Following receipt of such notice, the Borrower
agrees to pay the Bank on demand the amount of such reduction of return on
capital as and when such reduction is determined, payable within ninety (90)
days after presentation by the Bank of a statement in the amount and setting
forth in reasonable detail the Bank’s calculation thereof and the assumptions
upon which such calculation was based (which statement shall be deemed true and
correct absent manifest error). In determining such amount, the Bank may use any
reasonable averaging and attribution methods.

2.6 Termination or Reduction of Commitment. The Borrower shall have the right,
upon not less than three (3) Business Days’ irrevocable written notice, to
terminate the Commitment or, from time to time, to reduce the amount of the
Commitment, provided that (a) any such reduction (i) shall be in the minimum
amount of $100,000.00 or a multiple thereof, (ii) shall reduce permanently the
amount of the Commitment then in effect, and (iii) shall be accompanied by
prepayment of the Revolving Credit Loans outstanding to the extent, if any, that
the aggregate of the Revolving Credit Loans then outstanding exceed the amount
of the Commitment as then reduced, together with

 

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accrued interest on the amount so prepaid to and including the dates of each
such prepayment and any amounts payable pursuant to Section 2.12 in connection
therewith and the payment of any unpaid commitment fee then accrued hereunder;
and (b) any such termination of the Commitment shall be accompanied by
prepayment in full of the Revolving Credit Loans outstanding (together with
accrued interest thereon to and including the date of prepayment) the payment of
any amounts payable pursuant to Section 2.12 in connection therewith and the
payment of any unpaid commitment fee then accrued hereunder.

2.7 Continuation and Conversion of Loans. The Borrower shall have the right at
any time on prior irrevocable written or facsimile notice to the Bank as
specified in Section 2.3: (i) to continue any Revolving Credit Loan into a
subsequent Interest Period, (ii) to convert any Loan into another type of Loan
(specifying, in the case of a Libor Rate Loan, the Interest Period to be
applicable thereto), and (iii) to convert any Prime Rate Loan into a Libor Rate
Loan (specifying the Interest Period to be applicable thereto), subject to the
following:

(a) in the case of a conversion of less than all of the outstanding Revolving
Credit Loans, the aggregate principal amount of Revolving Credit Loans converted
shall not be less than $100,000.00 and shall be an integral multiple thereof;

(b) no Revolving Credit Loan (other than a Prime Rate Loan) shall be converted
at any time other than at the end of an Interest Period applicable thereto;

(c) any portion of a Revolving Credit Loan maturing or required to be prepaid in
less than one month may not be converted into or continued as a Libor Rate Loan;
and

(d) no more than three (3) types of Libor Rate Loans may be outstanding at any
one time.

In the event that the Borrower shall not give notice to continue any Libor Rate
Loan into a subsequent Interest Period or convert any such Revolving Credit
Loan, into a Revolving Credit Loan of another type, on the last day of the
Interest Period thereof, such Revolving Credit Loan (unless prepaid) shall
automatically be converted into a Prime Rate Loan. The Interest Period
applicable to any Libor Rate Loan resulting from a conversion or continuation
shall be specified by the Borrower in the irrevocable notice delivered by the
Borrower pursuant to this Section and Section 2.3; provided, however, that, if
such notice does not specify either the type of loan or the Interest Period to
be applicable thereto, the Revolving Credit Loan shall automatically be
converted into, or continued as, as the case may be, a Prime Rate Loan until
such required information is furnished pursuant to the terms hereof.
Notwithstanding anything to the contrary contained above, if an Event of Default
shall have occurred and is continuing, no Libor Rate Loan may be continued into
a subsequent Interest Period and no Prime Rate Loan may be converted into a
Libor Rate Loan.

2.8 Prepayment.

(a) Voluntary. The Borrower may prepay any Prime Rate Loan in whole or in part
without premium or penalty; provided, however, that each partial prepayment on
account of any Prime Rate Loan shall be in an amount not less than $50,000.00.
Except as provided in Section

 

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2.8(b) or in connection with a termination or reduction of the Commitment
pursuant to Section 2.6, the Borrower may not prepay any Libor Rate Loan prior
to the last day of the Interest Period therefor. Any amount prepaid on account
of a Revolving Credit Loan may be reborrowed in accordance with the provisions
of Section 2.1 hereof.

(b) Mandatory. If, at any time, the aggregate outstanding principal balance of
Revolving Credit Loans exceeds the Commitment, within three (3) days of the
first day there exists such excess the Borrower shall make payment to the Bank
in an amount equal to such excess together with any amounts payable pursuant to
Section 2.12 in connection therewith. Such payment shall be applied to reduce
the aggregate unpaid principal balance of Revolving Credit Loans then
outstanding in the Bank’s reasonable discretion. Each prepayment shall be made
together with payment of accrued interest on the amount prepaid to and including
the date of prepayment.

2.9 Payments.

(a) Interest accrued on each Revolving Credit Loan shall be payable, without
duplication, on:

(i) the Termination Date;

(ii) with respect to any portion of any Revolving Credit Loan repaid or prepaid
pursuant to this Agreement, the date of such repayment or prepayment, as the
case may be;

(iii) with respect to that portion of the outstanding principal amount of all
Revolving Credit Loans maintained as Prime Rate Loans, the first day of each
month and commencing with the first such date following the date of the making
of such Revolving Credit Loans;

(iv) with respect to that portion of the outstanding principal amount maintained
as Libor Rate Loans, the last day of each applicable Interest Period (and, if
such Interest Period shall exceed three months, on the last day of each
three-month period occurring during such Interest Period); and

(v) with respect to that portion of the outstanding principal amount converted
into Prime Rate Loans or Libor Rate Loans on a day when interest would not
otherwise have been payable pursuant to Sections 2.9(a)(iii) or 2.9(a)(iv), the
date of such conversion.

(b) All payments (including prepayments) to be made by the Borrower on account
of principal or interest with respect to any Revolving Credit Loan or on account
of fees or any other obligations of the Borrower to the Bank hereunder shall be
made to the Bank at the office of the Bank set forth in Section 10.1 hereof or
at such other place as the Bank may from time to time designate in writing in
lawful money of the United States of America in immediately available funds. The
Borrower hereby authorizes the Bank to deduct from any general deposit account
of the Borrower the amount of any loan payment including all payments of
interest, principal and other sums due (“Automatic Payment”), from time to time,
under this Agreement and/or the Revolving Credit Note; the Bank will thereafter
promptly notify the Borrower of the amount so charged. If the

 

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funds in the account are insufficient to cover any payment due, the Bank shall
not be obligated to advance funds to cover the payment. The failure of the Bank
so to charge any account or to give any such notice shall not affect the
obligation of the Borrower to pay interest, principal or other sums as provided
herein or in the Revolving Credit Note, at any time and for any reason the
Borrower or the Bank may voluntarily terminate the Automatic Payment.
Termination by the Borrower of the Automatic Payment must be made by written
notice to the Bank. Subject to the provisions of subparagraph (a) in the
definition of Interest Period set forth in Section 1.1 hereof, if any payment to
be so made hereunder, or under the Revolving Credit Note, becomes due and
payable on a day other than a Business Day, such payment shall be extended to
the next succeeding Business Day and, to the extent permitted by applicable law,
interest thereon shall be payable at the then applicable rate during such
extension.

