Exhibit 10.1


 


CREDIT AND SECURITY AGREEMENT


 


by and among


 


CHARLES & COLVARD, LTD., CHARLES
& COLVARD DIRECT, LLC, and MOISSANITE.COM, LLC, 


 


as Borrowers,


 


and


 


WELLS FARGO BANK, NATIONAL ASSOCIATION,


 


as Lender


 


Dated as of June 25, 2014


 


 






 


 




    	 



    	 



    

 


TABLE OF CONTENTS


 


	 	 	 	PAGE
	 	 	 	 
	1.	DEFINITIONS AND CONSTRUCTION	1
	 	1.1	Definitions, Code Terms, Accounting Terms and Construction	1
	 	 	 	 
	2.	LOANS AND TERMS OF
    PAYMENT	1
	 	2.1	Revolving Loan Advances	1
	 	2.2	Parent as Agent for Borrowers	1
	 	2.3	Borrowing Procedures	2
	 	2.4	Payments; Prepayments	2
	 	2.5	Clearance Charge	3
	 	2.6	Interest Rates: Rates, Payments, and Calculations	3
	 	2.7	Designated Account	4
	 	2.8	Maintenance of Loan Account; Statements of Obligations	4
	 	2.9	Maturity and Termination Dates	4
	 	2.10	Effect of Maturity	5
	 	2.11	Termination or Reduction by Borrowers	5
	 	2.12	Fees	5
	 	2.13	Letters of Credit	5
	 	2.14	Illegality; Impracticability; Increased Costs	9
	 	2.15	Capital Requirements	9
	 	2.16	Extent of Each Borrower’s Liability, Contribution	9
	 	2.17	Ex-Im Advances Subject to Ex-Im Bank Rules	10
	 	 	 	 
	3.	SECURITY INTEREST	10
	 	3.1	Grant of Security Interest	10
	 	3.2	Borrowers Remain Liable	10
	 	3.3	Assignment of Insurance	11
	 	3.4	Financing Statements	11
	 	 	 	 
	4.	CONDITIONS	11
	 	4.1	Conditions Precedent to the Initial Extension of Credit	11
	 	4.2	Conditions Precedent to all Extensions of Credit	11
	 	4.3	Conditions Subsequent	11
	 	 	 	 
	5.	REPRESENTATIONS AND
    WARRANTIES	11
	 	 	 	 
	6.	AFFIRMATIVE COVENANTS	12
	 	6.1	Financial Statements, Reports, Certificates	12
	 	6.2	Collateral Reporting	12
	 	6.3	Existence	12
	 	6.4	Maintenance of Properties	12
	 	6.5	Taxes	12
	 	6.6	Insurance	13
	 	6.7	Inspections, Exams, Collateral Exams and Appraisals	13
	 	6.8	Account Verification	13
	 	6.9	Compliance with Laws	13
	 	6.10	Environmental	13
	 	6.11	Disclosure Updates	14
	 	6.12	Collateral Covenants	14
	 	6.13	Material Contracts	17
	 	6.14	Location of Inventory, Equipment and Books	17
	 	6.15	Further Assurances	18
	 	 	 	 
	7.	NEGATIVE COVENANTS	18
	 	7.1	Indebtedness	18
	 	7.2	Liens	18
	 	7.3	Restrictions on Fundamental Changes	18
	 	7.4	Disposal of Assets	19
	 	7.5	Change Name	19
	 	7.6	Nature of Business	19
	 	7.7	Prepayments and Amendments	19
	 	7.8	Change of Control	19
	 	7.9	Restricted Junior Payments	19


 




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	 	7.10	Accounting Methods	20
	 	7.11	Investments; Controlled Investments	20
	 	7.12	Transactions with Affiliates	20
	 	7.13	Use of Proceeds	20
	 	7.14	Limitation on Issuance of Stock	21
	 	7.15	Consignments	21
	 	7.16	Inventory and Equipment with Bailees	21
	 	 	 	 
	8.	FINANCIAL COVENANTS	21
	 	 	 
	9.	EVENTS OF DEFAULT	21
	 	 	 
	10.	RIGHTS AND REMEDIES	23
	 	10.1	Rights and Remedies	23
	 	10.2	Additional Rights and Remedies	24
	 	10.3	Lender Appointed Attorney in Fact	25
	 	10.4	Remedies Cumulative	25
	 	10.5	Crediting of Payments and Proceeds	25
	 	10.6	Marshaling	25
	 	10.7	License	26
	 	 	 	 
	11.	WAIVERS; INDEMNIFICATION	26
	 	11.1	Demand; Protest; etc.	26
	 	11.2	Lender’s Liability for Collateral	26
	 	11.3	Indemnification	26
	 	 	 	 
	12.	NOTICES	27
	 	 	 
	13.	CHOICE OF LAW AND
    VENUE; ARBITRATION; JURY TRIAL WAIVER	28
	 	 	 
	14.	ASSIGNMENTS; SUCCESSORS	30
	 	 	 
	15.	AMENDMENTS; WAIVERS	30
	 	 	 
	16.	TAXES	30
	 	 	 
	17.	GENERAL PROVISIONS	30
	 	17.1	Effectiveness	30
	 	17.2	Section Headings	30
	 	17.3	Interpretation	30
	 	17.4	Severability of Provisions	30
	 	17.5	Debtor-Creditor Relationship	30
	 	17.6	Counterparts; Electronic Execution	31
	 	17.7	Revival and Reinstatement of Obligations	31
	 	17.8	Confidentiality	31
	 	17.9	Lender Expenses	31
	 	17.10	Setoff	32
	 	17.11	Survival	32
	 	17.12	Patriot Act	32
	 	17.13	Integration	32
	 	17.14	Bank Product Providers	32


 




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EXHIBITS
AND SCHEDULES


 


	Schedule 1.1	Definitions
	Schedule 2.12	Fees
	Schedule 6.1	Financial Statements, Reports, Certificates
	 	 
	Schedule 6.2	Collateral Reporting
	Exhibit A	Form of Compliance Certificate
	Exhibit B	Conditions Precedent
	Exhibit C	Conditions Subsequent
	Exhibit D	Representations and Warranties
	Exhibit E	Information Certificate
	Exhibit F	Country Limitation Schedule
	Schedule A-1	Collection Account
	Schedule A-2	Authorized Persons
	Schedule D-1	Designated Account
	Schedule P-1	Permitted Investments
	Schedule P-2	Permitted Liens


 




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CREDIT
AND SECURITY AGREEMENT


 


THIS CREDIT AND SECURITY
AGREEMENT (this “Agreement”) is entered into as of June 25, 2014 by and among WELLS FARGO BANK, NATIONAL
ASSOCIATION (“Lender”), CHARLES & COLVARD, LTD., a North Carolina corporation (“Parent”),
CHARLES & COLVARD DIRECT, LLC, a North Carolina limited liability company (“C&C Direct”), and
MOISSANITE.COM, LLC, a North Carolina limited liability company (“Moissanite”; Parent, C&C Direct
and Moissanite are sometimes referred to herein individually as a “Borrower” and collectively as the “Borrowers”).


 


1.          DEFINITIONS
AND CONSTRUCTION.


 


1.1           Definitions,
Code Terms, Accounting Terms and Construction.  Capitalized terms used in this Agreement shall have the meanings
specified therefor on Schedule 1.1. Additionally, matters of (a) interpretation of terms defined in the Code, (b) interpretation
of accounting terms and (c) construction are set forth in Schedule 1.1.


 


2.          LOANS
AND TERMS OF PAYMENT.


 


2.1           Revolving
Loan Advances.


 


(a)          Subject
to the terms and conditions of this Agreement, and during the term of this Agreement, Lender agrees to make revolving loans (“Advances”)
to Borrowers in an amount at any one time outstanding not to exceed the lesser of:


 


(i)          the
Maximum Revolver Amount less the Letter of Credit Usage at such time, and


 


(ii)         the
Borrowing Base at such time less the Letter of Credit Usage at such time.


 


(b)          Amounts
borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement. The outstanding principal amount of the Advances, together with interest accrued
and unpaid thereon, shall be due and payable on the Termination Date. Lender has no obligation to make an Advance at any time
following the occurrence of a Default or an Event of Default.


 


(c)          If
at any time the Maximum Revolver Amount is less than the amount of the Borrowing Base, the amount of Advances available under
Section 2.1(a) above shall be reduced by the Ex-Im Bank Reserve and any other Reserves established by Lender with respect
to amounts that may be payable by any Borrower to third parties.


 


2.2           Parent
as Agent for Borrowers.  Each Borrower hereby irrevocably appoints Parent as the borrowing agent and attorney-in-fact for
all Borrowers (the “Administrative Borrower”), which appointment shall remain in full force and effect unless
and until Lender shall have received prior written notice signed by each Borrower that such appointment has been revoked and that
another Borrower has been appointed Administrative Borrower. Each Borrower hereby irrevocably appoints and authorizes the Administrative
Borrower (a) to provide Lender with all notices with respect to Advances, Letters of Credit and other extensions of credit obtained
for the benefit of any Borrower and all other notices and instructions under this Agreement, and (b) to take such action as the
Administrative Borrower deems appropriate on its behalf to obtain Advances, Letters of Credit and other extensions of credit and
to exercise such other powers as are reasonably incidental thereto to carry out the purposes of this Agreement. It is understood
that the handling of the Loan Account and Collateral in a combined fashion, as more fully set forth herein, is done solely as
an accommodation to Borrowers in order to utilize the collective borrowing powers of Borrowers in the most efficient and economical
manner and at their request, and that Lender shall not incur liability to any Borrower as a result hereof. Each Borrower expects
to derive benefit, directly or indirectly, from the handling of the Loan Account and the Collateral in a combined fashion due
to the fact that the successful operation of each Borrower is dependent on the continued successful performance of the integrated
group. To induce Lender to do so, and in consideration thereof, each Borrower hereby jointly and severally agrees to indemnify
Lender and hold Lender harmless against any and all liability, expense, loss or claim of damage or injury, made against Lender
by any Borrower or by any third party whosoever, arising from or incurred by reason of (y) the handling of the Loan Account
and Collateral of Borrowers as herein provided, except to the extent any such liabilities, expenses, losses or claims are determined
in a final, non-appealable judgment of a court of competent jurisdiction to have resulted directly from the gross negligence or
willful misconduct of Lender, or (z) Lender’s relying on any instructions of the Administrative Borrower.


 




    	 



    	 



    

 


2.3           Borrowing
Procedures.


 


(a)          Procedure
for Borrowing.  Provided Lender has not separately agreed that Borrowers may use the Loan Management Service, each
Borrowing shall be made by a written request by an Authorized Person delivered to Lender. Such written request must be received
by Lender no later than 11:00 a.m. (Eastern time) on the Business Day that is the requested Funding Date specifying (i) the amount
of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Lender’s election, in lieu of
delivering the above-described written request, any Authorized Person may give Lender telephonic notice of such request by the
required time. Lender is authorized to make the Advances, and to issue the Letters of Credit, under this Agreement based upon
telephonic or other instructions received from anyone purporting to be an Authorized Person.


 


(b)          Making
of Loans.  Promptly after receipt of a request for a Borrowing pursuant to Section 2.3(a), Lender shall make
the proceeds thereof available to Borrowers on the applicable Funding Date by transferring immediately available funds equal to
such amount to the Designated Account; provided, however, that, Lender shall not have the obligation to make any
Advance if (i) one (1) or more of the applicable conditions precedent set forth in Section 4 will not be satisfied on the
requested Funding Date for the applicable Borrowing unless such condition has been waived by Lender, or (ii) the requested Borrowing
would exceed the Availability on such Funding Date.


 


(c)          Loan
Management Service.  If Lender has separately agreed that Borrowers may use the Loan Management Service, Borrowers
shall not request and Lender shall no longer honor a request for an Advance made in accordance with Section 2.3(a) and
all Advances will instead be initiated by Lender and credited to the Designated Account as Advances as of the end of each Business
Day in an amount sufficient to maintain an agreed upon ledger balance in the Designated Account, subject only to Availability
as provided in Section 2.1. If Lender terminates Borrowers’ access to the Loan Management Service, Borrowers may
continue to request Advances as provided in Section 2.3(a), subject to the other terms and conditions of this Agreement.
Lender shall have no obligation to make an Advance through the Loan Management Service after the occurrence of a Default or an
Event of Default, or in an amount in excess of Availability, and may terminate the Loan Management Service at any time in its
sole discretion.


 


(d)          Protective
Advances.  Lender may make an Advance for any reason at any time in its Permitted Discretion, without Borrowers’
compliance with any of the conditions of this Agreement, and (i) disburse the proceeds directly to third Persons in order to protect
Lender’s interest in the Collateral or to perform any obligation of Borrowers under this Agreement or otherwise to enhance
the likelihood of repayment of the Obligations, or (ii) apply the proceeds to outstanding Obligations then due and payable (each
such Advance, a “Protective Advance”).


 


2.4           Payments;
Prepayments.


 


(a)          Payments
by Borrowers.  Except as otherwise expressly provided herein, all payments by Borrowers shall be made as directed
by Lender or as otherwise specified in the applicable Cash Management Documents.


 


(b)          Payments
by Account Debtors.  Borrowers shall instruct all Account Debtors to make payments either directly to the Lockbox
for deposit by Lender directly to the Collection Account, or instruct them to deliver such payments to Lender by wire transfer,
ACH, or other means as Lender may direct for deposit to the Lockbox or Collection Account or for direct application to reduce
the outstanding Advances. Lender shall deposit or cause to be deposited in the Collection Account all such payments made by Account
Debtors to the Lockbox no later than the first Business Day following delivery of such payments to the Lockbox. If any Borrower
receives a payment of the Proceeds of Collateral directly, such Borrower will promptly deposit the payment or Proceeds into the
Collection Account. Until so deposited, such Borrower will hold all such payments and Proceeds in trust for Lender without commingling
with other funds or property.


 


(c)          Crediting
Payments.  For purposes of calculating Availability and the accrual of interest on outstanding Obligations, unless
otherwise provided in the applicable Cash Management Documents or as otherwise agreed between Borrowers and Lender, each payment
shall be applied to the Obligations as of the first Business Day following the Business Day of deposit to the Collection Account
of immediately available funds or other receipt of immediately available funds by Lender provided such payment is received in
accordance with Lender’s usual and customary practices as in effect from time to time. Any payment received by Lender that
is not a transfer of immediately available funds shall be considered provisional until the item or items representing such payment
have been finally paid under applicable law. Should any payment item not be honored when presented for payment, then Borrowers
shall be deemed not to have made such payment, and that portion of Borrowers’ outstanding Obligations corresponding to the
amount of such dishonored payment item shall be deemed to bear interest as if the dishonored payment item had never been received
by Lender. So long as no Increased Reporting Period is in effect, such reduction in the amount of outstanding Advances shall not
be accompanied by an equal reduction in the amount of outstanding Accounts. If an Increased Reporting Period is in effect, each
such reduction in the amount of outstanding Advances upon receipt of a payment on Accounts shall automatically be accompanied
by an equal reduction in the amount of outstanding Accounts.