(c) If all or a portion of the principal or interest of any Revolving Credit
Loan shall not be paid when due (whether at the stated or any accelerated
maturity of such Revolving Credit Loan) or if any fee or other amount due
hereunder shall not be paid when due, or upon the occurrence of an Event of
Default, the Borrower’s right to select pricing options shall cease and all
Revolving Credit Loans, and such interest, fee or amount due hereunder, to the
extent permitted by applicable law, shall bear interest (payable on demand) (i)
in all cases other than Libor Rate Loans at the Post Default Rate until paid and
(ii) in the case of Libor Rate Loans at the Post Default Rate until the
expiration of the Interest Period applicable to such Revolving Credit Loan, at
which time the Revolving Credit Loan will automatically be converted into a
Prime Rate Loan and until paid shall bear interest at the Post Default Rate. In
no event, however, shall interest payable hereunder be in excess of the maximum
rate of interest permitted under applicable law. The obligation to so pay
interest upon any reimbursement obligation of the Borrower to the Bank shall not
be construed so as to waive the requirement for reimbursement on the same date
that payment is made by the Bank as set forth in this Agreement. If a regularly
scheduled payment is fifteen (15) days or more late, the Borrower will be
charged five (5.0%) percent of the unpaid portion of the regularly scheduled
payment, or $10.00, whichever is greater.

(d) All payments received will be applied first to interest, then to fees, and
then to principal.

(e) The Borrower hereby expressly authorizes the Bank to record on the schedule
attached to the Revolving Credit Note the amount and date of each Revolving
Credit Loan, the rate of interest thereon, the date and amount of each payment
of principal and the unpaid principal balance; provided, however, that the
failure of the Bank to make any such notation shall not in any manner affect the
obligation of the Borrower to repay any Revolving Credit Loan in accordance with
the terms hereof. All such notations shall be presumed to be correct.

2.10 Use of Proceeds. The proceeds of Revolving Credit Loans hereunder shall be
used to finance working capital requirements of the Borrower and for general
corporate purposes. No part of the proceeds of any Revolving Credit Loan will be
used, whether directly or indirectly, for any purpose that entails a violation
of any of the Federal Reserve Board Regulations including Regulations T, U and X

 

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2.11 Increased Costs. If the Bank determines that the effect of any applicable
law or government regulation, guideline or order or the interpretation thereof
by any Governmental Authority charged with the administration thereof (such as,
for example, a change in official reserve requirements which the Bank is
required to maintain in respect of loans or deposits or other funds procured for
funding such loans) is to increase the cost to the Bank of making or continuing
Libor Rate Loans hereunder or to reduce the amount of any payment of principal
or interest receivable by the Bank thereon, then the Borrower will pay to the
Bank on demand such additional amounts as the Bank may reasonably determine to
be required to compensate the Bank for such additional costs or reduction. Any
additional payment under this section will be computed from the effective date
at which such additional costs have to be borne by the Bank. A certificate as to
any additional amounts payable pursuant to this Section 2.11 setting forth the
basis and method of determining such amounts shall be conclusive, absent
manifest error, as to the determination by the Bank set forth therein if made
reasonably and in good faith. The Borrower shall pay any amounts so certified to
it by the Bank within ten (10) days of receipt of any such certificate. For
purposes of this Section 2.11 all references to the “Bank” shall be deemed to
include any participant in the Commitment and/or Revolving Credit Loans.

2.12 Indemnities. The Borrower hereby indemnifies the Bank against any and all
loss and reasonable expenses which the Bank may sustain or incur as a
consequence of any of the following:

(a) default in payment of the principal amount of any Libor Rate Loan or any
part thereof or interest accrued thereon, or any other amount due in connection
with the Loan Documents;

(b) the occurrence of any other Default under this Agreement; or

(c) the failure of the Borrower to borrow a Libor Rate Loan after sending notice
of the amount and requested interest rate with respect to the making of any such
Revolving Credit Loan;

(d) the receipt or recovery by the Bank of all or any part of a Libor Rate Loan
prior to the last day of the Interest Period thereof (whether by prepayment,
acceleration or otherwise); or

(e) the conversion, prior to the last day of an applicable Interest Period, of
one type of Libor Rate Loan into another type of Libor Rate Loan or into a Prime
Rate Loan.

Without limiting the effect of the foregoing, the amount to be paid by the
Borrower to the Bank in order to so indemnify the Bank for any loss occasioned
by any of the events described in the proceeding paragraph, and as liquidated
damages therefor, shall be equal to the excess, discounted to its present value
as of the date paid to the Bank, of (i) the amount of interest which otherwise
would have accrued on the principal amount so received, recovered, converted or
not borrowed during the period (the “Indemnity Period”) commencing with the date
of such receipt, recovery, conversion, or failure to borrow to the last day of
the applicable Interest Period for such Libor Rate Loan at the rate of interest
applicable to such Revolving Credit Loan (or rate of interest agreed to in the
case of a failure to borrow), provided for herein (prior to a Default) over (ii)
the amount of interest which

 

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would be earned by the Bank during the Indemnity Period if it invested the
principal amount so received, recovered, converted or not borrowed at the rate
per annum determined by the Bank as the rate it would bid in the London
interbank market for a deposit of eurodollars in an amount approximately equal
to such principal amount for a period of time comparable to the Indemnity
Period.

A certificate as to any additional amounts payable pursuant to this Section 2.12
setting forth the basis and method of determining such amounts shall be presumed
correct, absent manifest error, as to the determination by the Bank set forth
therein if made reasonably and in good faith. The Borrower shall pay any amounts
so certified to it by the Bank within ten (10) days of receipt of any such
certificate. For purposes of this Section 2.12, all references to the “Bank”
shall be deemed to include any participant in the Commitment and/or Revolving
Credit Loans.

2.13 Alternate Rate of Interest. In the event, and on each occasion, that on the
day two Business Days prior to the commencement of any Interest Period for a
Revolving Credit Loan, the Bank shall have reasonably determined (i) that dollar
deposits in the amount of the requested principal amount of such Loan are not
generally available in the London Interbank Market, (ii) that the rate at which
such dollar deposits are being offered will not adequately and fairly reflect
the cost to the Bank of making or maintaining such Loan during such Interest
Period, or (iii) that reasonable means do not exist for ascertaining the Libor
Rate, the Bank shall, as soon as practicable thereafter, give written or
facsimile notice of such determination to the Borrower. In the event of any such
determination, until the circumstances giving rise to such notice no longer
exist, no Libor Rate Loans will be made hereunder. Each determination by the
Bank hereunder shall be conclusive absent manifest error. For purposes of this
Section 2.13, all references to the “Bank” shall be deemed to include any
participant in the Commitment and/or the Revolving Credit Loans.

2.14 Change in Legality.

(a) Notwithstanding anything to the contrary herein contained, if any change in
any law or regulation or in the interpretation thereof by any governmental
authority charged with the administration or interpretation thereof shall make
it unlawful for the Bank to make or maintain any Libor Rate Loan, then, by
written notice to the Borrower, the Bank may:

(i) declare that Libor Rate Loans will not thereafter be made by the Bank
hereunder, whereupon the Borrower shall be prohibited from requesting Libor Rate
Loans from the Bank hereunder unless such declaration is subsequently withdrawn;
and

(ii) require that all outstanding Libor Rate Loans made by it be converted to
Prime Rate Loans, in which event (x) all such Libor Rate Loans shall be
automatically converted to Prime Rate Loans as of the effective date of such
notice as provided in paragraph (b) below and (y) all payments and prepayments
of principal which would otherwise have been applied to repay the converted
Libor Rate Loans shall instead be applied to repay the Prime Rate Loans
resulting from the conversion of such Libor Rate Loans.

(b) For purposes of this Section 2.14, (i) a notice to the Borrower by the Bank
pursuant to paragraph (a) above shall be effective, if lawful, on the last day
of the then current

 

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Interest Period; in all other cases, such notice shall be effective on the day
of receipt by the Borrower and (ii) for purposes of this Section 2.14, all
references to the “Bank” shall be deemed to include any participant in the
Commitment and/or the Revolving Credit Loans.