 




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(d)          Application
of Payments.  All Collections and all Proceeds of Collateral received by Lender shall be applied, so long as no
Event of Default has occurred and is continuing, to reduce the outstanding Obligations in such manner as Lender shall determine
in its discretion. After payment in full in cash of all Obligations, any remaining balance shall be transferred to the Designated
Account or otherwise to such other Person entitled thereto under applicable law. Amounts collected by Lender from a Loan Party
in relation to or for the account of Bank Product Obligations shall be remitted to the applicable Bank Product Provider.


 


(e)          Mandatory
Prepayments.  If, at any time, the Revolver Usage exceeds (i) the Borrowing Base or (ii) the Maximum Revolver Amount,
less Reserves (in accordance with Section 2.1(c)) at such time, or if at any time the aggregate outstanding amount of Ex-Im
Advances exceeds Ex-Im Availability (any such excess amount being referred to as the “Overadvance Amount”),
then Borrowers shall immediately upon demand prepay the Obligations in an aggregate amount equal to the Overadvance Amount. Additionally,
because Ex-Im Availability may not be used to support any outstanding Letters of Credit, the definition of “Overadvance
Amount” shall also include, without limiting the preceding sentence, the amount, if any, by which (w) the lesser of
(i) the Borrowing Base or (ii) the Maximum Revolver Amount, less Reserves (in accordance with Section 2.1(c)), less (x)
Ex-Im Availability, less (y) the aggregate outstanding principal balance of Revolving Advances, exceeds (z) Letter of Credit Usage.
If payment in full of the outstanding Advances is insufficient to eliminate the Overadvance Amount and Letter of Credit Usage
continues to exceed the Borrowing Base, Borrowers shall maintain Letter of Credit Collateralization of the outstanding Letter
of Credit Usage (to the extent of the remaining Overadvance Amount). Lender shall not be obligated to provide any Advances during
any period that an Overadvance Amount is outstanding.


 


2.5           Clearance
Charge.  Collections received by Lender shall be applied as provided in Sections 2.4(c) and (d), but the Obligations
paid with such Collections shall continue to accrue interest at the rate then applicable to Advances as provided under Section
2.6 through the end of the first Business Day following the Business Day that such Collections were applied to the Obligations.
This one Business Day clearance charge on all Collections is acknowledged by the parties to constitute an integral aspect of the
pricing of the financing of Borrowers. The parties acknowledge and agree that the economic benefit of the foregoing provisions
of this Section 2.5 shall accrue exclusively to Lender.


 


2.6           Interest
Rates: Rates, Payments, and Calculations.


 


(a)          Interest
Rates.  Except as provided in Section 2.6(b), the principal amount of all Obligations (except for undrawn
Letters of Credit and Bank Products) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest
on the Daily Balance thereof at a per annum rate equal to the Interest Rate plus the Applicable
Margin. Daily Three Month LIBOR on the Agreement Date is 0.2336% per annum and, therefore, the rate of interest in effect
hereunder on the Agreement Date, expressed in simple interest terms, is 2.7336% per annum with respect to any portion of the Revolving
Credit Facility bearing interest based upon Daily Three Month LIBOR.


 


(b)          Default
Rate.  Upon the occurrence and during the continuation of an Event of Default and at any time following the Termination
Date, at the discretion of Lender,


 


(i)          the
principal amount of all Obligations (except for undrawn Letters of Credit and Bank Products) that have been charged to the Loan
Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to 3 percentage
points above the per annum rate otherwise applicable thereunder, and


 


(ii)         the
Letter of Credit fee provided for in Section 2.12 shall be increased by 3 percentage points above the per annum rate otherwise
applicable hereunder.


 




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For avoidance of doubt,
Lender may assess the Default Rate commencing on the date of the occurrence of an Event of Default irrespective of the date of
reporting or declaration of such Event of Default.


 


(c)          Payment.  Except
to the extent provided to the contrary in Section 2.12 or in the applicable Cash Management Document or Bank Product Agreement,
all interest, all Letter of Credit fees, all other fees payable hereunder or under any of the other Loan Documents, all costs
and expenses payable hereunder or under any of the other Loan Documents, and all Lender Expenses shall be due and payable, in
arrears, on the first day of each month. Each Borrower hereby authorizes Lender, from time to time without prior notice to Borrowers,
to charge all interest, Letter of Credit fees, and all other fees payable hereunder or under any of the other Loan Documents (in
each case, as and when due and payable), all costs and expenses payable hereunder or under any of the other Loan Documents (in
each case, as and when due and payable), all Lender Expenses (as and when accrued or incurred), and all fees and costs provided
for in Section 2.12 (as and when due and payable), and all other payment obligations as and when due and payable under
any Loan Document or any Bank Product Agreement (including any amounts due and payable to any Bank Product Provider in respect
of Bank Products that Borrowers have not otherwise made payment of or provided for) to the Loan Account, which amounts shall thereupon
constitute Advances hereunder and, shall accrue interest at the rate then applicable to Advances. Any interest, fees, costs, expenses,
Lender Expenses, or other amounts payable hereunder or under any other Loan Document or under any Bank Product Agreement that
are charged to the Loan Account shall thereafter constitute Advances hereunder and shall accrue interest at the rate then applicable
to Advances.


 


(d)          Computation.  All
interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year, in each case, for the
actual number of days elapsed in the period during which the interest or fees accrue. In the event the Interest Rate is changed
from time to time hereafter, the rates of interest hereunder based upon the Interest Rate automatically and immediately shall
be increased or decreased by an amount equal to such change in the Interest Rate.


 


(e)          Intent
to Limit Charges to Maximum Lawful Rate.  In no event shall the interest rate or rates payable under this Agreement,
plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable. Borrowers and Lender, in executing and delivering this Agreement,
intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however,
that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds
the maximum allowable under applicable law, then, as of the date of this Agreement, Borrowers are and shall be liable only for
the payment of such maximum amount as is allowed by law, and payment received from Borrowers in excess of such legal maximum,
whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess.


 


2.7           Designated
Account.  Borrowers agree to establish and maintain one or more Designated Accounts, each in the name of a single
Borrower, for the purpose of receiving the proceeds of the Advances requested by Borrowers and made by Lender hereunder. Unless
otherwise agreed by Lender and Borrowers, any Advance requested by Borrowers and made by Lender hereunder shall be made to the
applicable Designated Account.


 


2.8           Maintenance
of Loan Account; Statements of Obligations.  Lender shall maintain an account on its books in the name of Borrowers
(the “Loan Account”) in which will be recorded all Advances made by Lender to Borrowers or for Borrowers’
account, the Letters of Credit issued or arranged by Lender for Borrowers’ account, and all other payment Obligations hereunder
or under the other Loan Documents and, to the extent payment is charged to the Loan Account, for payments under Bank Product Agreements,
including accrued interest, fees and expenses, and Lender Expenses. In accordance with Section 2.4 and Section 2.5,
the Loan Account will be credited with all payments received by Lender from Borrowers or for Borrowers’ account. All monthly
statements delivered by Lender to Borrowers regarding the Loan Account, including with respect to principal, interest, fees, and
including an itemization of all charges and expenses constituting Lender Expenses owing, shall be subject to subsequent adjustment
by Lender but shall, absent manifest error, be conclusively presumed to be correct and accurate and constitute an account stated
between Borrowers and Lender unless, within 30 days after receipt thereof by Borrowers, Borrowers shall deliver to Lender written
objection thereto describing the error or errors contained in any such statements.


 


2.9           Maturity
and Termination Dates.  Lender’s obligations under this Agreement shall continue in full force and effect
for a term ending on the earliest of (i) June 25, 2017 (the “Maturity Date”) or (ii) the date Borrowers terminate
the Revolving Credit Facility, or (iii) the date the Revolving Credit Facility terminates pursuant to Sections 10.1 and
10.2 following an Event of Default (the earliest of these dates, the “Termination Date”). The foregoing
notwithstanding, Lender shall have the right to terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default. Each Borrower jointly and severally promises to pay the
Obligations (including principal, interest, fees, costs, and expenses, including Lender Expenses) in full on the Termination Date
(other than the Hedge Obligations, which shall be paid in accordance with the applicable Hedge Agreement).


 




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2.10       Effect
of Maturity.  On the Termination Date, all obligations of Lender to provide additional credit hereunder shall
automatically be terminated and all of the Obligations (other than Hedge Obligations which shall be terminated in accordance with
the applicable Hedge Agreement) shall immediately become due and payable without notice or demand and Borrowers shall immediately
repay all of the Obligations in full. No termination of the obligations of Lender (other than cash payment in full of the Obligations
and termination of the obligations of Lender to provide additional credit hereunder) shall relieve or discharge any Loan Party
of its duties, obligations, or covenants hereunder or under any other Loan Document and Lender’s Liens in the Collateral
shall continue to secure the Obligations and shall remain in effect until all Obligations have been paid in full in cash and Lender’s
obligations to provide additional credit hereunder shall have been terminated. Provided that there are no suits, actions, proceedings
or claims pending or threatened against any Indemnified Person under this Agreement with respect to any Indemnified Liabilities,
Lender shall, at Borrowers’ expense, release or terminate (or authorize Borrowers to terminate) any filings or other agreements
that perfect Lender’s Liens in the Collateral, upon Lender’s receipt of each of the following, in form and content
reasonably satisfactory to Lender: (i) cash payment in full of all Obligations (including Hedge Obligations, subject, however,
to the next sentence) and completed performance by Borrowers with respect to their other obligations under this Agreement (including
Letter of Credit Collateralization with respect to all outstanding Letter of Credit Usage), (ii) evidence (which may be a writing
signed by Borrowers in favor of Lender) that any obligation of Lender to make Advances to any Borrower or provide any further
credit to any Borrower has been terminated, (iii) a general release of all claims against Lender and its Affiliates by each Borrower
and each other Loan Party relating to Lender’s performance and obligations under the Loan Documents, and (iv) an agreement
by each Borrower, each Guarantor, and any new lender to any Borrower to indemnify Lender and its Affiliates for any payments received
by Lender or its Affiliates that are applied to the Obligations as a final payoff that may subsequently be returned or otherwise
not paid for any reason. With respect to any outstanding Hedge Obligations which are not so paid in full, the Bank Product Provider
may require Borrowers to cash collateralize the then existing Hedge Obligations in an amount acceptable to Lender prior to releasing
or terminating any filings or other agreements that perfect Lender’s Liens in the Collateral.


 


2.11       Termination
or Reduction by Borrowers.


 


(a)          Borrowers
may terminate the Credit Facility or reduce the Maximum Revolver Amount at any time prior to the Maturity Date, if they (i) deliver
a notice to Lender of their intentions at least 30 days prior to the proposed action, (ii) pay to Lender the applicable termination
fee or reduction fee set forth in Schedule 2.12, and (iii) pay the Obligations (other than the outstanding Hedge Obligations,
which shall be paid in accordance with the applicable Hedge Agreement) in full or down to the reduced Maximum Revolver Amount,
as applicable. Any reduction in the Maximum Revolver Amount shall be in multiples of $100,000, with a minimum reduction of at
least $1,000,000. Each such termination or reduction shall be irrevocable. Once reduced, the Maximum
Revolver Amount may not be increased.


 


(b)          The
applicable termination fee and reduction fee set forth in Schedule 2.12 shall be presumed to be the amount of damages sustained
by Lender as a result of an early termination or reduction, as applicable, and each Borrower agrees that it is reasonable under
the circumstances currently existing (including the borrowings that are reasonably expected by Borrowers hereunder and the interest,
fees and other charges that are reasonably expected to be received by Lender hereunder). In addition, Lender shall be entitled
to such early termination fee upon the occurrence of any Event of Default described in Sections 9.4 and 9.5 hereof,
even if Lender does not exercise its right to terminate this Agreement, but elects, at its option, to provide financing to Borrowers
or permit the use of cash collateral during an Insolvency Proceeding. The early termination fee and reduction fee, as applicable,
provided for in Schedule 2.12 shall be deemed included in the Obligations.


 


2.12       Fees.  Borrowers
shall pay to Lender the fees set forth on Schedule 2.12 attached hereto.


 


2.13       Letters
of Credit.


 


(a)          Subject
to the terms and conditions of this Agreement, upon the request of a Borrower made in accordance herewith, Lender agrees to issue
a requested Letter of Credit for the account of such Borrower. By submitting a request to Lender for the issuance of a Letter
of Credit, such Borrower shall be deemed to have requested that Lender issue the requested Letter of Credit. Each request for
the issuance of a Letter of Credit, or the amendment, renewal, or extension of any outstanding Letter of Credit, shall be irrevocable
and shall be made in writing by an Authorized Person and delivered to Lender via telefacsimile, or other electronic method of
transmission reasonably acceptable to Lender and reasonably in advance of the requested date of issuance, amendment, renewal,
or extension. Each such request shall be in form and substance reasonably satisfactory to Lender, and (i) shall specify (A) the
amount of such Letter of Credit, (B) the date of issuance, amendment, renewal, or extension of such Letter of Credit, (C) the
proposed expiration date of such Letter of Credit, (D) the name and address of the beneficiary of the Letter of Credit, and (E)
such other information (including, the conditions to drawing, and, in the case of an amendment, renewal, or extension, identification
of the Letter of Credit to be so amended, renewed, or extended) as shall be necessary to prepare, amend, renew, or extend such
Letter of Credit, and (ii) shall be accompanied by such Letter of Credit Agreements as Lender may request or require, to the extent
that such requests or requirements are consistent with the Letter of Credit Agreements that Lender generally requests for Letters
of Credit in similar circumstances. Lender’s records of the content of any such request will be conclusive.


 




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(b)          Lender
shall have no obligation to issue, amend, renew or extend a Letter of Credit if, after giving effect to the requested issuance,
amendment, renewal, or extension, the Letter of Credit Usage would exceed the lesser of:


 


(i)          the
lesser of the Borrowing Base or the Maximum Revolver Amount, less Reserves (in accordance with Section 2.1(c)), in each
case less the outstanding amount of Advances and Ex-Im Availability at such time, or


 


(ii)         $1,000,000.


 


(c)          Lender
shall have no obligation to issue a Letter of Credit if (i) any order, judgment, or decree of any Governmental Authority or arbitrator
shall, by its terms, purport to enjoin or restrain Lender from issuing such Letter of Credit or any law applicable to Lender or
any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over Lender
shall prohibit or request that Lender refrain from the issuance of letters of credit generally or such Letter of Credit in particular,
or (ii) the issuance of such Letter of Credit would violate one or more policies of Lender applicable to letters of credit generally.