SECTION 3. REPRESENTATIONS AND WARRANTIES

In order to induce the Bank to enter into this Agreement and to make the
financial accommodations herein provided for, the Borrower hereby covenants,
represents and warrants to the Bank that:

3.1 Financial Condition. The balance sheet of the Borrower as at December 31,
2006, and the related statements of income, retained earnings and cash flows for
the fiscal year ended on such date, audited by J.H. Cohn LLP, CPAs and the
unaudited balance sheet of the Borrower as at March 31, 2007 and the related
statements of income, retained earnings and cash flows for the fiscal quarter
ended on such date, copies of which statements have heretofore been furnished to
the Bank, are complete and correct and present fairly the financial condition of
the Borrower as at such dates, and the results of its operations and changes in
financial position for the fiscal periods then ended. Such financial statements,
including schedules and notes thereto, have been prepared in accordance with
GAAP. The Borrower does not have any material contingent obligations, contingent
liabilities or liabilities for taxes, long-term leases or unusual forward or
long-term commitments, which are not reflected in the foregoing statements or in
the notes thereto. Since the date of the aforementioned financial statements,
there has been no material adverse change in the business, operations, assets or
financial or other condition of the Borrower.

3.2 Corporate Existence; Compliance with the Law. The Borrower and each of its
Subsidiaries (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation; (b) has the corporate power
and authority and the legal right to own and operate its property, and to
conduct the business in which it is currently engaged; (c) is duly qualified as
a corporation and is in good standing under the laws of each jurisdiction where
its ownership or operation of property or the conduct of its business require
such qualification; and (d) is in compliance with all Requirements of Law.

3.3 Corporate Power; Authorization; Enforceable Obligations. The Borrower has
the corporate power, authority and legal right to make, execute, deliver and
perform its obligations under this Agreement and the Loan Documents to which it
is a party and to borrow hereunder; and has taken all necessary corporate action
to authorize the borrowings on the terms and conditions of this Agreement and
such Loan Documents and to authorize the execution, delivery and performance of
this Agreement and such Loan Documents. No consent or authorization of, filing
with, or other act by or in respect of any other Person (including shareholders
and creditors of the Borrower) or any Governmental Authority, other than the
filing of UCC-1 Financing Statements with the applicable office in connection
with the Security Agreement, is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or such Loan Documents. This Agreement and such
Loan Documents will be duly executed and delivered on behalf of the Borrower,
and this Agreement and such Loan Documents, when executed and delivered, will
each constitute a legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms, except as
enforceability

 

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may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws affecting the enforcement of creditors’
rights generally.

3.4 No Legal Bar. The execution, delivery and performance of the Loan Documents
and the borrowings hereunder and the use of the proceeds thereof by the Borrower
and the execution, delivery and performance of the Loan Documents to which it is
a party by any Specified Person, will not violate any Requirement of Law or any
Contractual Obligation of any Specified Person, and will not result in, or
require, the creation or imposition of any Lien on any of its properties or
revenues pursuant to any Requirement of Law or Contractual Obligation except
those in favor of the Bank provided herein.

3.5 No Material Litigation. No litigation, investigation or proceeding of or
before any arbitrator or Governmental Authority is pending by or against any
Specified Person or against any of their properties or revenues (a) with respect
to the Loan Documents or any of the transactions contemplated hereby or thereby,
or (b) which if adversely determined, would have a material adverse effect on
the business, operations, property or financial or other condition of any
Specified Person.

3.6 No Default. No Specified Person is in default under or with respect to any
Contractual Obligation in any respect which could be materially adverse to the
business, operations, property or financial or other condition of such Specified
Person, or which could materially and adversely affect the ability of any
Specified Person to perform its respective obligations under the Loan Documents
to which it is a party. No Default or Event of Default has occurred and is
continuing.

3.7 No Burdensome Restrictions. No Contractual Obligation of any Specified
Person and no Requirement of Law materially adversely affects, or insofar as the
Borrower may reasonably foresee may so affect, the business, operations,
property or financial or other condition of any such Specified Person.

3.8 Taxes. Each Specified Person has filed or caused to be filed all tax returns
which to the knowledge of the Borrower are required to be filed or has received
extensions that are validly in effect, and have paid all taxes shown to be due
and payable on said returns or on any assessments made against them or any of
their property.

3.9 Federal Regulations. The Borrower is not engaged nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of “purchasing” or “carrying” any “margin stock” within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. No part of the proceeds of any Revolving Credit Loans
hereunder will be used for “purchasing” or “carrying” “margin stock” as so
defined or for any purpose which violates, or which would be inconsistent with,
the provisions of the Regulations of such Board of Governors.

3.10 Environmental Matters.

 

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(a) None of the Real Property contains, or to the best knowledge of the Borrower
has previously contained, any hazardous or toxic waste or substances or
underground storage tanks.

(b) The Real Property is in material compliance with all applicable Federal,
state and local environmental standards and requirements affecting such Real
Property, and there are no environmental conditions which could materially
interfere with the continued use of the Real Property.

(c) No Specified Person has received any notices of violations or advisory
action by regulatory agencies regarding environmental control matters or permit
compliance.

(d) To the knowledge of the Borrower, hazardous waste has not been transferred
from any of the Real Property to any other location which is not in compliance
with all applicable environmental laws, regulations or permit requirements.

(e) With respect to the Real Property, there are no proceedings, governmental
administrative actions or judicial proceedings pending or, to the best knowledge
of the Borrower, contemplated under any Federal, state or local law regulating
the discharge of hazardous or toxic materials or substances into the
environment, to which the Borrower or any of its Subsidiaries is named as a
party.

3.11 Ownership of Property; Liens. Each Specified Person has title in fee simple
to, or a valid leasehold interest in, all Real Property, and good title to, or a
valid leasehold interest in, all its other property, and none of such property
is subject to any Lien except as permitted by Section 7.4 hereof.

3.12 Intellectual Property. Each Specified Person owns, or is licensed to use,
all Intellectual Property necessary for the conduct of its business as currently
conducted. No material claim has been asserted and is pending by any Person
challenging or questioning the use of any Intellectual Property or the validity
or effectiveness of any Intellectual Property, nor does the Borrower know of any
valid basis for any such claim. To the knowledge of the Borrower, the use of
Intellectual Property by any Specified Person does not infringe on the rights of
any Person in any material respect.

3.13 Labor Matters. There are no strikes or other labor disputes against any
Specified Person pending, or, to the knowledge of the Borrower, threatened that
(individually or in the aggregate) could reasonable be expected to have a
material adverse effect upon the Borrower’s business, operations or property.
Hours worked by any payment to employees of each Specified Person have not been
in violation of the Fair Labor Standards Act or any other applicable Requirement
of Law dealing with such matters that (individually or in the aggregate) could
reasonably be expected to have a material adverse effect upon the Borrower’s
business, operations or property. All payments due from any Specified Person on
account of employee health and welfare insurance that (individually or in the
aggregate) could reasonably be expected to have a material adverse effect upon
the Borrower’s business, operations or property if not paid have been paid or
accrued as a liability on the books of each Specified Person.

 

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3.14 Borrower Subsidiaries. The Borrower has no Subsidiaries as of the date
hereof.

SECTION 4. CONDITIONS PRECEDENT.

4.1 Conditions of Initial Extensions of Credit. The obligation of the Bank to
make the initial extension of credit to the Borrower hereunder is subject to the
satisfaction of the following conditions precedent:

(a) Revolving Credit Note. The Bank shall have received the Revolving Credit
Note conforming to the requirements hereof substantially in the form of Exhibit
A hereto with appropriate insertions and duly executed by the Borrower.

(b) Security Agreement. The Bank shall have received the Security Agreement duly
executed by the Borrower together with security agreement questionnaire in the
form provided by the Bank, UCC searches and insurance certificates and paid
receipts naming the Bank as loss payee, evidencing personal property coverage
(for inventory and equipment) on ACORD Form 27 and general liability coverage on
ACORD Form 25.