 


(d)          Each
Letter of Credit shall be in form and substance reasonably acceptable to Lender, including the requirement that the amounts payable
thereunder must be payable in Dollars, and shall expire on a date no more than 12 months after the date of issuance or last renewal
of such Letter of Credit, which date shall be no later than the Maturity Date. If Lender makes a payment under a Letter of Credit,
Borrowers shall pay to Lender an amount equal to the applicable Letter of Credit Disbursement on the Business Day such Letter
of Credit Disbursement is made and, in the absence of such payment, the amount of the Letter of Credit Disbursement immediately
and automatically shall be deemed to be an Advance hereunder (notwithstanding any failure to satisfy any condition precedent set
forth in Section 4 or this Section 2.13) and, initially, shall bear interest at the rate then applicable to Advances.
If a Letter of Credit Disbursement is deemed to be an Advance hereunder, Borrowers’ obligation to pay the amount of such
Letter of Credit Disbursement to Lender shall be automatically converted into an obligation to pay Lender such resulting Advance.


 


(e)          Each
Borrower agrees to indemnify, defend and hold harmless Lender (including its branches, Affiliates, and correspondents) and each
such Person’s respective directors, officers, employees, attorneys and agents (each, a “Letter of Credit Related
Person”) (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations,
proceedings, liabilities, fines, costs, penalties, and damages, and all reasonable fees and disbursements of attorneys, experts,
or consultants and all other costs and expenses actually incurred in connection therewith or in connection with the enforcement
of this indemnification (as and when they are incurred and irrespective of whether suit is brought), which may be incurred by
or awarded against any such Letter of Credit Related Person (other than Taxes, which shall be governed by Section 16) (the
“Letter of Credit Indemnified Costs”), and which arise out of or in connection with, or as a result of: (i)
any Letter of Credit or any pre-advice of its issuance; (ii) any transfer, sale, delivery, surrender or endorsement of any Drawing
Document at any time(s) held by any such Letter of Credit Related Person in connection with any Letter of Credit; (iii) any action
or proceeding arising out of, or in connection with, any Letter of Credit (whether administrative, judicial or in connection with
arbitration), including any action or proceeding to compel or restrain any presentation or payment under any Letter of Credit,
or for the wrongful dishonor of, or honoring a presentation under, any Letter of Credit; (iv) any independent undertakings issued
by the beneficiary of any Letter of Credit; (v) any unauthorized instruction or request made to Lender in connection with any
Letter of Credit or requested Letter of Credit or error in computer or electronic transmission; (vi) an adviser, confirmer or
other nominated person seeking to be reimbursed, indemnified or compensated; (vii) any third party seeking to enforce the rights
of an applicant, beneficiary, nominated person, transferee, assignee of Letter of Credit proceeds or holder of an instrument or
document; (viii) the fraud, forgery or illegal action of parties other than the Letter of Credit Related Person; (ix) Lender’s
performance of the obligations of a confirming institution or entity that wrongfully dishonors a confirmation; or (x) the acts
or omissions, whether rightful or wrongful, of any present or future de jure or de facto governmental or regulatory authority
or cause or event beyond the control of the Letter of Credit Related Person; in each case, including that resulting from the Letter
of Credit Related Person’s own negligence; provided, however, that such indemnity shall not be available to
any Letter of Credit Related Person claiming indemnification under clauses (i) through (x) above to the extent that such Letter
of Credit Indemnified Costs may be finally determined in a final, non-appealable judgment of a court of competent jurisdiction
to have resulted directly from the gross negligence or willful misconduct of the Letter of Credit Related Person claiming indemnity.
Borrowers hereby agree to pay the Letter of Credit Related Person claiming indemnity on demand from time to time all amounts owing
under this Section 2.13(e). If and to the extent that the obligations of Borrowers under this Section 2.13(e) are
unenforceable for any reason, Borrowers agree to make the maximum contribution to the Letter of Credit Indemnified Costs permissible
under applicable law. This indemnification provision shall survive termination of this Agreement and all Letters of Credit.


 




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(f)          The
liability of Lender (or any other Letter of Credit Related Person) under, in connection with or arising out of any Letter of Credit
(or pre-advice), regardless of the form or legal grounds of the action or proceeding, shall be limited to direct damages suffered
by Borrowers that are caused directly by Lender’s gross negligence or willful misconduct in (i) honoring a presentation
under a Letter of Credit that on its face does not at least substantially comply with the terms and conditions of such Letter
of Credit, (ii) failing to honor a presentation under a Letter of Credit that strictly complies with the terms and conditions
of such Letter of Credit or (iii) retaining Drawing Documents presented under a Letter of Credit. Lender shall be deemed to have
acted with due diligence and reasonable care if Lender’s conduct is in accordance with Standard Letter of Credit Practice
or in accordance with this Agreement. Borrowers’ aggregate remedies against Lender and any Letter of Credit Related Person
for wrongfully honoring a presentation under any Letter of Credit or wrongfully retaining honored Drawing Documents shall in no
event exceed the aggregate amount paid by Borrowers to Lender in respect of the honored presentation in connection with such Letter
of Credit under Section 2.13(d), plus interest at the rate then applicable to Advances hereunder. Borrowers shall take
action to avoid and mitigate the amount of any damages claimed against Lender or any other Letter of Credit Related Person, including
by enforcing its rights against the beneficiaries of the Letters of Credit. Any claim by Borrowers under or in connection with
any Letter of Credit shall be reduced by an amount equal to the sum of (x) the amount (if any) saved by Borrowers as a result
of the breach or alleged wrongful conduct complained of; and (y) the amount (if any) of the loss that would have been avoided
had Borrowers taken all reasonable steps to mitigate any loss, and in case of a claim of wrongful dishonor, by specifically and
timely authorizing Lender to effect a cure.


 


(g)          Borrowers
are responsible for preparing or approving the final text of the Letter of Credit as issued by Lender, irrespective of any assistance
Lender may provide such as drafting or recommending text or by Lender’s use or refusal to use text submitted by Borrowers.
Borrowers are solely responsible for the suitability of the Letter of Credit for Borrowers’ purposes. With respect to any
Letter of Credit containing an “automatic amendment” to extend the expiration date of such Letter of Credit, Lender,
in its sole and absolute discretion, may give notice of nonrenewal of such Letter of Credit and, if Borrowers do not at any time
want such Letter of Credit to be renewed, Borrowers will so notify Lender at least 15 calendar days before Lender is required
to notify the beneficiary of such Letter of Credit or any advising bank of such nonrenewal pursuant to the terms of such Letter
of Credit.


 


(h)          Borrowers’
reimbursement and payment obligations under this Section 2.13 are absolute, unconditional and irrevocable and shall be
performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever, including: (i) any
lack of validity, enforceability or legal effect of any Letter of Credit or this Agreement or any term or provision therein or
herein; (ii) payment against presentation of any draft, demand or claim for payment under any Drawing Document that does not comply
in whole or in part with the terms of the applicable Letter of Credit or which proves to be fraudulent, forged or invalid in any
respect or any statement therein being untrue or inaccurate in any respect, or which is signed, issued or presented by a Person
or a transferee of such Person purporting to be a successor or transferee of the beneficiary of such Letter of Credit; (iii) Lender
or any of its branches or Affiliates being the beneficiary of any Letter of Credit; (iv) Lender or any correspondent honoring
a drawing against a Drawing Document up to the amount available under any Letter of Credit even if such Drawing Document claims
an amount in excess of the amount available under the Letter of Credit; (v) the existence of any claim, set-off, defense or other
right that any Borrower or any of its Subsidiaries may have at any time against any beneficiary, any assignee of proceeds, Lender
or any other Person; (vi) any other event, circumstance or conduct whatsoever, whether or not similar to any of the foregoing
that might, but for this Section 2.13(h), constitute a legal or equitable defense to or discharge of, or provide a right
of set-off against, any Borrower’s or any of its Subsidiaries’ reimbursement and other payment obligations and liabilities,
arising under, or in connection with, any Letter of Credit, whether against Lender, the beneficiary or any other Person; or (vii)
the fact that any Default or Event of Default shall have occurred and be continuing; provided, however, that subject
to Section 2.13(f) above, the foregoing shall not release Lender from such liability to Borrowers as may be finally determined
in a final, non-appealable judgment of a court of competent jurisdiction against Lender following reimbursement or payment of
the obligations and liabilities, including reimbursement and other payment obligations, of Borrowers to Lender arising under,
or in connection with, this Section 2.13 or any Letter of Credit.


 




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(i)          Without
limiting any other provision of this Agreement, Lender and each other Letter of Credit Related Person (if applicable) shall not
be responsible to Borrowers for, and Lender’s rights and remedies against Borrowers and the obligation of Borrowers to reimburse
Lender for each drawing under each Letter of Credit shall not be impaired by: (i) honor of a presentation under any Letter of
Credit that on its face substantially complies with the terms and conditions of such Letter of Credit, even if the Letter of Credit
requires strict compliance by the beneficiary; (ii) honor of a presentation of any Drawing Document that appears on its face to
have been signed, presented or issued (A) by any purported successor or transferee of any beneficiary or other Person required
to sign, present or issue such Drawing Document or (B) under a new name of the beneficiary; (iii) acceptance as a draft of any
written or electronic demand or request for payment under a Letter of Credit, even if nonnegotiable or not in the form of a draft
or notwithstanding any requirement that such draft, demand or request bear any or adequate reference to the Letter of Credit;
(iv) the identity or authority of any presenter or signer of any Drawing Document or the form, accuracy, genuineness or legal
effect of any Drawing Document (other than Lender’s determination that such Drawing Document appears on its face substantially
to comply with the terms and conditions of the Letter of Credit); (v) acting upon any instruction or request relative to a Letter
of Credit or requested Letter of Credit that Lender in good faith believes to have been given by a Person authorized to give such
instruction or request; (vi) any errors, omissions, interruptions or delays in transmission or delivery of any message, advice
or document (regardless of how sent or transmitted) or for errors in interpretation of technical terms or in translation or any
delay in giving or failing to give notice to Borrowers; (vii) any acts, omissions or fraud by, or the insolvency of, any beneficiary,
any nominated person or entity or any other Person or any breach of contract between any beneficiary and any Borrower or any of
the parties to the underlying transaction to which the Letter of Credit relates; (viii) assertion or waiver of any provision of
the ISP or UCP 600 that primarily benefits an issuer of a letter of credit, including any requirement that any Drawing Document
be presented to it at a particular hour or place; (ix) payment to any paying or negotiating bank (designated or permitted by the
terms of the applicable Letter of Credit) claiming that it rightfully honored or is entitled to reimbursement or indemnity under
Standard Letter of Credit Practice applicable to it; (x) acting or failing to act as required or permitted under Standard Letter
of Credit Practice applicable to where Lender has issued, confirmed, advised or negotiated such Letter of Credit, as the case
may be; (xi) honor of a presentation after the expiration date of any Letter of Credit notwithstanding that a presentation was
made prior to such expiration date and dishonored by Lender if subsequently Lender or any court or other finder of fact determines
such presentation should have been honored; (xii) dishonor of any presentation that does not strictly comply or that is fraudulent,
forged or otherwise not entitled to honor; or (xiii) honor of a presentation that is subsequently determined by Lender to have
been made in violation of international, federal, state or local restrictions on the transaction of business with certain prohibited
Persons.


 


(j)          Each
Borrower acknowledges and agrees that any and all fees, charges, costs, or commissions in effect from time to time imposed by,
and any and all expenses incurred by, Lender, or by any adviser, confirming institution or entity or other nominated Person relating
to Letters of Credit, at the time of issuance of any Letter of Credit and upon the occurrence of any other activity with respect
to any Letter of Credit (including transfers, assignment of proceeds, amendments, drawings, renewals or cancellations), shall
be non-refundable Lender Expenses for purposes of this Agreement and shall be reimbursable immediately by Borrowers to Lender.


 


(k)          If
by reason of (i) any change after the Agreement Date in any applicable law, treaty, rule, or regulation or any change in the interpretation
or application thereof by any Governmental Authority, or (ii) compliance by Lender with any direction, request, or requirement
(irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, Regulation D
of the Board of Governors as from time to time in effect (and any successor thereto): (i) any reserve, deposit, or similar requirement
is or shall be imposed or modified in respect of any Letter of Credit issued or caused to be issued hereunder or hereby, or (ii)
there shall be imposed on Lender any other condition regarding any Letter of Credit, and the result of the foregoing is to increase,
directly or indirectly, the cost to Lender of issuing, making, participating in, or maintaining any Letter of Credit or to reduce
the amount receivable in respect thereof, then, and in any such case, Lender may, at any time within a reasonable period after
the additional cost is incurred or the amount received is reduced, notify Borrowers, and Borrowers shall pay within 30 days after
demand therefor, such amounts as Lender may specify to be necessary to compensate Lender for such additional cost or reduced receipt,
together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to
Advances hereunder; provided, that (A) Borrowers shall not be required to provide any compensation pursuant to this Section
2.13(k) for any such amounts incurred more than 180 days prior to the date on which the demand for payment of such amounts
is first made to Borrowers, and (B) if an event or circumstance giving rise to such amounts is retroactive, then the 180-day period
referred to above shall be extended to include the period of retroactive effect thereof. The determination by Lender of any amount
due pursuant to this Section 2.13(k), as set forth in a certificate setting forth the calculation thereof in reasonable
detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto.


 




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(l)          Unless
otherwise expressly agreed by Lender and Borrowers, when a Letter of Credit is issued, (i) the rules of the ISP and UCP 600 shall
apply to each standby Letter of Credit, and (ii) the rules of UCP 600 shall apply to each commercial Letter of Credit.


 


(m)          In
the event of a direct conflict between the provisions of this Section 2.13 and any provision contained in any Letter of
Credit Agreement, it is the intention of the parties hereto that such provisions be read together and construed, to the fullest
extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved
as aforesaid, the terms and provisions of this Section 2.13 shall control and govern.


 


2.14       Illegality;
Impracticability; Increased Costs.  In the event that (a) any change in market conditions or any law, regulation,
treaty, or directive, or any change therein or in the interpretation or application thereof make it unlawful or impractical for
Lender to fund or maintain extensions of credit with interest based upon Daily Three Month LIBOR or to continue such funding or
maintaining, or to determine or charge interest rates based upon Daily Three Month LIBOR, (b) Lender determines that by reasons
affecting the London Interbank Eurodollar market, adequate and reasonable means do not exist for ascertaining Daily Three Month
LIBOR, or (c) Lender determines that the interest rate based on the Daily Three Month LIBOR will not adequately and fairly reflect
the cost to Lender of maintaining or funding Advances at the interest rate based upon Daily Three Month LIBOR, Lender shall give
notice of such changed circumstances to Borrowers and (y) interest on the principal amount of such extensions of credit thereafter
shall accrue interest at a rate equal to the Prime Rate plus the Applicable Margin, and (z) Borrowers shall not be entitled
to elect Daily Three Month LIBOR until Lender determines that it would no longer be unlawful or impractical to do so or that such
increased costs would no longer be applicable.


 


2.15       Capital
Requirements.  If, after the date hereof, Lender determines that (a) the adoption of or change in any law, rule,
regulation or guideline regarding capital or reserve requirements for lenders, banks or bank holding companies, or any change
in the interpretation, implementation, or application thereof by any Governmental Authority charged with the administration thereof,
including those changes resulting from the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel
III, regardless of the date enacted, adopted or issued, or (b) compliance by Lender 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), has the
effect of reducing the return on Lender’s or such holding company’s capital as a consequence of Lender’s loan
commitments hereunder to a level below that which such Lender or such holding company could have achieved but for such adoption,
change, or compliance (taking into consideration such Lender’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 Lender to
be material, then Lender may notify Borrowers thereof. Following receipt of such notice, Borrowers agree to pay Lender on demand
the amount of such reduction of return on capital as and when such reduction is determined, payable within 30 days after presentation
by Lender of a statement of the amount and setting forth in reasonable detail Lender’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, Lender may use any reasonable averaging and attribution methods. Failure or delay on the part of Lender to demand
compensation pursuant to this Section shall not constitute a waiver of Lender’s right to demand such compensation; provided
that Borrowers shall not be required to compensate Lender pursuant to this Section for any reductions in return incurred more
than 180 days prior to the date that Lender notifies Borrowers of such law, rule, regulation or guideline giving rise to such
reductions and of Lender’s intention to claim compensation therefor; provided further that if such claim arises
by reason of the adoption of or change in any law, rule, regulation or guideline that is retroactive, then the 180-day period
referred to above shall be extended to include the period of retroactive effect thereof.


 


2.16       Extent
of Each Borrower’s Liability, Contribution.


 


(a)          Joint
and Several Liability. Each Borrower agrees that it is jointly and severally liable for, and absolutely and unconditionally
guarantees to Lender the prompt payment and performance of, all Obligations under this Agreement and all agreements under the
Loan Documents. Each Borrower agrees that its guaranty obligations hereunder constitute a continuing guaranty of payment and not
of collection, that such obligations shall not be discharged until cash payment in full of the Obligations, and that such obligations
are absolute and unconditional, irrespective of (i) the genuineness, validity, regularity, enforceability, subordination or any
future modification of, or change in, any Obligations or Loan Document, or any other document, instrument or agreement to which
any Borrower is or may become a party or be bound; (ii) the absence of any action to enforce this Agreement (including this Section)
or any other Loan Document, or any waiver, consent or indulgence of any kind by Lender with respect thereto; (iii) the existence,
value or condition of, or failure to perfect any of Lender’s Liens or to preserve rights against, any security or guaranty
for the Obligations or any action, or the absence of any action, by Lender in respect thereof (including the release of any security
or guaranty); (iv) the insolvency of any Borrower; (v) any election by Lender in an Insolvency Proceeding for the application
of Section 1111(b)(2) of the Bankruptcy Code; (vi) any borrowing or grant of a Lien by any other Borrower, as debtor-in-possession
under Section 364 of the Bankruptcy Code or otherwise; (vii) the disallowance of any claims of Lender against any Borrower for
the repayment of any Obligations under Section 502 of the Bankruptcy Code or otherwise; or (viii) any other action or circumstances
that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except cash payment in full
of all Obligations.


 




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(b)          Contribution.
Each Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation against any other Borrower
with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to Lender
with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been
paid in full in cash. Except as otherwise provided in the Intercompany Subordination Agreement, including Section 4 thereof, any
claim which any Borrower may have against any other Borrower with respect to any payments to Lender hereunder or under any of
the Bank Product Agreements are hereby expressly made subordinate and junior in right of payment, without limitation as to any
increases in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the Obligations and, in
the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws
of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations
shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property,
shall be made to any other Borrower therefor.


 


(c)          No
Limitation on Liability. Nothing contained in this Section 2.16 shall limit the liability of any Borrower to pay extensions
of credit made directly or indirectly to that Borrower (including revolving loans advanced to any other Borrower and then re-loaned
or otherwise transferred to, or for the benefit of, such Borrower), Obligations relating to Letters of Credit issued to support
such Borrower’s business, and all accrued interest, fees, expenses and other related Obligations with respect thereto, for
which such Borrower shall be primarily liable for all purposes hereunder. Lender shall have the right, at any time in its discretion,
to condition an extension of credit hereunder upon a separate calculation of borrowing availability for each Borrower and to restrict
the disbursement and use of such extensions of credit to such Borrower.


 


2.17         Ex-Im
Advances Subject to Ex-Im Bank Rules.  Each Borrower acknowledges that Lender is willing to make the Ex-Im Advances
available to Borrowers because Ex-Im Bank is willing to guarantee payment of a significant portion of the Ex-Im Advances pursuant
to the Master Guaranty. Accordingly, in the event of any inconsistency among the Master Guaranty or any other Ex-Im Subfacility
Document and any other Loan Document, the provision that is more stringent, burdensome or restrictive upon Borrowers shall control.
This Agreement is supplemental to the Borrower Agreement, this Agreement constitutes the “Loan Agreement” under the
Borrower Agreement, and the facility for Ex-Im Advances hereunder constitutes the “Loan Facility” under the Borrower
Agreement.


 


3.          SECURITY
INTEREST.


 


3.1           Grant
of Security Interest.  Each Borrower hereby unconditionally grants, assigns, and pledges to Lender for the benefit
of Lender and each Bank Product Provider, to secure payment and performance of the Obligations, a continuing security interest
(hereinafter referred to as the “Security Interest”) in all of such Borrower’s right, title, and interest
in and to the Collateral, as security for the payment and performance of all Obligations. Following request by Lender, each Borrower
shall grant Lender a Lien and security interest in all Commercial Tort Claims that it may have against any Person. The Security
Interest created hereby secures the payment and performance of the Obligations, whether now existing or arising hereafter. Without
limiting the generality of the foregoing, this Agreement secures the payment of all amounts which constitute part of the Obligations
and would be owed by any Borrower to Lender or any other Bank Product Provider, but for the fact that they are unenforceable or
not allowable (in whole or in part) as a claim in an Insolvency Proceeding involving any Borrower due to the existence of such
Insolvency Proceeding.


 


3.2           Borrowers
Remain Liable.  Anything herein to the contrary notwithstanding, (a) Borrowers and each other Loan Party shall
remain liable under the contracts and agreements included in the Collateral to perform all of the duties and obligations thereunder
to the same extent as if this Agreement had not been executed, (b) the exercise by Lender of any of the rights hereunder shall
not release any Borrower or any other Loan Party from any of its duties or obligations under such contracts and agreements included
in the Collateral, and (c) Lender shall not have any obligation or liability under such contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Lender be obligated to perform any of the obligations or duties of any Borrower
or any other Loan Party thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.


 




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3.3           Assignment
of Insurance.  As additional security for the Obligations, each Borrower hereby assigns to Lender for the benefit
of Lender and each Bank Product Provider all rights of such Borrower under every policy of insurance covering the Collateral and
all other assets and property of each Borrower (including, without limitation business interruption insurance and proceeds thereof)
and all business records and other documents relating to it, and all monies (including proceeds and refunds) that may be payable
under any policy, and each Borrower hereby directs the issuer of each policy to pay all such monies directly and solely to Lender.
At any time that an Event of Default exists, Lender may (but need not), in Lender’s or any Borrower’s name, execute
and deliver proofs of claim, receive payment of proceeds and endorse checks and other instruments representing payment of the
policy of insurance, and adjust, litigate, compromise or release claims against the issuer of any policy. Any monies received
under any insurance policy assigned to Lender, other than liability insurance policies, or received as payment of any award or
compensation for condemnation or taking by eminent domain, shall be paid to Lender and, as determined by Lender in its sole discretion,
either be applied to prepayment of the Obligations or disbursed to Borrowers under payment terms reasonably satisfactory to Lender
for application to the cost of repairs, replacements, or restorations of the affected Collateral which shall be effected with
reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed.


 


3.4           Financing
Statements.  Each Borrower authorizes Lender to file financing statements describing Collateral to perfect Lender’s
and each Bank Product Provider’s Security Interest in the Collateral, and Lender may describe the Collateral as “all
personal property” or “all assets” or describe specific items of Collateral including without limitation any
Commercial Tort Claims. All financing statements filed before the date of this Agreement to perfect the Security Interest were
authorized by such Borrower and are hereby ratified.


 


4.          CONDITIONS.


 


4.1         Conditions
Precedent to the Initial Extension of Credit.  The obligation of Lender to make the initial extension of credit
provided for hereunder is subject to the fulfillment, to the satisfaction of Lender, of each of the conditions precedent set forth
on Exhibit B.


 


4.2         Conditions
Precedent to all Extensions of Credit.  The obligation of Lender to make any Advances hereunder (or to extend
any other credit hereunder) at any time shall be subject to the following conditions precedent:


 


(a)          the
representations and warranties of each Borrower and each other Loan Party or its Subsidiaries contained in this Agreement or in
the other Loan Documents shall be true and correct in all material respects (except that such materiality qualifier shall not
be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof)
on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations
and warranties relate solely to an earlier date, in which case such representations and warranties shall continue to be true and
correct to the same extent as of such earlier date); and


 


(b)          no
Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result
from the making thereof.


 


Any request for an extension of credit
shall be deemed to be a representation by each Borrower and each other Loan Party that the statements set forth in this Section
4.2 are correct as of the time of such request and if such extension of credit is a request for an Advance or a Letter of
Credit, sufficient Availability exists for such Advance or Letter of Credit pursuant to Section 2.1(a) and Section 2.13.


 


4.3           Conditions
Subsequent.  The obligation of Lender to continue to make Advances (or otherwise extend credit hereunder) is
subject to the fulfillment, on or before the date applicable thereto, of the conditions subsequent set forth on Exhibit C
(the failure by any Borrower or any other Loan Party to so perform or cause to be performed such conditions subsequent as and
when required by the terms thereof, shall constitute an Event of Default).


 


5.          REPRESENTATIONS
AND WARRANTIES.


 


In order to induce
Lender to enter into this Agreement, each Borrower, on behalf of itself and the other Loan Parties, makes the representations
and warranties to Lender set forth on Exhibit D. Each of such representations and warranties shall be true, correct, and
complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text thereof), as of the Agreement Date, and shall be
true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text thereof), as of the date of the making of each
Advance or other extension of credit made thereafter, as though made on and as of the date of such Advance or other extension
of credit (except to the extent that such representations and warranties relate solely to an earlier date in which case such representations
and warranties shall continue to be true and correct to the same extent as of such earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement.


 




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6.          AFFIRMATIVE
COVENANTS.


 


Each Borrower covenants
and agrees that, until termination of all of the commitments of Lender hereunder to provide any further extensions of credit and
payment in full of the Obligations, each Borrower shall, and shall cause their respective Subsidiaries and each of the other Loan
Parties to, comply with each of the following:


 


6.1         Financial
Statements, Reports, Certificates.  Deliver to Lender copies of each of the financial statements, reports, and
other items set forth on Schedule 6.1 no later than the times specified therein. In addition, each Borrower agrees that
no Subsidiary of a Borrower will have a fiscal year different from that of Borrowers. Each Borrower agrees to maintain a system
of accounting that enables such Borrower to produce financial statements in accordance with GAAP. Each Borrower shall also (a)
keep a reporting system that shows all additions, sales, claims, returns, and allowances with respect to the sales of such Borrower
and its Subsidiaries, and (b) maintain its billing systems/practices substantially as in effect as of the Agreement Date and shall
only make material modifications following prior notice to Lender.


 


6.2         Collateral
Reporting.  Provide Lender with each of the reports set forth on Schedule 6.2 at the times specified
therein. In addition, each Borrower agrees to use commercially reasonable efforts in cooperation with Lender to facilitate and
implement a system of electronic collateral reporting in order to provide electronic reporting of each of the items set forth
on such Schedule.


 


6.3         Existence.  Except
as otherwise permitted under Section 7.3 or Section 7.4, at all times maintain and preserve in full force and effect
(a) its existence (including being in good standing in its jurisdiction of organization) and (b) all rights and franchises, licenses
and permits material to its business; provided, however, that no Borrower nor any of its Subsidiaries shall be required
to preserve any such right or franchise, licenses or permits if such Person’s board of directors (or similar governing body)
shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person, and that the
loss thereof is not disadvantageous in any material respect to such Person or to Lender; provided that Borrowers deliver at least
ten (10) days prior written notice to Lender of the election of such Borrower or such Subsidiary not to preserve any such right
or franchise, license or permit.


 


6.4         Maintenance
of Properties.  Maintain and preserve all of its assets that are necessary or useful in the proper conduct of
its business in good working order and condition, ordinary wear, tear and casualty excepted and Permitted Dispositions excepted
(and except where the failure to so maintain and preserve such assets could not reasonably be expected to result in a Material
Adverse Change), and comply with the material provisions of all material leases to which it is a party as lessee, so as to prevent
the loss or forfeiture thereof, unless such provisions are the subject of a Permitted Protest.


 


6.5         Taxes.


 


(a)          Cause
all assessments and taxes imposed, levied, or assessed against any Loan Party or its Subsidiaries, or any of their respective
assets or in respect of any of its income, businesses, or franchises to be paid in full, before delinquency or before the expiration
of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted
Protest and so long as, in the case of an assessment or tax that has or may become a Lien against any of the Collateral, (i) such
contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such assessment or tax,
and (ii) any such other Lien is at all times subordinate to Lender’s Liens.


 


(b)          Make
timely payment or deposit of all tax payments and withholding taxes required of it and them by applicable laws, including those
laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish
Lender with proof reasonably satisfactory to Lender indicating that such Loan Party and its Subsidiaries have made such payments
or deposits.


 




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6.6         Insurance.  At
Borrowers’ expense, maintain insurance with respect to the assets of each Loan Party and each of its Subsidiaries wherever
located, covering liabilities, losses or damages as are customarily insured against by other Persons engaged in the same or similar
businesses. Borrowers also shall maintain, with respect to each Borrower and each of its Subsidiaries, business interruption insurance,
general liability insurance, flood insurance for Collateral located in a flood plain, product liability insurance, director’s
and officer’s liability insurance, fiduciary liability insurance, and employment practices liability insurance, as well
as insurance against larceny, embezzlement, and criminal misappropriation. All such policies of insurance shall be with financially
sound and reputable insurance companies acceptable to Lender and in such amounts as is carried generally in accordance with sound
business practice by companies in similar businesses similarly situated and located and in any event in amount, adequacy and scope
reasonably satisfactory to Lender. All property insurance policies covering the Collateral are to be made payable to Lender for
the benefit of Lender, as its interests may appear, in case of loss, pursuant to a lender loss payable endorsement acceptable
to Lender and are to contain such other provisions as Lender may reasonably require to fully protect Lender’s interest in
the Collateral and to any payments to be made under such policies. Such evidence of property and general liability insurance shall
be delivered to Lender, with the lender loss payable endorsements (but only in respect of Collateral) and additional insured endorsements
(with respect to general liability coverage) in favor of Lender and shall provide for not less than 30 days (10 days in the case
of non-payment) prior written notice to Lender of the exercise of any right of cancellation (or such lesser notice as Lender may
agree to in its sole discretion). If Borrowers fail to maintain such insurance, Lender may arrange for such insurance, but at
Borrowers’ expense and without any responsibility on Lender’s part for obtaining the insurance, the solvency of the
insurance companies, the adequacy of the coverage, or the collection of claims. Borrowers shall give Lender prompt notice of any
loss exceeding $250,000 covered by their casualty or business interruption insurance. Upon the occurrence of an Event of Default,
Lender shall have the sole right to file claims under any property and general liability insurance policies in respect of the
Collateral, to receive and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements,
receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.