(c) Assignment Statements. The Bank shall have received UCC-3 Assignment
Statements and other evidence of assignment of the prior JPMorgan Chase Bank
lien upon the Borrower’s property, which lien shall be superior to that held by
Citibank, N.A.

(d) Legal Opinion. The Bank shall have received a favorable opinion of counsel
to the Borrower. Such opinion shall cover such matters incident to the
transactions contemplated by this Agreement as the Bank shall reasonably
require.

(e) Certified Copies and Other Documents. The Bank shall have received such
certificates and other documents relating to the Borrower with respect to the
matters herein contemplated as the Bank may request, including but not limited
to:

(i) certificates of good standing from the Secretary of State of New York if
incorporated or formed under the laws of the State of New York or doing business
in New York and, if incorporated or formed in a jurisdiction other than New
York, from the Secretary of State or applicable Governmental Authority of such
jurisdiction of incorporation and from the Secretary of State or applicable
Governmental Authority of each jurisdiction in which an office is maintained;
and

(ii) certificates of an officer of the Borrower dated on or about the date of
this Agreement certifying as to (w) true and current copies of the Borrower’s
certificate of incorporation and all amendments thereto, (x) true and correct
copies of the bylaws of the Borrower and all amendments thereto, (y) true and
correct copies of resolutions adopted by the board of directors of the Borrower
authorizing (1) the execution, delivery and performance by the Borrower of each
of the Loan Documents to which it is a party and the performance by the Borrower
of its obligations under each of the Loan Documents to which it is a party, (2)
approving forms in substantially execution form of each of the Loan Documents to
which it is a party, and (3) authorizing officers of the Borrower to execute and
deliver each of the Loan Documents to which it

 

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is a party, and (z) the incumbency and specimen signatures of the duly
authorized officers of the Borrower executing the Loan Documents and any other
documents delivered to the Bank by the Borrower in connection herewith.

(f) Searches, Etc. The Bank shall have received and reviewed satisfactory lien,
judgment and tax lien searches against the Borrower.

(g) Fees. The Bank shall have received evidence of the payment of (1) the Bank’s
commitment fee in the amount of $5,000.00, and (2) the fees and disbursements of
the Bank’s counsel.

(h) Additional Matters. All other documents and legal matters in connection with
the transactions contemplated by this Agreement shall be reasonably satisfactory
in form and substance to the Bank and its counsel.

4.2 Conditions to All Loans. The obligation of the Bank to make any Revolving
Credit Loan (including the initial Revolving Credit Loan) to be made by it
hereunder is subject to the satisfaction of the following conditions precedent:

(a) Representations and Warranties. The representations and warranties made by
the Borrower herein or which are contained in any certificate, document or
financial or other statement furnished at any time under or in connection
herewith, shall be correct on and as of the borrowing date for such extension of
credit as if made on and as of such date.

(b) No Default or Event of Default. No Default or Event of Default shall have
occurred and be continuing on the date an extension of credit is to be made or
after giving effect to the extension of credit to be made on such date.

SECTION 5. AFFIRMATIVE COVENANTS.

The Borrower hereby agrees that, so long as the Commitment remains in effect,
the Revolving Credit Note remains outstanding and unpaid, or any amount is owing
to the Bank hereunder, the Borrower will and will cause each Specified Person,
as applicable, to:

5.1 Existence, Qualification and Conduct of Business. Take the necessary steps
to preserve its corporate existence and its right to conduct business in all
states in which the nature of its business requires qualification to do
business, and continue to engage in business of the same general type as now
conducted by it, and maintain all rights, privileges, licenses and franchises
necessary or desirable in the ordinary course of its business.

5.2 Financial Information and Compliance Certificates.

 

(a) Keep its books of record and account in accordance with GAAP and furnish to
the Bank:

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(i) within (y) ninety (90) days after the last day of each of its fiscal years,
the consolidated balance sheets of the Borrower and consolidated statements of
income, retained earnings and cash flows prepared in accordance with GAAP
consistently applied and audited by J.H. Cohn LLP, CPAs or another firm of
independent certified public accountants selected by the Borrower and reasonably
satisfactory to the Bank; and (z) within sixty (60) days after the close of each
of the first, second and third quarters of each fiscal year, a consolidated
balance sheet of the Borrower and consolidated statements of income, retained
earnings and cash flows as of the last day of and for such quarter and for the
period of the fiscal year ended as of the close of the particular quarter, all
such quarterly statements to be in reasonable detail, and certified by the chief
financial or chief executive officer of the Borrower as having been prepared in
accordance with GAAP (subject to year-end adjustments).

(ii) within twenty (20) days after the end of each month, a schedule of projects
in which the Borrower is then involved (each a “Work-in-Progress Schedule”), in
form and substance satisfactory to the Bank and including, without limitation:
(y) an identification of each project by name, and (z) the contract price for
each such project (including any change orders), the costs incurred to date,
gross profit to date, contract billings to date, costs and estimated earnings in
excess of billings and billings in excess of costs and estimated earnings, and
costs to complete. The Work-in-Progress Schedule will include contract revenues
earned and contract costs for the period reported. Each such Work-in-Progress
Schedule shall be certified by the chief financial or chief executive officer of
the Borrower as being true, correct and complete to the best of such officer’s
knowledge.

(iii) with each corresponding Work-in-Progress Schedule as specified in
subsection (ii) above, an accounts receivable aging schedule in form and detail
reasonably acceptable to the Bank.

The Borrower will also, with reasonable promptness, furnish such other data as
may be reasonably requested by the Bank and will at all times and from time to
time permit the Bank by or through any of its officers, agents, employees,
attorneys or accountants to inspect and make extracts from the Borrower’s books
and records.

(b) At the same time as it delivers the financial statements called for by
Section 5.2(a)(i), deliver a certificate of the chief financial or chief
executive officer of the Borrower evidencing a computation of compliance with
the provisions of Section 6 (inclusive) hereof and stating that in each case,
except as disclosed in such certificate, the person making such certificate has
no knowledge of any Default or Event of Default.

(c) Within ten (10) days of any executive officer of the Borrower obtaining
knowledge of any Default, if such Default is then continuing, the Borrower shall
furnish to the Bank a certificate of the chief financial officer of the Borrower
setting forth the details thereof and the action which the Borrower is taking or
proposes to take with respect thereto.

5.3 Insurance. Maintain insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged

 

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in similar businesses and owning similar properties in the same general areas in
which the Borrower operates.

5.4 Preservation of Properties; Compliance with Law. Maintain and preserve all
of its properties which are used or which are useful in the conduct of its
business in good working order and condition, ordinary wear and tear excepted
and comply with all Requirements of Law.

5.5 Taxes. Duly pay and discharge all taxes or other claims which might become a
lien upon any of its property except to the extent that any thereof are being in
good faith appropriately contested with adequate reserves provided therefor.

5.6 Maintain Relationship. Maintain its primary commercial banking relationship
with the Bank and its primary operating accounts with the Bank.

5.7 Notice of Litigation. Promptly notify the Bank in writing of any litigation,
legal proceeding or dispute, other than disputes in the ordinary course of
business or, whether or not in the ordinary course of business, involving
amounts in excess of $250,000.00, affecting the Borrower or any other Specified
Person whether or not fully covered by insurance, and regardless of the subject
matter thereof (excluding, however, any actions relating to workers’
compensation claims or negligence claims relating to use of motor vehicles, if
fully covered by insurance, subject to deductibles).

5.8 Indemnity (Environmental Matters). Indemnify the Bank against any liability,
loss, cost, damage, or expense (including, without limitation, reasonable
attorneys’ fees) arising from (i) the imposition or recording of a lien by any
local, state, or Federal government or governmental agency or authority pursuant
to any Cleanup Laws; (ii) claims of any private parties regarding violations of
Cleanup Laws; and (iii) costs and expenses (including, without limitation,
reasonable attorneys’ fees and fees incidental to the securing of repayment of
such costs and expenses) incurred by any Specified Person or the Bank in
connection with compliance by any person or the Bank with any statute,
regulation or order issued pursuant to any Cleanup Laws by any local, state or
Federal government or governmental agency or authority.

5.9 New Subsidiaries. Cause any Subsidiary formed after the date this Agreement
to become a Guarantor of the Obligations and to execute and deliver promptly to
the Bank: (i) a Guaranty, and (ii) certificates and charter documents for such
Subsidiary, similar to those requested from the Borrower in Section 4.1(e)
hereof authorizing the Guarantor’s entry into and performance of its the
Guaranty, including (without limitation) the unanimous written consent of its
shareholders.

5.10 Landlord Waiver and Consent. Within thirty (30) days after written request,
the Bank shall have received a Landlord Waiver and Consent from the landlord
with respect to the premises at 60 Heartland Boulevard, Edgewood, New York
reasonably satisfactory in form and substance to the Bank and its counsel.

SECTION 6. FINANCIAL COVENANTS

 

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The Borrower hereby agrees that, so long as the Commitment remains in effect,
the Revolving Credit Note remains outstanding and unpaid, or any amount is owing
to the Bank hereunder, the Borrower will:

6.1 Interest Coverage Ratio. Maintain as of the end of each fiscal quarter, a
minimum Interest Coverage Ratio (as defined below) of at least 2.0 to 1.0. For
purposes hereof, “Interest Coverage Ratio” means the ratio of (y) EBIT (as
hereinafter defined) to (z) Interest Expense for such fiscal period. For
purposes hereof, “EBIT” means the total of, for each period, (i) the net
earnings of the Borrower plus (ii) all amounts deducted in computing such net
income in respect of (a) Interest Expense on Indebtedness and (b) taxes based
upon or measured by income as determined in accordance with GAAP.

6.2 Net Profit. Maintain as of the end of each fiscal quarter, a net profit
after taxes of at least $1.00.

SECTION 7. NEGATIVE COVENANTS.

The Borrower hereby agrees that, so long as the Commitment remains in effect,
the Revolving Credit Note remains outstanding and unpaid, or any amount is owing
to the Bank hereunder it will not, nor will it permit any of its Subsidiaries or
any Specified Person to:

7.1 Indebtedness for Borrowed Money. Incur, or permit to exist, any Indebtedness
for borrowed money except (i) Indebtedness incurred pursuant to borrowings
hereunder and under any other loans made by the Bank in its discretion to the
Borrower, (ii) Indebtedness existing on the date hereof and reflected in the
financial statements referred to in Section 3.1 hereof and (iii) purchase money
Indebtedness incurred in the acquisition of fixed assets permitted under Section
7.4(iv) hereof not in excess of $250,000.00 in the aggregate for the term of the
Commitment.

7.2 Mergers, Acquisitions and Sales of Assets. Enter into any merger or
consolidation or liquidate, windup or dissolve itself or sell, transfer or lease
or otherwise dispose of all or any substantial part of its assets (other than
sales of inventory and obsolescent equipment in the ordinary course of business)
or acquire by purchase or otherwise the business or assets of, or stock of,
another business entity; except that any Subsidiary may merge into or
consolidate with any other Subsidiary which is wholly-owned by the Borrower and
any Subsidiary which is wholly-owned by the Borrower may merge with or
consolidate into the Borrower provided that the Borrower is the surviving
corporation.

7.3 Loans; Investments. Lend or advance money, credit or property to or invest
in (by capital contribution, loan, purchase or otherwise) any firm, corporation,
or other Person except investments in: (i) United States Government obligations,
certificates of deposit of any banking institution with combined capital and
surplus of at least $200,000,000.00; (ii) accounts receivable arising out of
sales of inventory in the ordinary course of business; and (iii) loans to and
investments in Subsidiaries.

7.4 Liens. Create, assume or permit to exist, any Lien on any of its property or
assets now owned or hereafter acquired except (i) Liens in favor of the Bank;
(ii) other Liens incidental to

 

 

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the conduct of its business or the ownership of its property and assets which
were not incurred in connection with the borrowing of money or the obtaining of
advances or credit and which do not materially impair the use thereof in the
operation of its business; (iii) Liens for taxes or other governmental charges
which are not delinquent or which are being contested in good faith and for
which a reserve shall have been established in accordance with GAAP; (iv)
purchase money Liens granted to secure the unpaid purchase price of any fixed
assets purchased within the limitations of Section 7.8 hereof, provided that (w)
such Liens shall be created substantially simultaneously with the acquisition of
such fixed assets, (x) such Liens do not at any time encumber any property other
than the property financed by such Indebtedness, (y) the amount of Indebtedness
secured thereby is not increased and (z) the principal amount of such
Indebtedness shall not exceed 100% of the purchase price of such assets; (v)
Liens set forth in the financial statements referred to in Section 3.1 hereof;
(vi) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other
like Liens arising in the ordinary course of business which are not overdue for
a period of more than thirty (30) days or which are being contested in good
faith by appropriate proceedings; (vii) pledges or deposits in connection with
workers’ compensation, unemployment insurance and other social security
legislation; (viii) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business; (ix) any interest or title of a lessor under
any lease entered into by the Borrower or any of its Subsidiaries in the
ordinary course of its business and covering only the assets to be leased; and
(x) Liens in favor of the United States of America described in the
Subordination Agreement.

7.5 Contingent Liabilities. Assume, endorse, be or become liable for or
guarantee the obligations of any Person excluding, however, the endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business.

7.6 Limitation on Dividends. Declare or pay any dividend on, or make any payment
on account of, or set apart assets for a sinking or other analogous fund for the
purchase, redemption, defeasance, retirement or other acquisition of any shares
of any class of capital stock of the Borrower or any Subsidiary or any warrants
or options to purchase any such capital stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower or
any Subsidiary (collectively, “Restricted Payments), except that any Subsidiary
may make Restricted Payments to the Borrower.

7.7 Sales of Receivables; Sale - Leasebacks. Sell, discount or otherwise dispose
of notes, accounts receivable or other obligations owing to the Borrower, with
or without recourse, except for the purpose of collection in the ordinary course
of business; or sell any asset pursuant to an arrangement to thereafter lease
such asset from the purchaser thereof.

7.8 Capital Expenditures; Capitalized Leases. Expend in the aggregate for the
Borrower and all Subsidiaries in excess of $750,000.00 in any fiscal year for
Capital Expenditures. For purposes of the foregoing, Capital Expenditures shall
include payments made on account of any deferred purchase price or on account of
any indebtedness incurred to finance any such purchase price.

 

 

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7.9 Nature of Business. Enter into any business, either directly or indirectly
through any Subsidiary, except for those businesses in which the Borrower and
its Subsidiaries are engaged on the date of this Agreement or which are
reasonably related thereto.

7.10 Stock of Subsidiaries. Sell or otherwise dispose of any Subsidiary (except
in connection with a merger or consolidation of such Subsidiary into the
Borrower or another Subsidiary) or permit a Subsidiary to issue any additional
shares of its capital stock except pro rata to its stockholders.

7.11 ERISA. (i) Terminate any Plan so as to result in any material liability to
the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of
Title IV of ERISA (the “PBGC”), (ii) engage in or permit any person to engage in
any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975
of the Internal Revenue Code of 1954, as amended) involving any Plan which would
subject the Borrower to any material tax, penalty or other liability, (iii)
incur or suffer to exist any material “accumulated funding deficiency” (as
defined in Section 302 of ERISA), whether or not waived, involving any Plan, or
(iv) allow or suffer to exist any event or condition, which presents a material
risk of incurring a material liability to the PBGC by reason of termination of
any Plan.

7.12 Accounting Changes. Make, or permit any Subsidiary to make any change in
its accounting treatment or financial reporting practices except as required or
permitted by GAAP in effect from time to time.