 


6.7         Inspections,
Exams, Collateral Exams and Appraisals.  Permit Lender and each of Lender’s duly authorized representatives
to visit any of its properties and inspect any of its assets or books and records, to conduct inspections, exams, audits and appraisals
of the Collateral, to examine and make copies of its books and records, and to discuss its affairs, finances, and accounts with,
and to be advised as to the same by, its officers and employees at such reasonable times and intervals as Lender may designate
and, so long as no Default or Event of Default exists, with reasonable prior notice to Borrowers.


 


6.8         Account
Verification.  Permit Lender, in Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account, by mail, telephone, facsimile transmission or otherwise. Further, at the request
of Lender, Borrowers shall send requests for verification of Accounts or send notices of assignment of Accounts to Account Debtors
and other obligors.


 


6.9         Compliance
with Laws.  Comply with the requirements of all applicable laws, rules, regulations, and orders of any Governmental
Authority, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Change.


 


6.10       Environmental.


 


(a)          Keep
any property either owned or operated by any Borrower or any other Loan Party or its Subsidiaries free of any Environmental Liens
or post bonds or other financial assurances satisfactory to Lender and in an amount sufficient to satisfy the obligations or liability
evidenced by such Environmental Liens;


 


(b)          Comply,
in all material respects, with Environmental Laws and provide to Lender documentation of such compliance which Lender reasonably
requests;


 


(c)          Promptly
notify Lender of any release of which any Borrower or any other Loan Party has knowledge of a Hazardous Material in any reportable
quantity from or onto property owned or operated by any Loan Party or any of its Subsidiaries and take any Remedial Actions required
to abate said release or otherwise to come into compliance, in all material respects, with applicable Environmental Law; and


 


(d)          Promptly,
but in any event within 5 Business Days of its receipt thereof, provide Lender with written notice of any of the following: (i)
notice that an Environmental Lien has been filed against any of the real or personal property of any Loan Party or its Subsidiaries,
(ii) commencement of any Environmental Action or written notice that an Environmental Action will be filed against any Loan Party
or any of its Subsidiaries, and (iii) written notice of a violation, citation, or other administrative order from a Governmental
Authority.


 




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6.11         Disclosure
Updates.


 


(a)          Promptly
and in no event later than 5 Business Days after obtaining knowledge thereof or after the occurrence thereof, whichever is earlier,
notify Lender:


 


(i)          if
any written information, exhibit, or report furnished to Lender contained, at the time it was furnished, any untrue statement
of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in
light of the circumstances in which made. Any notification pursuant to the foregoing provision will not cure or remedy the effect
of the prior untrue statement of a material fact or omission of any material fact nor shall any such notification have the effect
of amending or modifying this Agreement or any of the Schedules hereto;


 


(ii)         of
all actions, suits, or proceedings brought by or against any Loan Party or any of its Subsidiaries before any court or Governmental
Authority which reasonably could be expected to result in a Material Adverse Change, provided that, in any event, such
notification shall not be later than 5 days after service of process with respect thereto on any Loan Party or any of its Subsidiaries;


 


(iii)        of
(A) any disputes or claims by any Borrower’s customers exceeding $200,000 in the aggregate during any fiscal year; or (ii)
Goods returned to or recovered by any Borrower outside of the ordinary course of business with a fair market value exceeding,
individually or in the aggregate during any fiscal year, $200,000;


 


(iv)         of
any material loss or damage to any Collateral or any substantial adverse change in the Collateral; or


 


(v)          of
a violation of any law, rule or regulation, the non-compliance with which reasonably could be expected to result in a Material
Adverse Change.


 


(b)          Immediately
upon obtaining knowledge thereof or after the occurrence thereof, notify Lender of any event or condition which constitutes a
Default or an Event of Default and provide a statement of the action that such Borrower proposes to take with respect to such
Default or Event of Default.


 


Upon request of Lender, each Loan Party
shall deliver to Lender any other materials, reports, records or information reasonably requested relating to the operations,
business affairs, financial condition of any Loan Party or its Subsidiaries or the Collateral.


 


6.12         Collateral
Covenants.


 


(a)          Possession
of Collateral.  In the event that any Collateral, including Proceeds, is evidenced by or consists of Negotiable
Collateral, Investment Related Property, or Chattel Paper, in each case, having an aggregate value or face amount of $200,000
or more for all such Negotiable Collateral, Investment Related Property, or Chattel Paper, the Loan Parties shall promptly (and
in any event within 2 Business Days after receipt thereof), notify Lender thereof, and if and to the extent that perfection or
priority of Lender’s Liens is dependent on or enhanced by possession, the applicable Loan Party, promptly (and in any event
within 2 Business Days) after request by Lender, shall execute such other documents and instruments as shall be requested by Lender
or, if applicable, endorse and deliver physical possession of such Negotiable Collateral, Investment Related Property, or Chattel
Paper to Lender, together with such undated powers (or other relevant document of assignment or transfer acceptable to Lender)
endorsed in blank as shall be requested by Lender, and shall do such other acts or things deemed necessary or desirable by Lender
to enhance, perfect and protect Lender’s Liens therein.


 


(b)          Chattel
Paper.


 


(i)          Promptly
(and in any event within 2 Business Days) after request by Lender, each Loan Party shall take all steps reasonably necessary to
grant Lender control of all electronic Chattel Paper of any Loan Party in accordance with the Code and all “transferable
records” as that term is defined in Section 16 of the Uniform Electronic Transaction Act and Section 201 of the federal
Electronic Signatures in Global and National Commerce Act as in effect in any relevant jurisdiction, to the extent that the individual
or aggregate value or face amount of such electronic Chattel Paper equals or exceeds $200,000; and


 


(ii)         If
any Loan Party retains possession of any Chattel Paper or instruments (which retention of possession shall be subject to the extent
permitted hereby), promptly upon the request of Lender, such Chattel Paper and instruments shall be marked with the following
legend: “This writing and the obligations evidenced or secured hereby are subject to the Security Interest of Wells Fargo
Bank, National Association, as Lender”.


 




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(c)          Control
Agreements.


 


(i)          Except
to the extent otherwise provided by Section 7.11, each Borrower shall obtain a Control Agreement from each bank (other
than Lender) maintaining a Deposit Account for such Borrower;


 


(ii)         Except
to the extent otherwise provided by Section 7.11, each Borrower shall obtain a Control Agreement from each issuer of uncertificated
securities, securities intermediary, or commodities intermediary issuing or holding any financial assets or commodities to or
for any Loan Party; and


 


(iii)        Except
to the extent otherwise provided by Section 7.11, each Borrower shall cause Lender to obtain “control”, as
such term is defined in the Code, with respect to all of such Borrower’s investment property.


 


(d)          Letter-of-Credit
Rights.  If the Loan Parties (or any of them) are or become the beneficiary of letters of credit having a face amount
or value of $200,000 or more in the aggregate, then the applicable Loan Party or Loan Parties shall promptly (and in any event
within 2 Business Days after becoming a beneficiary), notify Lender thereof and, promptly (and in any event within 2 Business
Days) after request by Lender, enter into a tri-party agreement with Lender and the issuer or confirming bank with respect to
letter-of-credit rights assigning such letter-of-credit rights to Lender and directing all payments thereunder to the Collection
Account unless otherwise directed by Lender, all in form and substance satisfactory to Lender.


 


(e)          Commercial
Tort Claims.  If the Loan Parties (or any of them) obtain Commercial Tort Claims having a value, or involving an
asserted claim, in the amount of $200,000 or more in the aggregate for all Commercial Tort Claims, then the applicable Loan Party
or Loan Parties shall promptly (and in any event within 2 Business Days of obtaining such Commercial Tort Claim), notify
Lender upon incurring or otherwise obtaining such Commercial Tort Claims and, promptly (and in any event within 2 Business Days)
after request by Lender, amend Schedule 5.6(d) to the Information Certificate to describe such Commercial Tort Claims in
a manner that reasonably identifies such Commercial Tort Claims and which is otherwise reasonably satisfactory to Lender, and
hereby authorizes the filing of additional financing statements or amendments to existing financing statements describing such
Commercial Tort Claims, and agrees to do such other acts or things deemed necessary or desirable by Lender to give Lender a first
priority, perfected security interest in any such Commercial Tort Claim, which Commercial Tort Claim shall not be subject to any
other Liens;


 


(f)          Government
Contracts.  Other than Accounts and Chattel Paper the aggregate value of which does not at any one time exceed $200,000,
if any Account or Chattel Paper of any Loan Party arises out of a contract or contracts with the United States of America or any
State or any department, agency, or instrumentality thereof, Loan Parties shall promptly (and in any event within 2 Business Days
of the creation thereof) notify Lender thereof and, promptly (and in any event within 2 Business Days) after request by Lender,
execute any instruments or take any steps reasonably required by Lender in order that all moneys due or to become due under such
contract or contracts shall be assigned to Lender, for the benefit of Lender and each Bank Product Provider, and shall provide
written notice thereof under the Assignment of Claims Act or other applicable law.


 


(g)          Intellectual
Property.


 


(i)          Upon
the request of Lender, in order to facilitate filings with the PTO and the United States Copyright Office, each Loan Party shall
execute and deliver to Lender one or more Copyright Security Agreements or Patent and Trademark Security Agreements to further
evidence Lender’s Lien on such Loan Party’s Patents, Trademarks, or Copyrights, and the General Intangibles of such
Loan Party relating thereto or represented thereby;


 




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(ii)         Each
Loan Party shall have the duty, with respect to Intellectual Property that is necessary in the conduct of such Loan Party’s
business, to protect and diligently enforce and defend at such Loan Party’s expense its Intellectual Property, including
(A) to diligently enforce and defend, including promptly suing for infringement, misappropriation, or dilution and to recover
any and all damages for such infringement, misappropriation, or dilution, and filing for opposition, interference, and cancellation
against conflicting Intellectual Property rights of any Person, (B) to prosecute diligently any trademark application or service
mark application that is part of the Trademarks pending as of the date hereof or hereafter, (C) to prosecute diligently any patent
application that is part of the Patents pending as of the date hereof or hereafter, (D) to take all reasonable and necessary action
to preserve and maintain all of such Loan Party’s Trademarks, Patents, Copyrights, Intellectual Property Licenses, and its
rights therein, including paying all maintenance fees and filing of applications for renewal, affidavits of use, and affidavits
of noncontestability, and (E) to require all employees, consultants, and contractors of each Loan Party who were involved in the
creation or development of such Intellectual Property to sign agreements containing assignment to such Loan Party of Intellectual
Property rights created or developed and obligations of confidentiality. No Loan Party shall abandon any Intellectual Property
or Intellectual Property License that is necessary in the conduct of such Loan Party’s business. Each Loan Party shall take
the steps described in this Section 6.12(g)(ii) with respect to all new or acquired Intellectual Property to which it or
any of its Subsidiaries is now or later becomes entitled that is necessary in the conduct of such Loan Party’s or Subsidiary’s
business. Notwithstanding the foregoing, no Loan Party shall be required to take any action pursuant to this clause (g)(ii) if
such Loan Party shall reasonably determine that such action is not desirable in the conduct of the business of such Loan Party
and that the failure to take such action is not disadvantageous in any material respect to any Loan Party or to Lender;


 


(iii)        Each
Borrower acknowledges and agrees that Lender shall have no duties with respect to any Intellectual Property or Intellectual Property
Licenses of any Loan Party. Without limiting the generality of this Section 6.12(g)(iii), each Borrower acknowledges and
agrees that Lender shall not be under any obligation to take any steps necessary to preserve rights in the Collateral consisting
of Intellectual Property or Intellectual Property Licenses against any other Person, but Lender may do so at its option from and
after the occurrence and during the continuance of an Event of Default, and all expenses incurred in connection therewith (including
reasonable fees and expenses of attorneys and other professionals) shall be for the sole account of Borrowers and shall be chargeable
to the Loan Account;


 


(iv)         Each
Loan Party shall promptly file an application with the United States Copyright Office for any Copyright that has not been registered
with the United States Copyright Office if such Copyright is necessary in connection with the conduct of such Loan Party’s
business. Any expenses incurred in connection with the foregoing shall be borne by the Loan Parties; and


 


(v)          No
Loan Party shall enter into any Intellectual Property License to receive any license or rights in any Intellectual Property of
any other Person unless such Loan Party has used commercially reasonable efforts to permit the assignment of or grant of a Lien
in such Intellectual Property License (and all rights of such Loan Party thereunder) to Lender (and any transferees of Lender).


 


(h)          Investment
Related Property.


 


(i)          Upon
the occurrence and during the continuance of an Event of Default, following the request of Lender, all sums of money and property
paid or distributed in respect of the Investment Related Property that are received by any Loan Party shall be held by such Loan
Party in trust for the benefit of Lender segregated from such Loan Party’s other property, and such Loan Party shall deliver
it promptly to Lender in the exact form received; and


 


(ii)         Each
Loan Party shall cooperate with Lender in obtaining all necessary approvals and making all necessary filings under federal, state,
local, or foreign law to effect the perfection of the Security Interest on the Investment Related Property or to effect any sale
or transfer thereof.


 


(i)          Real
Property; Fixtures. Upon the acquisition by any Borrower of any fee interest in Real Property, such Borrower will promptly
(and in any event within 2 Business Days of acquisition) notify Lender of the acquisition of such Real Property and will grant
to Lender a first priority Mortgage on each fee interest in Real Property now or hereafter owned by such Borrower, which Real
Property shall not be subject to any other Liens except Permitted Liens, and shall deliver such other documentation and opinions,
in form and substance satisfactory to Lender, in connection with the grant of such Mortgage as Lender shall request in its Permitted
Discretion, including appraisals, title insurance policies and endorsements, surveys, financing statements, fixture filings, flood
insurance, flood insurance certifications and environmental audits and such Borrower shall pay all recording costs, mortgage registration
taxes, intangible taxes and other fees and costs (including reasonable attorneys fees and expenses) incurred in connection therewith.
All such appraisals, title insurance policies and endorsements, environmental audits and surveys shall be prepared or issued by
parties reasonably acceptable to Lender. To the extent permitted by applicable law, all of the Collateral shall remain personal
property regardless of the manner of its attachment or affixation to real property.


 




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(j)          Controlled
Accounts.