7.13 Transactions with Affiliates. Except as otherwise specifically set forth in
this Agreement, directly or indirectly purchase, acquire or lease any property
from, or sell, transfer or lease any property to, or enter into any other
transaction, with any Affiliate except in the ordinary course of business and at
prices and on terms not less favorable to it than those which would have been
obtained in an arm’s-length transaction with a non-affiliated third party.

7.14 Change of Control. Without the prior written consent of the Bank, suffer or
permit a Change of Control Transaction, as hereinafter defined. Change of
Control Transaction means the occurrence after the date hereof of any of the
following: (i) an acquisition after the date hereof by an individual or legal
entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Borrower, by contract or otherwise) of in
excess of 49.99% of the voting securities of the Borrower, or (ii) the Borrower
merges into or consolidates with any other Person, or any Person merges into or
consolidates with the Borrower and, after giving effect to such transaction, the
stockholders of the Borrower immediately prior to such transaction own less than
a majority of the aggregate voting power of the Borrower or the successor entity
of such transaction, or (iii) the Borrower sells or transfers all or
substantially all of its assets to another Person and the stockholders of the
Borrower immediately prior to such transaction own less than a majority of the
aggregate voting power of the acquiring entity immediately after the
transaction, or (iv) a replacement at one time or within a two year period of
more than one-half of the members of the Borrower’s board of directors which is
not approved by a majority of those individuals who are members of the board of
directors on the date hereof (or by those individuals who are serving as members
of the board of directors on any date whose nomination to the board of directors
was approved by a majority of the

 

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members of the board of directors who are members on the date hereof), or (v)
the execution by the Borrower of an agreement to which the Borrower is a party
or by which it is bound, providing for any of the events set forth in clauses
(i) through (iv) above.

SECTION 8. EVENTS OF DEFAULT.

Upon the occurrence and during the continuance of any of the following events
(each an “Event of Default”):

(a) The Borrower shall fail to pay any interest on or principal of the Revolving
Credit Note when due or shall fail to pay any other amount payable hereunder; or
the Borrower or any Guarantor shall default beyond any applicable notice or cure
period, if any) under any other Loan Document; or

(b) Any representation or warranty made or deemed made by the Borrower or a
Guarantor herein or which is contained in any Loan Document, certificate,
document or financial or other statement furnished at any time under or in
connection with this Agreement shall prove to have been false in any material
respect on or as of the date made or deemed made; or

(c) The Borrower shall default in the observance or performance of any covenant
or provision contained in Sections 5.1, 6 (inclusive) or 7 (inclusive) hereof;
or

(d) The Borrower shall default in the observance or performance of any other
provision contained in this Agreement and such default shall continue unremedied
for a period of twenty (20) days after written notice thereof is given to the
Borrower by the Bank, unless such provision cannot be reasonably cured within
such period provided that Borrower commence such cure promptly after discovery
and diligently prosecute same thereafter; or

(e) Any Specified Person shall (i) default in any payment of any indebtedness
for borrowed money in excess of $100,000.00, individually or in the aggregate,
(other than the Revolving Credit Note) beyond the period of grace, if any,
provided in the instrument or agreement under which such indebtedness was
created; or (ii) default in the observance or performance of any other agreement
or condition relating to any such indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto or any other event shall
occur or condition exist, in each case the effect of which default or other
event or condition is to cause or permit the holder or holders of such
indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause such indebtedness to become due prior to its stated maturity; or

(f) (i) Any Specified Person shall commence any case, proceeding or other action
(A) under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking
to have an order for relief entered with respect to it, or seeking to adjudicate
it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or any Specified Person shall make a general assignment for the benefit
of its creditors; or (ii) there shall be commenced against any Specified Person
any case, proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such adjudication
or appointment or (B) remains undismissed, undischarged or unbonded for a period
of 60 days; or (iii) there shall be commenced against any

 

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Specified Person any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of any order for
any such relief which shall have not been vacated, discharged, or stayed or
bonded pending appeal within 20 days from the entry thereof; or (iv) any
Specified Person shall take any action in furtherance of, or indicate its
consent to, approval of, or acquiescence in, any of the acts set forth in clause
(i), (ii) or (iii) of this Section 8(f); or (v) any Specified Person shall admit
in writing its inability to, pay its debts as they become due; or

(g) (i) any Specified Person shall engage in any “prohibited transaction” (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
(ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan, (iii) a Reportable
Event shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Plan, which Reportable Event or institution of proceedings is, in
the reasonable opinion of the Bank, likely to result in the termination of such
Plan for purposes of Title IV of ERISA, and, in the case of a Reportable Event,
the continuance of such Reportable Event unremedied for 10 days after notice of
such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given
or the continuance of such proceedings for 10 days after commencement thereof,
as the case may be, (iv) any Plan shall terminate for purposes of Title IV of
ERISA, and in each case in clauses (i) through (iv) above, such event or
condition could subject the Borrower to any tax, penalty or other liabilities in
the aggregate material in relation to the business, operations or property of
the Borrower; or

(h) the rendition by any court of a final judgment in excess of $100,000.00
against any Specified Person which shall not be satisfactorily stayed,
discharged, vacated or set aside within thirty (30) days of the making thereof;
or the attachment of (or enforcement proceeding with respect to) any property of
any Specified Person which has not been released or provided for to the
reasonable satisfaction of the Bank within thirty (30) days after the making
therefor; or

(i) any Loan Document shall cease to be in full force and effect, a default
(after the expiration of any applicable grace period, if any, or the giving of
notice, if required, or both) shall occur thereunder, any lien created thereby
shall fail to be valid, perfected, or maintain its proper lien priority in
accordance herewith, or any party thereto shall assert that it has no further
obligation thereunder; or

(j) the Bank shall have determined in its commercially reasonable discretion
that one or more conditions exist or events have occurred which have resulted in
a material adverse change in the business, properties or financial condition of
the Borrower;

then, in any such event, any or all of the following actions may be taken: (i)
the Bank may, at its option, declare the Commitment to be terminated forthwith,
whereupon the Commitment and all obligations to the Bank to make Revolving
Credit Loans shall immediately terminate; and (ii) the Bank may, at its option,
declare the Revolving Credit Loans hereunder (with accrued interest

 

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thereon) and all other amounts owing under this Agreement and the Revolving
Credit Note to be due and payable and the same, and all interest accrued
thereon, shall forthwith become due and payable without presentment, demand,
protest or notice of any kind (other than any notice specified herein), all of
which are hereby waived, anything contained herein or in any instrument
evidencing the Revolving Credit Loans to the contrary notwithstanding.

SECTION 9. COLLATERAL SECURITY

9.1 General Loan and Collateral Agreement. The Borrower hereby grants to the
Bank a lien, security interest and a right of setoff as security for the payment
of any and all sums owing under the Loan Documents and all other obligations,
direct or contingent, joint, several or independent, of the Borrower now or
hereafter existing due or to become due to, or held or to be held by the Bank,
whether created directly or acquired by assignment or otherwise including,
without limitation, any arising under this Agreement (all of such obligations
being hereinafter collectively called the “Obligations”), upon and against all
deposits, credits, collateral and property, now or hereafter in the possession,
custody, safekeeping or control of the Bank or any entity under the control of
the Bank, or in transit to any of them. At any time, after the occurrence and
continuance of an Event of Default, without demand or notice, the Bank may set
off the same or any part thereof and apply the same to any liability or
obligation of the Borrower even though unmatured and regardless of the adequacy
of any other collateral securing the Revolving Credit Loans. ANY AND ALL RIGHTS
TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER
COLLATERAL WHICH SECURES THE REVOLVING CREDIT LOANS PRIOR TO EXERCISING ITS
RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE
BORROWER OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLE
WAIVED. The Bank shall not be required to marshal any present or future security
for, or guarantees of, the obligations or to resort to any such security or
guarantee in any particular order and the Borrower waives, to the fullest extent
that it lawfully can, (a) any right they might have to require to the Bank to
pursue any particular remedy before proceeding against them and (b) any right to
the benefit of, or to direct the application of the proceeds of any collateral
until the obligations are paid in full.