 


(i)          Within
90 days following the Agreement Date (the “Cash Management Transition Period”), each Borrower shall establish
and maintain at Lender all Cash Management Services, including all deposit accounts and lockbox services. Such Cash Management
Services maintained by each Borrower shall be of a type and on terms reasonably satisfactory to Lender;


 


(ii)         Until
such time as Borrowers have established all of their Cash Management Services with Lender, during the Cash Management Transition
Period each Borrower shall maintain Cash Management Services of a type and on terms reasonably satisfactory to Lender at one or
more of the banks set forth on Schedule 6.12(j) to the Information Certificate (each a “Controlled Account Bank”),
and shall take reasonable steps to direct that all of the Account Debtors of each Borrower and each of its Subsidiaries forward
payment of the amounts owed by them directly to such Controlled Account Bank, and (B) deposit or cause to be deposited promptly,
and in any event no later than the first Business Day after the date of receipt thereof, all of their Collections (including those
sent directly by their Account Debtors to a Borrower or to a Subsidiary of a Borrower) into a bank account of such Borrower at
one of the Controlled Account Banks (each, a “Controlled Account”); and


 


(iii)        During
the Cash Management Transition Period, each Borrower shall maintain Control Agreements with the applicable Controlled Account
Bank, in form and substance reasonably acceptable to Lender. Each such Control Agreement shall provide, among other things, that
(A) the Controlled Account Bank will comply with any instructions originated by Lender directing the disposition of the collected
funds in such Controlled Account without further consent by the applicable Borrower, (B) the Controlled Account Bank waives, subordinates,
or agrees not to exercise any rights of setoff or recoupment or any other claim against the applicable Controlled Account other
than for payment of its service fees and other charges directly related to the administration of such Controlled Account and for
returned checks or other items of payment, and (C) the Controlled Account Bank will, upon the instruction of Lender, forward,
by daily standing wire transfer, all amounts in the applicable Controlled Account to the Collection Account or such other account
as directed by Lender. Notwithstanding the foregoing, Borrowers shall not be required to (y) provide Control Agreements with respect
to bank accounts maintained with PNC Bank, National Association as of the Agreement Date unless Lender requests such Control Agreements
in its Permitted Discretion following the Agreement Date (and Borrowers covenant and agree to close all such bank accounts no
later than 90 days following the Agreement Date unless Lender agrees in writing to extend such period), or (z) provide Control
Agreements with respect to bank accounts maintained with Lender unless specifically requested by Lender.


 


(k)          Motor
Vehicles. If requested by Lender, each Borrower shall promptly deliver to Lender an original certificate of title for each
such motor vehicle owned by such Borrower, together with a signed motor vehicle title application naming Lender as first lien
holder with respect to such motor vehicle and will cause such title certificates to be filed (with Lender’s Lien noted thereon)
in the appropriate state motor vehicle filing office.


 


(l)          Deposit
Accounts. Unless Lender agrees otherwise in writing, each Borrower agrees not to withdraw any funds from any Deposit Account
pledged to Lender pursuant to this Agreement except for the Designated Account and any Deposit Accounts identified on Schedule
5.15 to the Information Certificate which are specifically and exclusively used for payroll, payroll taxes and other employee
wage and benefit payments to or for employees of any Borrower or any of their respective Subsidiaries.


 


6.13         Material
Contracts.  Contemporaneously with the delivery of each Compliance Certificate pursuant to Section 6.1,
provide Lender with copies of (a) each Material Contract entered into since the delivery of the previous Compliance Certificate,
(b) each material amendment or modification of any Material Contract entered into since the delivery of the previous Compliance
Certificate, and (c) at the request of Lender, a “no-offset” letter in form and substance reasonably acceptable to
Lender from each customer of a Borrower which is a party to any Material Contract. Borrowers shall maintain all Material Contracts
in full force and effect and shall not default in the payment or performance of any material obligations thereunder.


 


6.14         Location
of Inventory, Equipment and Books.  Keep the Inventory and Equipment (other than vehicles and Equipment out
for repair) and Books of each Borrower and each of its Subsidiaries only at the locations identified on Schedule 5.29
to the Information Certificate, or at other locations if the value of Borrowers’ assets at each such location does not
exceed $50,000 at any time, and keep the chief executive office of each Borrower and each of its Subsidiaries only at the locations
identified on Schedule 5.6(b) to the Information Certificate; provided, however, that Borrowers may amend
Schedule 5.29 to the Information Certificate so long as such amendment occurs by written notice to Lender not less than
10 days prior to the date on which such Inventory, Equipment or Books are moved to such new location, and so long as, at the time
of such written notification, the applicable Borrower or Subsidiary provides Lender a Collateral Access Agreement with respect
thereto if such location is not owned by such Borrower.


 




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6.15         Further
Assurances.


 


(a)          At
any time upon the reasonable request of Lender, execute or deliver to Lender any and all financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of title, mortgages, deeds of trust, opinions of counsel,
and all other documents (the “Additional Documents”) that Lender may reasonably request and in form and substance
reasonably satisfactory to Lender, to create, perfect, and continue perfection or to better perfect Lender’s Liens in all
of the assets of each Borrower (whether now owned or hereafter arising or acquired, tangible or intangible, real or personal)
other than Excluded Collateral, to create and perfect Liens in favor of Lender in any Real Property acquired by any Borrower after
the Agreement Date, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents.
To the maximum extent permitted by applicable law, if a Borrower refuses or fails to execute or deliver any reasonably requested
Additional Documents within a reasonable period of time, not to exceed 10 days following the request to do so, such Borrower hereby
authorizes Lender to execute any such Additional Documents in the applicable Borrower’s name, and authorizes Lender to file
such executed Additional Documents in any appropriate filing office. In furtherance and not in limitation of the foregoing, each
Borrower shall take such actions as Lender may reasonably request from time to time to ensure that the Obligations are guaranteed
by the Guarantors and are secured by substantially all of the assets of each Borrower and all of the outstanding capital Stock
of each Borrower (other than Parent), except for Excluded Collateral.


 


(b)          Each
Borrower authorizes the filing by Lender of financing or continuation statements, or amendments thereto, and such Borrower will
execute and deliver to Lender such other instruments or notices, as Lender may reasonably request, in order to perfect and preserve
the Security Interest granted or purported to be granted hereby.


 


(c)          Each
Borrower authorizes Lender at any time and from time to time to file, transmit, or communicate, as applicable, financing statements
and amendments (i) describing the Collateral as “all personal property of debtor” or “all assets of debtor”
or words of similar effect, (ii) describing the Collateral as being of equal or lesser scope or with greater detail, or (iii)
that contain any information required by Part 5 of Article 9 of the Code for the sufficiency or filing office acceptance of such
financing statement. Each Borrower also hereby ratifies any and all financing statements or amendments previously filed by Lender
in any jurisdiction.


 


(d)          Each
Borrower acknowledges that no Loan Party is authorized to file any financing statement or amendment or termination statement with
respect to any financing statement filed in connection with this Agreement without the prior written consent of Lender, subject
to such Loan Party’s rights under Section 9-509(d)(2) of the Code.


 


7.          NEGATIVE
COVENANTS.


 


Each Borrower covenants
and agrees that, until termination of all of the commitments of Lender hereunder to provide any further extensions of credit and
payment in full of the Obligations, no Borrower will do, nor will any Borrower permit any of its Subsidiaries or any other Loan
Party to do any of the following:


 


7.1         Indebtedness.  Create,
incur, assume, suffer to exist, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness,
except for Permitted Indebtedness.


 


7.2         Liens.  Create,
incur, assume, or suffer to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether
now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens. In connection with the grant
of a Permitted Lien described in clause (f) or (to the extent applicable to clause (f)), clause (g) of the definition of “Permitted
Liens,” if requested by Borrowers and at Borrowers’ expense, Lender will provide a subordination of Lender’s
Lien on the Equipment subject to such Permitted Lien.


 


7.3         Restrictions
on Fundamental Changes.


 


(a)          Enter
into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock, except for (i) any merger between
Loan Parties, provided that a Borrower must be the surviving entity of any such merger to which it is a party, and (ii)
any merger between Subsidiaries of a Borrower that are not Loan Parties.


 


(b)          Liquidate,
wind up, or dissolve itself (or suffer any liquidation or dissolution), except for (i) the liquidation or dissolution of non-operating
Subsidiaries of any Borrower with nominal assets and nominal liabilities, (ii) the liquidation or dissolution of a Loan Party
(other than a Borrower) or any of its wholly-owned Subsidiaries so long as all of the assets (including any interest in any Stock)
of such liquidating or dissolving Loan Party or Subsidiary are transferred to a Loan Party that is not liquidating or dissolving,
or (iii) the liquidation or dissolution of a Subsidiary of a Borrower that is not a Loan Party (other than any such Subsidiary
the Stock of which (or any portion thereof) is subject to a Lien in favor of Lender) so long as all of the assets of such liquidating
or dissolving Subsidiary are transferred to a Subsidiary of a Borrower that is not liquidating or dissolving.


 




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(c)          Suspend
or cease operation of a substantial portion of its or their business, except as permitted pursuant to Sections 7.3(a) or
(b) above or in connection with the transactions permitted pursuant to Section 7.4.


 


(d)          Form
or acquire any direct or indirect Subsidiary.


 


7.4           Disposal
of Assets.  Other than Permitted Dispositions or transactions expressly permitted by Sections 7.3 or
7.12, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any
of the Collateral or any other asset except as expressly permitted by this Agreement. Lender shall not be deemed to have consented
to any sale or other disposition of any of the Collateral or any other asset except as expressly permitted in this Agreement or
the other Loan Documents.


 


7.5           Change
Name.  Change the name, organizational identification number, state of organization, organizational identity
or “location” for purposes of Section 9-307 of the Code of any Loan Party or any of its Subsidiaries.


 


7.6           Nature
of Business.  Make any change in the nature of its or their business as conducted on the date of this Agreement
or acquire any properties or assets that are not reasonably related to the conduct of such business activities; provided,
however, that the foregoing shall not prevent any Borrower or any other Loan Party or any of its Subsidiaries from engaging
in any business that is reasonably related or ancillary to its business.


 


7.7           Prepayments
and Amendments.


 


(a)          Except
in connection with Refinancing Indebtedness permitted by Section 7.1,


 


(i)          optionally
prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of any Loan Party or any of its Subsidiaries, other than
(A) the Obligations in accordance with this Agreement or a Bank Product Agreement, and (B) Permitted Intercompany Advances, or


 


(ii)         make
any payment on account of Indebtedness that has been contractually subordinated in right of payment to the Obligations if such
payment is not permitted at such time under the subordination terms and conditions, or


 


(b)          Directly
or indirectly, amend, modify, or change any of the terms or provisions of


 


(i)          any
agreement, instrument, document, indenture, or other writing evidencing or concerning Permitted Indebtedness other than (A) the
Obligations in accordance with this Agreement or a Bank Product Agreement, (B) Permitted Intercompany Advances, and (C) Indebtedness
permitted under clauses (c), (e) and (f) of the definition of Permitted Indebtedness,


 


(ii)         any
Material Contract except to the extent that such amendment, modification, or change could not, individually or in the aggregate,
reasonably be expected to be materially adverse to the interests of Lender, or


 


(iii)        the
Governing Documents of any Loan Party or any of its Subsidiaries if the effect thereof, either individually or in the aggregate,
could reasonably be expected to be materially adverse to the interests of Lender.


 


7.8           Change
of Control.  Cause, permit, or suffer, directly or indirectly, any Change of Control.


 


7.9           Restricted
Junior Payments.  Make any Restricted Junior Payment; provided, however, that, so long as it is
permitted by law, and so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom
and so long as such Borrower is a “pass-through” tax entity for United States federal income tax purposes, and after
first providing such supporting documentation as Lender may request (including the state and federal tax returns (and all related
schedules) of each owner of Stock in such Borrower, such Borrower may declare and pay Pass-Through Tax Liabilities, net of any
prior year loss carry-forwards.


 




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7.10         Accounting
Methods.  Modify or change its fiscal year or its method of accounting (other than as may be required to conform
to GAAP).


 


7.11         Investments;
Controlled Investments.


 


(a)          Except
for Permitted Investments, directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent
obligations) for or in connection with any Investment.


 


(b)          Other
than (i) an aggregate amount of not more than $200,000 at any one time, in the case of each Borrower, each other Loan Party
and its Subsidiaries, (ii) amounts deposited into Deposit Accounts identified on Schedule 5.15 to the Information Certificate
which are specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for
the employees of any Borrower or any other Loan Party or its Subsidiaries, or (iii) as otherwise provided in the last sentence
of Section 6.12(j)(iii), make, acquire, or permit to exist Permitted Investments consisting of cash, Cash Equivalents,
or amounts credited to Deposit Accounts or Securities Accounts unless such Borrower and such other Loan Party or its Subsidiaries,
as applicable, and the applicable bank or securities intermediary (if other than Lender) have entered into Control Agreements
with Lender governing such Permitted Investments in order to perfect (and further establish) Lender’s Liens in such Permitted
Investments. Except as provided in Section 6.12(j) and Sections 7.11(b)(i), and (ii), Borrowers and such
Loan Parties shall not, and shall not permit their Subsidiaries to, establish or maintain any Deposit Account or Securities Account
with a banking institution other than Lender.


 


7.12         Transactions
with Affiliates.  Directly or indirectly enter into or permit to exist any transaction with any Affiliate of
any Borrower, any other Loan Party or any of their Subsidiaries except for:


 


(a)          transactions
contemplated by the Loan Documents or transactions (other than the payment of management, consulting, monitoring, or advisory
fees) with any Affiliates of any Borrower or any other Loan Party in the ordinary course of business of such Borrower or other
Loan Party, consistent with past practices and undertaken in good faith, upon fair and reasonable terms and no less favorable
than would be obtained in a comparable arm’s length transaction with a non-Affiliate;


 


(b)          so
long as it has been approved by a Loan Party’s board of directors (or comparable governing body) in accordance with applicable
law, any customary indemnities and reimbursements provided for the benefit of directors and officers (or comparable managers)
of such Loan Party, and any customary fees paid to independent directors of such Loan Party;


 


(c)          so
long as it has been approved by a Loan Party’s board of directors (or comparable governing body) in accordance with applicable
law, the payment of reasonable compensation, severance, or employee benefit arrangements to employees, officers, and outside directors
of a Loan Party in the ordinary course of business and consistent with industry practice; and


 


(d)          transactions
permitted by Section 7.3, Section 7.9, or Section 7.14; any Permitted Intercompany Advance; any Investment
consisting of the issuance or ownership of Stock by a Borrower to or in another Borrower, or a capital contribution by one Borrower
to another Borrower; and any sale, assignment, disposition or other conveyance of assets by one Borrower to another Borrower.


 


7.13         Use
of Proceeds.  Use the proceeds of any loan made hereunder for any purpose other than (a) on the Agreement Date,
to repay, in full, the outstanding principal, accrued interest, and accrued fees and expenses owing under or in connection with
Borrowers’ credit facility with PNC Bank, National Association, and to pay transactional fees, costs, and expenses, including
Lender Expenses, incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby
and thereby, and (b) thereafter, consistent with the terms and conditions hereof, for general corporate and working capital purposes
for their lawful and permitted purposes; provided, however, that no part of the proceeds of the loans made to Borrowers
will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying
any such Margin Stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors of the
Federal Reserve System; provided, further, however, that notwithstanding anything to the contrary contained
in this Agreement or any other Loan Document, in no event shall the proceeds of Ex-Im Advances be used for any purpose not permitted
by Section 2.01 of the Borrower Agreement.