9.2 Additional Collateral Security. In addition to the collateral described in
Section 9.1 hereof, payment of the Obligations is also secured by, inter alia,
(a) a first priority security interest in all personal property of the Borrower,
whether now owned or hereafter acquired, to the extent provided in the Security
Agreement executed and delivered by the Borrower to the Bank, and (b) all right,
title and interest of the Borrower in and to its cash and marketable securities
accounts with the Bank, together with all property contained therein and all
proceeds of the foregoing in whatever form received, in each case whether now
owned or hereafter acquired.

SECTION 10. MISCELLANEOUS.

10.1 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing unless otherwise expressly
provided herein and shall be deemed to have been duly given or made when
delivered by hand, or telecopy, or when deposited in the mail addressed as
follows, or to such address as may be hereafter notified in writing by the
respective parties hereto and any future holders of the Revolving Credit Note:

 

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The Borrower:

 

CPI Aerostructures, Inc.

 

 

60 Heartland Boulevard

 

 

Edgewood, New York 11717

 

 

Attn: Mr. Vincent Palazzolo

 

 

         Chief Financial Officer

 

 

 

with a copy to:

 

Graubard Miller

 

 

405 Lexington Avenue, 19th Floor

 

 

New York, New York 10174

 

 

Attn: Marci Frankenthaler, Esq.

 

 

 

The Bank:

 

Sovereign Bank

 

 

3 Huntington Quadrangle

 

 

Suite 101 North and 103 South

 

 

Melville, New York 11747

 

 

Attn: Ms. Christine Gerula

 

 

         Senior Vice President

 

10.2 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Bank, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right.

10.3 Survival of Representations and Warranties. All representations and
warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the Revolving Credit Note.

10.4 Payment of Expenses; Examination. The Borrower agrees to pay or reimburse
the Bank for all its costs and expenses incurred in connection with (a) the
preparation of the Loan Documents and the closing of the transactions described
by the Loan Documents, (b) the enforcement or preservation of any rights under
this Agreement or the Loan Documents or any other instrument or agreement
entered into in connection herewith or therewith including, without limitation,
the reasonable fees and disbursements of attorneys for the Bank (which may
include, without limitation, the allocable cost of the Bank’s internal legal
counsel), and (c) any claim or action threatened, made or brought against the
Bank arising out of or relating to any extent to this Agreement, or any Loan
Documents or any instrument or agreement entered into in connection with the
transactions contemplated hereby or thereby if the Bank prevails in any such
action or proceeding or the Borrower makes payment to the Bank on account of any
sums demanded by it prior to the disposition of any such action or proceeding or
in settlement thereof.

10.5 WAIVER OF JURY TRIAL; SET-OFF AND COUNTERCLAIM. THE BORROWER AND THE BANK
MUTUALLY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A
TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR ANY LOAN DOCUMENTS OR ANY COURSE OF CONDUCT,
COURSE OF

 

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DEALING, STATEMENTS (WHETHER VERBAL OR IN WRITING) OR ACTIONS OF ANY PARTY. THE
BORROWER WAIVES THE RIGHT TO INTERPOSE ANY SET-OFF OR COUNTERCLAIM OF ANY KIND
OR DESCRIPTION IN ANY SUCH LITIGATION. THIS WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR THE BANK TO ACCEPT THIS AGREEMENT AND MAKE THE REVOLVING CREDIT
LOANS.

10.6 WAIVER OF AUTOMATIC STAY. THE BORROWER AGREES THAT, IN THE EVENT THAT THE
BORROWER, ANY GUARANTOR OR ANY OF THE PERSONS OR PARTIES CONSTITUTING THE
BORROWER OR A GUARANTOR SHALL (i) FILE WITH ANY BANKRUPTCY COURT OF COMPETENT
JURISDICTION OR BE THE SUBJECT OF ANY PETITION UNDER TITLE 11 OF THE U.S. CODE,
AS AMENDED (“BANKRUPTCY CODE”), (ii) BE THE SUBJECT OF ANY ORDER FOR RELIEF
ISSUED UNDER THE BANKRUPTCY CODE, (iii) FILE OR BE THE SUBJECT OF ANY PETITION
SEEKING ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT, LIQUIDATION,
DISSOLUTION, OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE FEDERAL OR STATE ACT
OR LAW RELATING TO BANKRUPTCY, INSOLVENCY, OR OTHER RELIEF FOR DEBTORS, (iv)
HAVE SOUGHT OR CONSENT TO OR ACQUIESCED IN THE APPOINTMENT OF ANY TRUSTEE,
RECEIVER, CONSERVATOR, OR LIQUIDATOR, OR (v) BE THE SUBJECT OF ANY ORDER,
JUDGMENT, OR DECREE ENTERED BY ANY COURT OF COMPETENT JURISDICTION APPROVING A
PETITION FILED AGAINST SUCH PARTY FOR ANY REORGANIZATION, ARRANGEMENT,
COMPOSITION, READJUSTMENT, LIQUIDATION, DISSOLUTION, OR SIMILAR RELIEF UNDER ANY
PRESENT OR FUTURE FEDERAL OR STATE ACT OR LAW RELATING TO BANKRUPTCY,
INSOLVENCY, OR RELIEF TO DEBTORS, THE BANK SHALL THEREUPON BE ENTITLED AND THE
BORROWER IRREVOCABLY CONSENTS TO IMMEDIATE AND UNCONDITIONAL RELIEF FROM ANY
AUTOMATIC STAY IMPOSED BY SECTION 362 OF THE BANKRUPTCY CODE, OR OTHERWISE, ON
OR AGAINST THE EXERCISE OF THE RIGHTS AND REMEDIES OTHERWISE AVAILABLE TO THE
BANK AS PROVIDED FOR HEREIN, IN THE REVOLVING CREDIT NOTE, OTHER LOAN DOCUMENTS
DELIVERED IN CONNECTION HEREWITH AND AS OTHERWISE PROVIDED BY LAW, AND THE
BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT TO OBJECT TO SUCH RELIEF AND WILL
NOT CONTEST ANY MOTION BY THE BANK SEEKING RELIEF FROM THE AUTOMATIC STAY AND
THE BORROWER WILL COOPERATE WITH THE BANK, IN ANY MANNER REQUESTED BY THE BANK,
IN ITS EFFORTS TO OBTAIN RELIEF FROM ANY SUCH STAY OR OTHER PROHIBITION.

10.7 Modification and Waiver. No modification or waiver of, or with respect to
any provision of this Agreement or any document or instrument delivered in
connection therewith shall be effective unless and until it shall be in writing
and signed by the Bank, and then such modification or waiver shall be effective
only in the specific instance and for the purpose for which given. No notice to
or demand on the Borrower in any case shall, of itself, entitle it to any other
or further notice or demand in similar or other circumstances.

10.8 USA Patriot Act. The Bank is subject to the requirements of the USA Patriot
Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”)
and hereby notifies the Borrower that pursuant to the requirements of the Act,
it is required to obtain, verify and record

 

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information that identifies the Borrower, which information includes the name
and address of the Borrower and other information that will allow the Bank to
identify the Borrower in accordance with the Act.

10.9 Federal Reserve Bank. The Bank may at any time pledge, endorse, assign, or
transfer all or any portion of its rights under the Loan Documents including any
portion of the Revolving Credit Note to any of the twelve (12) Federal Reserve
Banks organized under Section 4 of the Federal Reserve Act. 12 U.S.C. Section
341. No such pledge or enforcement thereof shall release the Bank from its
obligations under any of the Loan Documents.