 




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7.14         Limitation
on Issuance of Stock.  Except for the issuance or sale of common stock or Permitted Preferred Stock, or of options
or warrants with respect thereto, by a Borrower or other Loan Party, issue or sell or enter into any agreement or arrangement
for the issuance and sale of any of their Stock.


 


7.15         Consignments.  Consign
any of its Inventory or sell any of its Inventory on bill and hold, sale or return, sale on approval, or other conditional terms
of sale, except as set forth on Schedule 7.15 to the Information Certificate, as such schedule is updated from time to
time by written notice from Borrowers to Lender.


 


7.16         Inventory
and Equipment with Bailees.  Store the Inventory or Equipment of any Loan Party or any of its Subsidiaries at
any time now or hereafter with a bailee, warehouseman, or similar party, except as set forth on Schedule 7.16 to the Information
Certificate.


 


8.          FINANCIAL
COVENANTS.


 


Each Borrower covenants
and agrees that, until termination of all obligations of Lender to provide extensions of credit hereunder and payment in full
of the Obligations, Borrowers will comply with each of the following financial covenants:


 


(a)          Minimum
Excess Availability. Borrowers shall cause Excess Availability to be at least $1,000,000 at all times.


 


(b)          Non-Financed
Capital Expenditures. Borrowers shall not make or incur Non-Financed Capital Expenditures in excess of $2,000,000 during any
fiscal year.


 


9.          EVENTS
OF DEFAULT.


 


Any one or more of
the following events shall constitute an event of default (each, an “Event of Default”) under this Agreement:


 


9.1           If
any Borrower fails to pay when due and payable, or when declared due and payable, all or any portion of the Obligations consisting
of principal, interest, fees, charges or other amounts due Lender or any Bank Product Provider, reimbursement of Lender Expenses,
or other amounts constituting Obligations (including any portion thereof that accrues after the commencement of an Insolvency
Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), it being
understood that Lender’s failure to debit the Collection Account for any such amount shall not constitute a Default or Event
of Default if such amount is on deposit in the Collection Account and otherwise available for application to such amount on the
date such amount is due;


 


9.2           If
any Loan Party or any of its Subsidiaries:


 


(a)          fails
to perform or observe any covenant or other agreement contained in any of (i) Sections 4.3, 6.1, 6.2, 6.3
(solely if any Loan Party or any of its Subsidiaries is not in existence in its jurisdiction of organization), 6.5
(solely with respect to taxes or assessments (i) involving an aggregate amount in excess of $100,000, or (ii) for which the relevant
taxing authority has filed, recorded or asserted a Lien which may have priority over Lender’s Lien on any of the Collateral),
6.6, 6.7 (solely if any Loan Party or any of its Subsidiaries refuses to allow Lender or its representatives or
agents to visit its properties, inspect its assets or books or records, examine and make copies of its books and records, or discuss
its affairs, finances, and accounts with its officers and employees), 6.8, 6.11, 6.12, 6.13, 6.14
or 6.15, (ii) Section 7 or (iii) Section 8;


 


(b)          fails
to perform or observe any covenant or other agreement contained in any of Sections 6.3 (other than if a Loan Party is not
in existence in its jurisdiction of organization), 6.4, 6.5 (other than with respect to taxes or assessments (i)
involving an aggregate amount in excess of $100,000, or (ii) for which the relevant taxing authority has filed, recorded or asserted
a Lien which may have priority over Lender’s Lien on any of the Collateral), or 6.7 (other than if any Loan Party
or any of its Subsidiaries refuses to allow Lender or its representatives or agents to visit its properties, inspect its assets
or books or records, examine and make copies of its books or records or disclose it affairs, finances and accounts with its officers
and employees), and such failure continues for a period of 15 days after the earlier of (i) the date on which such failure shall
first become known to or should have been known by any officer of any Loan Party or (ii) the date on which written notice
thereof is given to any Loan Party by Lender; or


 


(c)          fails
to perform or observe any covenant or other agreement contained in this Agreement, or in any of the other Loan Documents, in each
case, other than any such covenant or agreement that is unable to be cured or is the subject of another provision of this Section
9 (in which event such other provision of this Section 9 shall govern), and such failure continues for a period of
30 days after the earlier of (i) the date on which such failure shall first become known to or should have been known by any officer
of any Loan Party or (ii) the date on which written notice thereof is given to any Loan Party by Lender;


 




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9.3           If
one or more judgments, orders, or awards for the payment of money in an amount in excess of $200,000 in the aggregate (except
to the extent fully covered (other than to the extent of customary deductibles) by insurance pursuant to which the insurer has
not denied coverage) is entered or filed against any Borrower or any of its Subsidiaries or against a Guarantor, or with respect
to any of their respective assets, and either (a) there is a period of 30 consecutive days at any time after the entry of any
such judgment, order, or award during which (1) the same is not discharged, satisfied, vacated, or bonded pending appeal, or (2)
a stay of enforcement thereof is not in effect, or (b) enforcement proceedings are commenced upon such judgment, order, or award;


 


9.4           If
an Insolvency Proceeding is commenced by a Loan Party or any of its Subsidiaries;


 


9.5           If
an Insolvency Proceeding is commenced against a Loan Party or any of its Subsidiaries and any of the following events occur: (a)
such Loan Party or such Subsidiary consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing
the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within
60 calendar days of the date of the filing thereof, (d) an interim trustee is appointed to take possession of all or any substantial
portion of the properties or assets of, or to operate all or any substantial portion of the business of, such Loan Party or its
Subsidiary, or (e) an order for relief shall have been issued or entered therein; provided that Lender shall have no obligation
to provide any extension of credit to Borrowers during such 60 calendar day period specified in subsection (c);


 


9.6           If
any Loan Party or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct
all or any material part of the business affairs of such Loan Party and its Subsidiaries, taken as a whole;


 


9.7           If
there is (a) a default in one or more agreements to which a Loan Party or any of its Subsidiaries is a party with one or more
third Persons relative to the Indebtedness of such Loan Party or such Subsidiary involving an aggregate amount of $200,000 or
more, and such default (i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right by such third
Person, irrespective of whether exercised, to accelerate the maturity of such Loan Party’s or its Subsidiary’s obligations
thereunder, or (b) a default in or an involuntary early termination of one or more Hedge Agreements to which a Loan Party or any
of its Subsidiaries is a party involving an aggregate amount of $200,000 or more of actual, potential or contingent liabilities
of one or more Loan Parties;


 


9.8           If
any warranty, representation, certificate, statement, or Record made herein or in any other Loan Document or delivered in writing
to Lender in connection with this Agreement or any other Loan Document proves to be untrue in any material respect (except that
such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified
by materiality in the text thereof) as of the date of issuance or making or deemed making thereof;


 


9.9           If
the obligation of any Guarantor under its Guaranty or any other Loan Document to which any Guarantor is a party is limited or
terminated by operation of law or by such Guarantor (other than in accordance with the terms of this Agreement), or if any Guarantor
fails to perform any obligation under its Guaranty or under any such Loan Document, or repudiates or revokes or purports to repudiate
or revoke any obligation under its Guaranty, or under any such Loan Document, or any individual Guarantor dies or becomes incapacitated,
or any other Guarantor ceases to exist for any reason;


 


9.10         If
this Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid
and perfected and, except to the extent of Permitted Liens which are permitted purchase money Liens or the interests of lessors
under Capital Leases, first priority Lien on the Collateral covered thereby;


 


9.11         If
any event or circumstance occurs that Lender in good faith believes may impair the prospect of payment of all or part of the Obligations,
or any Borrower’s or any Guarantor’s ability to perform any of its material obligations under any of the Loan Documents,
or any other document or agreement described in or related to this Agreement, or there occurs any Material Adverse Change;


 


9.12         If
any event or circumstance shall occur which, in the Permitted Discretion of Lender exercised in good faith, causes Lender to suspect
that any Borrower or any Guarantor has engaged in fraudulent activity with respect to the Collateral or other matters;


 




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9.13         If
any director or officer of any Borrower or Guarantor, or if any Guarantor, is convicted for a felony offense under state or federal
law involving embezzlement, fraud or any other financial crime or other felony offense under state or federal law involving intentional
misconduct and, in the case of any such director or officer, such director or officer is not removed from such position promptly
(and in any event within 30 days) following such conviction, or if a Borrower hires an officer or appoints a director who has
been convicted of any such felony offense;


 


9.14         If
any Loan Party fails to pay any indebtedness or obligation owed to Lender or its Affiliates which is unrelated to the Revolving
Credit Facility or this Agreement as it becomes due and payable or the occurrence of any default or event of default under any
agreement between any Loan Party and Lender or its Affiliates unrelated to the Loan Documents;


 


9.15         If
(a) any representation or warranty contained in or in connection with any Ex-Im Subfacility Document proves to be untrue in any
material respect, or any breach of any covenant, or any other default or event of default, by any Borrower or any Guarantor under
any Ex-Im Subfacility Document (giving effect to any applicable grace or cure period) shall occur, or (b) Ex-Im Bank shall cease
to guarantee to Lender the prompt repayment of at least 90% of the outstanding Ex-Im Advances; provided, however,
that any such cessation of the guaranty by Ex-Im Bank shall not constitute an Event of Default so long as, on the second Business
Day following any such cessation of such guaranty, no Overadvance Amount is outstanding after excluding Eligible Foreign Accounts,
Eligible Export-Related Inventory and the Ex-Im Bank Reserve from the Borrowing Base;


 


9.16         If
any “event of default,” as such term is defined in any other Loan Document, shall occur; or


 


9.17         If
the validity or enforceability of any Loan Document shall at any time for any reason be declared to be null and void, or a proceeding
shall be commenced by a Loan Party or any of its Subsidiaries, or by any Governmental Authority having jurisdiction over a Loan
Party or any of its Subsidiaries, seeking to establish the invalidity or unenforceability thereof, or a Loan Party or any of its
Subsidiaries shall deny that such Loan Party or such Subsidiary has any liability or obligation purported to be created under
any Loan Document.


 


10.         RIGHTS
AND REMEDIES.


 


10.1         Rights
and Remedies.  Upon the occurrence and during the continuation of an Event of Default, Lender may, in addition to any other
rights or remedies provided for hereunder or under any other Loan Document or by applicable law, do any one or more of the following:


 


(a)          declare
the Obligations (other than the Hedge Obligations, which may be accelerated in accordance with the terms of the applicable Hedge
Agreement), whether evidenced by this Agreement or by any of the other Loan Documents immediately due and payable, whereupon the
same shall become and be immediately due and payable and Borrowers shall be obligated to repay all of such Obligations in full,
without presentment, demand, protest, or further notice or other requirements of any kind, all of which are hereby expressly waived
by each Borrower;


 


(b)          declare
the funding obligations of Lender under this Agreement terminated, whereupon such funding obligations shall immediately be terminated
together with any obligation of Lender hereunder to make Advances, extend any other credit hereunder or issue Letters of Credit;


 


(c)          give
notice to an Account Debtor or other Person obligated to pay an Account, a General Intangible, Negotiable Collateral, or other
amount due, notice that the Account, General Intangible, Negotiable Collateral or other amount due has been assigned to Lender
for security and must be paid directly to Lender and Lender may collect the Accounts, General Intangible and Negotiable Collateral
of each Borrower and each other Loan Party directly, and any collection costs and expenses shall constitute part of the Obligations
under the Loan Documents;


 


(d)          in
Lender’s name or in each Loan Party’s name, as such Loan Party’s agent and attorney-in-fact, notify the United
States Postal Service to change the address for delivery of mail to any address designated by Lender, otherwise intercept mail,
and receive, open and dispose of such Loan Party’s mail, applying all Collateral as permitted under this Agreement and holding
all other mail for such Loan Party’s account or forwarding such mail to such Loan Party’s last known address;


 


(e)          without
notice to or consent from any Loan Party or any of its Subsidiaries, and without any obligation to pay rent or other compensation,
take exclusive possession of all locations where any Loan Party or any of its Subsidiaries conduct its business or has any rights
of possession and use the locations to store, process, manufacture, sell, use, and liquidate or otherwise dispose of items that
are Collateral, and for any other incidental purposes deemed appropriate by Lender in good faith; and


 




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(f)          exercise
in respect of the Collateral, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise
available to it, all the rights and remedies of a secured party on default under the Code or any other applicable law.


 


10.2         Additional
Rights and Remedies.  Without limiting the generality of the foregoing, each Borrower expressly agrees that
upon the occurrence and during the continuation of an Event of Default:


 


(a)          Lender,
without demand of performance or other demand, advertisement or notice of any kind (except a notice specified below of time and
place of public or private sale) to or upon any Borrower, any other Loan Party or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent permitted by the Code or any other applicable law),
may take immediate possession of all or any portion of the Collateral and (i) require Loan Parties to, and each Borrower hereby
agrees that it will at its own expense and upon request of Lender forthwith, assemble all or part of the Collateral as directed
by Lender and make it available to Lender at one or more locations designated by Lender where such Borrower or other Loan Party
conducts business, and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of Lender’s or Loan Party’s offices or elsewhere, for cash, on credit, and upon
such other terms as Lender may deem commercially reasonable. Each Borrower agrees that, to the extent notice of sale shall be
required by law, at least 10 days notice to such Borrower or such other Loan Party of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable notification and such notice shall constitute
a reasonable “authenticated notification of disposition” within the meaning of Section 9-611 of the Code. Lender shall
not be obligated to make any sale of Collateral regardless of notice of sale having been given. Lender may adjourn any public
or private sale from time to time, and such sale may be made at the time and place to which it was so adjourned. Each Borrower
agrees that the internet shall constitute a “place” for purposes of Section 9-610(b) of the Code. Each Borrower agrees
that any sale of Collateral to a licensor pursuant to the terms of a license agreement between such licensor and such Borrower
is sufficient to constitute a commercially reasonable sale (including as to method, terms, manner, and time) within the meaning
of Section 9-610 of the Code;


 


(b)          Lender
may, in addition to other rights and remedies provided for herein, in the other Loan Documents, or otherwise available to it under
applicable law and without the requirement of notice to or upon any Loan Party or any other Person (which notice is hereby expressly
waived to the maximum extent permitted by the Code or any other applicable law), (i) with respect to any Loan Party’s Deposit
Accounts in which Lender’s Liens are perfected by control under Section 9-104 of the Code, instruct the bank maintaining
such Deposit Account for the applicable Loan Party to pay the balance of such Deposit Account to or for the benefit of Lender,
and (ii) with respect to any Loan Party’s Securities Accounts in which Lender’s Liens are perfected by control under
Section 9-106 of the Code, instruct the securities intermediary maintaining such Securities Account for the applicable Loan Party
to (A) transfer any cash in such Securities Account to or for the benefit of Lender, or (B) liquidate any financial assets in
such Securities Account that are customarily sold on a recognized market and transfer the cash proceeds thereof to or for the
benefit of Lender;


 


(c)          any
cash held by Lender as Collateral and all cash proceeds received by Lender in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral shall be applied against the Obligations in the order set forth in Section
10.5. In the event the proceeds of Collateral are insufficient to satisfy all of the Obligations in full, each Borrower and
each other Loan Party shall remain jointly and severally liable for any such deficiency; and


 


(d)          the
Obligations arise out of a commercial transaction, and that if an Event of Default shall occur Lender shall have the right to
an immediate writ of possession without notice of a hearing. Lender shall have the right to the appointment of a receiver for
each Loan Party or for the properties and assets of each Loan Party, and each Borrower hereby consents to such rights and such
appointment and hereby waives any objection such Borrower may have thereto or the right to have a bond or other security posted
by Lender.