10.10 Successor and Assigns. This Agreement shall be binding upon and inure to
the benefit of the Borrower, the Bank, all future holders of the Revolving
Credit Note and their respective successors and assigns, except that the
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of the Bank. The term “Bank” as used herein
shall be deemed to include the Bank and its successors, endorsees and assigns.

10.11 Governing Law; Consent to Jurisdiction. This Agreement, the Loan Documents
and any documents and instruments delivered in connection herewith and therewith
and the rights and duties of the parties hereunder and thereunder shall be
governed by, and construed and interpreted in accordance with, the law of the
State of New York and the Borrower consents to the jurisdiction of the courts of
the State of New York in any action brought to enforce any rights of the Bank
under this Agreement and any document or instrument related hereto.

10.12 Entire Agreement. This Agreement and any other agreements, documents and
instruments executed and delivered pursuant to or in connection with the
Obligations contain the entire agreement between the parties relating to the
subject matter hereof and thereof. The Borrower expressly acknowledges that the
Bank has not made and the Borrower is not relying on any oral representations,
agreements or commitments of the Bank or any officer, employee, agent or
representative thereof.

10.13 Interest Adjustment. Notwithstanding anything to the contrary contained in
this Agreement or the Revolving Credit Note, the rate of interest payable on the
Revolving Credit Note shall never exceed the maximum rate of interest permitted
under applicable law. If at any time the rate of interest otherwise prescribed
herein shall exceed such maximum rate, and such prescribed rate is thereafter
below such maximum rate, the prescribed rate shall be increased to the maximum
rate for such period of time as is required so that the total amount of interest
received by the Bank is that which would have been received by the Bank except
for the operation of the first sentence of this Section 10.13.

10.14 Errors and Omissions. The Borrower hereby consents and agrees that in the
event any of the documents evidencing and/or securing the Revolving Credit Loans
misstate or inaccurately reflect the true and correct terms and provisions of
the Revolving Credit Loans and said misstatement or inaccuracy is due to the
unilateral mistake on the part of the Bank, mutual mistake on the part of the
Bank and the Borrower or clerical error, then in such event the Borrower shall,
upon request of the Bank and in order to correct such misstatement or
inaccuracy, execute such new documents as the Bank may deem necessary to remedy
said inaccuracy or mistake, provided

 

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however, such obligation on behalf of the Borrower shall not extend to the
execution of any new or redrafted document which materially and adversely adds
to or changes the obligations of the Borrower beyond those set forth in or
contemplated by the terms hereof. The Borrower agrees to execute all such other
and further documents as may or shall be reasonably necessary, as determined
solely by the Bank, in order to give effect to the documents executed (whether
in connection with the Revolving Credit Loans or any future loan) and so as to
confirm the transaction (“Additional Documents”). The Borrower agrees to comply
with the reasonable requirements of the Bank within ten (10) days after written
notice. Upon the Borrower failing or refusing to comply with the terms and
provisions of this Section, such failure shall constitute a default by the
Borrower under this Agreement and thereupon, the Bank shall have all of the
rights and remedies against the Borrower as otherwise specified in this
Agreement and other documents by reason of a default.

10.15 Replacement Documents. Upon receipt of an affidavit of an officer of the
Bank as to the loss, theft, destruction or mutilation of the Revolving Credit
Note, any Loan Document or any other security document(s) which is not of public
record and, in the case of any such destruction or mutilation, upon surrender
and cancellation of the Revolving Credit Note, any Loan Document or other
document(s) (collectively, the “Replacement Documents”), the Borrower will
issue, in lieu thereof, a replacement note or other document(s) in the same
principal amount thereof and otherwise of like tenor.

10.16 Participations. The Bank shall have the unrestricted right at any time and
from time to time, and without the consent of or notice to the Borrower (or any
Guarantor), to grant to one or more institutions or other persons (each a
“Participant”) participation interests in the Bank’s obligations to lend
hereunder and/or any or all of the loans held by the Bank hereunder. In the
event of any such grant by the Bank of a participating interest to a
Participant, whether or not upon notice to the Borrower, the Bank shall remain
responsible for the performance of its obligations hereunder and the Borrower
shall continue to deal solely and directly with the Bank in connection with the
Bank’s rights and obligations hereunder. The Bank may furnish any information
concerning the Borrower in its possession from time to time to any prospective
assignees and Participants, provided that the Bank shall require any such
prospective assignee or Participant to maintain the confidentiality of such
information.

10.17 Counterparts. This Agreement may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument.

IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly
executed and delivered in Melville, New York by their proper and duly authorized
officer as of the day and year first above written.

 

 

 

CPI AEROSTRUCTURES, INC.

 

By: 

/s/ Vincent Palazzolo

 

 

 

Vincent Palazzolo
Chief Financial Officer

 

 

-29-

 

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

 

 

 

SOVEREIGN BANK

 

By: 

/s/ Christine Gerula

 

 

 

Christine Gerula
Senior Vice President

 

 

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EXHIBIT A

FORM OF REVOLVING CREDIT NOTE

REVOLVING CREDIT NOTE

 

$2,500,000.00

Melville, New York

August 13, 2007

CPI AEROSTRUCTURES, INC., a New York corporation (the “Borrower”), for value
received, hereby promises to pay to the order of SOVEREIGN BANK (the “Bank”) on
the Termination Date (as such term is defined in the Agreement), at the office
of the Bank specified in Section 10.1 of the Credit Agreement dated as of August
13, 2007, between the Borrower and the Bank, as amended from time to time (as so
amended, the “Agreement”; terms defined in the Agreement shall have their
defined meanings when used in this Note), in lawful money of the United States
of America and in immediately available funds the principal amount of TWO
MILLION FIVE HUNDRED THOUSAND AND 00/100 ($2,500,000.00) DOLLARS or, if less
than such principal amount, the aggregate unpaid principal amount of all
Revolving Credit Loans made by the Bank to the Borrower pursuant to Section 2.1
of the Agreement. The Borrower further promises to pay interest at said office
in like money on the unpaid principal balance of this Note from time to time
outstanding at an annual rate as selected by the Borrower pursuant to the terms
of Section 2 (inclusive) of the Agreement. Interest shall be computed on the
basis of a 360-day year for actual days elapsed and shall be payable as provided
in the Agreement. All Loans made by the Bank pursuant to subsection 2.1 of the
Agreement and payments of the principal thereon may be endorsed by the holder of
this Note on the schedule annexed hereto, to which the holder may add additional
pages. The aggregate net unpaid amount of Revolving Credit Loans set forth in
such schedule shall be presumed to be the principal balance hereof. After the
stated or any accelerated maturity hereof, this Note shall bear interest at a
rate as set forth in the Agreement, payable on demand, but in no event in excess
of the maximum rate of interest permitted under applicable law.

This Note is the Revolving Credit Note referred to in the Agreement, and is
entitled to the benefits thereof and may be prepaid, and is required to be
prepaid, in whole or in part (subject to the indemnity provided in the
Agreement) as provided therein.

Upon the occurrence of any one or more of the Events of Default specified in the
Agreement, all amounts then remaining unpaid on this Note may be declared to be
immediately due and payable as provided in the Agreement.

This Note shall be construed in accordance with and governed by the laws of the
State of New York.

 

 

 

 

CPI AEROSTRUCTURES, INC.

 

Exhibit A

 

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

SCHEDULE OF LOANS AND PAYMENT OF PRINCIPAL

TO REVOLVING CREDIT NOTE DATED AS OF AUGUST 13, 2007

BY

CPI AEROSTRUCTURES, INC.

TO

SOVEREIGN BANK

 

Date

 

Amount
of Loan

 

Interest
Rate

 

Last Day
of Interest Period

 

Balance Principal Paid

 

Remaining
Unpaid

 

Notation
Made By

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit A

 

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