 


Notwithstanding the foregoing or anything
to the contrary contained in Section 10.1, upon the occurrence of any Default or Event of Default described in Section
9.4 or Section 9.5, in addition to the remedies set forth above, without any notice to any Borrower or any other Person
or any act by Lender, all obligations of Lender to provide any further extensions of credit hereunder shall automatically terminate
and the Obligations (other than the Hedge Obligations), shall automatically and immediately become due and payable and each Borrower
shall be obligated to repay all of such Obligations in full, without presentment, demand, protest, or notice of any kind, all
of which are expressly waived by each Borrower.


 




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10.3         Lender
Appointed Attorney in Fact.  Each Borrower hereby irrevocably appoints Lender its attorney-in-fact, with full
authority in the place and stead of such Borrower and in the name of such Borrower or otherwise, at such time as an Event of Default
has occurred and is continuing, to take any action and to execute any instrument which Lender may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement, including:


 


(a)          to
ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due
under or in connection with the Accounts or any other Collateral of such Borrower;


 


(b)          to
receive, indorse, and collect any drafts or other instruments, documents, Negotiable Collateral or Chattel Paper;


 


(c)          to
file any claims or take any action or institute any proceedings which Lender may deem necessary or desirable for the collection
of any of the Collateral of such Borrower or otherwise to enforce the rights of Lender with respect to any of the Collateral;


 


(d)          to
repair, alter, or supply Goods, if any, necessary to fulfill in whole or in part the purchase order of any Person obligated to
Borrower in respect of any Account of such Borrower;


 


(e)          to
use any Intellectual Property or Intellectual Property Licenses of such Borrower including but not limited to any labels, Patents,
Trademarks, trade names, URLs, domain names, industrial designs, Copyrights, or advertising matter, in preparing for sale, advertising
for sale, or selling Inventory or other Collateral and to collect any amounts due under Accounts, contracts or Negotiable Collateral
of such Borrower;


 


(f)          to
take exclusive possession of all locations where each Borrower or any other Loan Party conducts its business or has rights of
possession, without notice to or consent of any Borrower or any other Loan Party and to use such locations to store, process,
manufacture, sell, use, and liquidate or otherwise dispose of items that are Collateral, without obligation to pay rent or other
compensation for the possession or use of any location;


 


(g)          Lender
shall have the right, but shall not be obligated, to bring suit in its own name or in the applicable Loan Party’s name,
to enforce the Intellectual Property and Intellectual Property Licenses and, if Lender shall commence any such suit, the appropriate
Borrower or such other Loan Party shall, at the request of Lender, do any and all lawful acts and execute any and all proper documents
reasonably required by Lender in aid of such enforcement; and


 


(h)          to
the extent permitted by law, such Borrower hereby ratifies all that such attorney-in-fact shall lawfully do or cause to be done
by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable until all commitments of Lender
under this Agreement to provide extensions of credit are terminated and all Obligations have been paid in full in cash.


 


10.4         Remedies
Cumulative.  The rights and remedies of Lender under this Agreement, the other Loan Documents, and all other
agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the
Code, by law, or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender
of any Default or Event of Default shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election,
or acquiescence by it.


 


10.5         Crediting
of Payments and Proceeds.  In the event that the Obligations have been accelerated pursuant to Section 10.1
or Lender has exercised any remedy set forth in this Agreement or any other Loan Document, all payments received by Lender
upon the Obligations and all net proceeds from the enforcement of the Obligations shall be applied to the Obligations in such
manner as Lender shall determine in its discretion and, thereafter, to Borrowers (to be wired to the Designated Account) or such
other Person entitled thereto under applicable law. For greater certainty, the acceleration of the Obligations under this Agreement
shall in no way affect, terminate or accelerate the Hedge Obligations (which are governed by the terms of the applicable Hedge
Agreement).


 


10.6         Marshaling.  Lender
shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for,
or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances
of payment in any particular order, and all of its rights and remedies under this Agreement and under the other Loan Documents
and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights
and remedies, however existing or arising. To the extent that it lawfully may, each Borrower hereby agrees that it will not invoke
any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of Lender’s rights
and remedies under this Agreement or under any other Loan Document or instrument creating or evidencing any of the Obligations
or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise
assured, and, to the extent that it lawfully may, each Borrower hereby irrevocably waives the benefits of all such laws.


 




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10.7         License.  Each
Borrower hereby grants to Lender a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all Intellectual
Property rights of such Borrower for the purpose of: (a) completing the manufacture of any in-process materials following any
Event of Default so that such materials become saleable Inventory, all in accordance with the same quality standards previously
adopted by such Borrower for its own manufacturing; and (b) selling, leasing or otherwise disposing of any or all Collateral
following any Event of Default.


 


11.         WAIVERS;
INDEMNIFICATION.


 


11.1         Demand;
Protest; etc.  Each Borrower waives demand, protest, notice of protest, notice of default or dishonor,
notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents,
instruments, chattel paper, and guarantees at any time held by Lender on which such Borrower may in any way be liable.


 


11.2         Lender’s
Liability for Collateral.  Each Borrower hereby agrees that: (a) so long as Lender complies with its obligations,
if any, under the Code, Lender shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral,
(ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value
thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk
of loss, damage, or destruction of the Collateral shall be borne by each Borrower and the other Loan Parties except to the extent
any such loss, damage or destruction is determined in a final, non-appealable judgment of a court of competent jurisdiction to
have resulted directly from the gross negligence or willful misconduct of Lender.


 


11.3         Indemnification.  Each
Borrower shall pay, indemnify, defend, and hold the Lender-Related Persons (each, an “Indemnified Person”)
harmless (to the fullest extent permitted by applicable law) from and against any and all claims, demands, suits, actions, investigations,
proceedings, liabilities, fines, costs, penalties, and damages, and all reasonable fees and disbursements of attorneys, experts,
or consultants and all other costs and expenses actually incurred in connection therewith or in connection with the enforcement
of this indemnification (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against,
imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution and delivery, enforcement,
performance, or administration (including any restructuring, forbearance or workout with respect hereto) of this Agreement, any
of the other Loan Documents, any Bank Product Agreement or the transactions contemplated hereby or thereby or the monitoring of
compliance by each Borrower and each other Loan Party and each of its Subsidiaries with the terms of the Loan Documents, (b) with
respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the
proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission,
event, or circumstance in any manner related thereto, (c) in connection with the custody, preservation, use or operation of, or,
upon an Event of Default, the sale of, collection from, or other realization upon, any of the Collateral in accordance with this
Agreement and the other Loan Documents, (d) with respect to the failure by any Borrower or any other Loan Party to perform or
observe any of the provisions hereof or any other Loan Document, (e) in connection with the exercise or enforcement of any of
the rights of Lender hereunder or under any other Loan Document, and (f) in connection with or arising out of any presence
or release of Hazardous Materials at, on, under, to or from any assets or properties owned, leased or operated by any Borrower
or any other Loan Party or any Subsidiary of a Borrower or any other Loan Party or any Environmental Actions, Environmental Liabilities
or Remedial Actions related in any way to any such assets or properties of such Loan Party or any of its Subsidiaries (each and
all of the foregoing, the “Indemnified Liabilities”). The foregoing to the contrary notwithstanding, no Borrower
shall have any obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that
a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such
Indemnified Person or its officers, directors, employees, or attorneys. This provision shall survive the termination of this Agreement
and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect
to an Indemnified Liability as to which a Borrower or any other Loan Party was required to indemnify the Indemnified Person receiving
such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by such Borrower or such
other Loan Party with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH
RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH
INDEMNIFIED PERSON OR OF ANY OTHER PERSON.


 




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12.         NOTICES.


 


Unless otherwise provided
in this Agreement, all notices or demands relating to this Agreement or any other Loan Document shall be in writing and (except
for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email
addresses as a party may designate in accordance herewith), or telefacsimile. In the case of notices or demands to Borrowers or
Lender, as the case may be, they shall be sent to the respective address set forth below:


 


	If to one or more Borrowers:	 	Charles & Colvard, Ltd.
	 	 	170 Southport Drive
	 	 	Morrisville, North Carolina  27560
	 	 	Attn:  Chief Financial Officer
	 	 	Email: kmacemore@charlesandcolvard.com
	 	 	 
	with courtesy copies to	 	 
	(which shall not constitute	 	 
	Notice for purposes of this 	 	 
	Section 12):	 	Margaret N. Rosenfeld, Esq.
	 	 	Smith, Anderson, Blount, Dorsett, Mitchell
    & Jernigan, L.L.P.
	 	 	2500 Wachovia Capitol Center
	 	 	150 Fayetteville Street
	 	 	Raleigh, North Carolina  27601
	 	 	Fax No.:  919-821-6800
	 	 	Email:  mrosenfeld@smithlaw.com
	 	 	 
	If to Lender:	 	Wells Fargo Bank, National Association
	 	 	1100 Abernathy Road, NE - Suite 1600
	 	 	MAC Code:  G0189-60
	 	 	Atlanta, Georgia  30328
	 	 	Attn:  Portfolio Manager (Charles & Colvard)
	 	 	Fax No.:  855-353-4801
	 	 	Email:  each of arthur.r.cordwell@wellsfargo.com and 

    bruce.vanweele@wellsfargo.com
	 	 	 
	with courtesy copies to	 	 
	(which shall not constitute	 	 
	Notice for purposes of this 	 	 
	Section 12)	 	Stephen D. Palmer, Esq.
	 	 	Greenberg Traurig, LLP
	 	 	Terminus 200
	 	 	3333 Piedmont Road NE, Suite 2500
	 	 	Atlanta, Georgia  30305
	 	 	Fax No.:  678-553-2261
	 	 	Email:  palmers@gtlaw.com


 


Any party hereto may
change the address at which it is to receive notices hereunder, by notice in writing in the foregoing manner given to the other
parties. All notices or demands sent in accordance with this Section 12 shall be deemed received on the earlier of the
date of actual receipt or 3 Business Days after the deposit thereof in the mail; provided, that (a) notices sent by overnight
courier service shall be deemed to have been given when received, (b) notices by facsimile shall be deemed to have been given
when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the
opening of business on the next Business Day for the recipient) and (c) notices by electronic mail shall be deemed received upon
the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested”
function, as available, return email or other written acknowledgment). Any notice given by Lender to any Borrower as provided
in this Section 12 shall be deemed sufficient notice as to all Loan Parties, regardless of whether each Loan Party is sent
a separate copy of such notice or whether each Loan Party is specifically identified in such notice.


 




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13.         CHOICE
OF LAW AND VENUE; ARBITRATION; JURY TRIAL WAIVER.


 


(a)          Choice
of Law. THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER
LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND
THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO AS WELL AS ALL CLAIMS, CONTROVERSIES OR DISPUTES ARISING UNDER OR RELATED TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.


 


(b)          Venue.
SUBJECT TO AND WITHOUT LIMITING THE ARBITRATION PROVISIONS SET FORTH BELOW, THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE TRIED AND LITIGATED IN THE STATE AND, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF FULTON, STATE OF GEORGIA; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT LENDER’S OPTION, IN THE COURTS
OF ANY JURISDICTION WHERE LENDER ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH BORROWER
AND LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13(b).


 


(c)          ARBITRATION.
THE PARTIES HERETO AGREE, UPON DEMAND BY ANY PARTY, TO SUBMIT TO BINDING ARBITRATION ALL CLAIMS, DISPUTES AND CONTROVERSIES BETWEEN
OR AMONG THEM (WHETHER OR NOT INCLUDING THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS, ATTORNEYS, AND OTHER AGENTS), WHETHER
IN TORT, CONTRACT OR OTHERWISE IN ANY WAY ARISING OUT OF OR RELATING TO (i) ANY CREDIT SUBJECT HERETO, OR ANY OF THE LOAN DOCUMENTS,
AND THEIR NEGOTIATION, EXECUTION, COLLATERALIZATION, ADMINISTRATION, REPAYMENT, MODIFICATION, EXTENSION, SUBSTITUTION, FORMATION,
INDUCEMENT, ENFORCEMENT, DEFAULT OR TERMINATION; OR (ii) REQUESTS FOR ADDITIONAL CREDIT.


 


(d)          Governing
Rules. Any arbitration proceeding will (i) proceed in a location in Atlanta, Georgia mutually agreed by the parties or, if
the parties cannot agree, a location selected by the American Arbitration Association (“AAA”); (ii) be governed
by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in
any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall
mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs, in which case the arbitration shall be conducted
in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution
procedures or the optional procedures for large, complex commercial disputes to be referred to herein, as applicable, as the “Rules”).
If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control.
Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses
incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver
by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.


 


(e)          No
Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party
before, during or after the pendency of any arbitration proceeding to (i) foreclose against real or personal property Collateral;
(ii) exercise self-help remedies relating to Collateral or proceeds of Collateral such as setoff or repossession; or (iii) obtain
provisional or ancillary remedies such as replevin, writ of possession, injunctive relief, attachment, garnishment or the appointment
of a receiver. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration
or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this
paragraph.


 




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(f)          Arbitrator
Qualifications and Powers. Any arbitration proceeding in which the parties agree that the amount in controversy is $5,000,000.00
or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than
$5,000,000.00. Any dispute in which any party believes the amount in controversy exceeds $5,000,000.00 shall be decided by majority
vote of a panel of three arbitrators; provided, however, that all three arbitrators must actively participate in
all hearings and deliberations, except that a single arbitrator may decide pre-hearing discovery disputes. The arbitrator(s) will
be a neutral attorney licensed in the State of Georgia a or a neutral retired judge of the state or federal judiciary of Georgia,
in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to
be arbitrated. The arbitrator(s) will determine whether or not an issue is arbitratable and will give effect to the statutes of
limitation or repose in determining any claim. In any arbitration proceeding the arbitrator(s) will decide (by documents only
or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure
to state a claim or motions for summary adjudication. The arbitrator(s) shall resolve all disputes in accordance with the substantive
law of Georgia and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and
such ancillary relief as is necessary to make effective any award. The arbitrator(s) shall also have the power to award recovery
of all costs and fees, to impose sanctions and to take such other action as the arbitrator(s) deems necessary to the same extent
a judge could pursuant to the Federal Rules of Civil Procedure, the Georgia Rules of Civil Procedure or other applicable law.
Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. The institution and maintenance
of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action
for judicial relief.


 


(g)          Discovery.
In any arbitration proceeding, discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited
to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date.
Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the
arbitrator(s) upon a showing that the request for discovery is essential for the party's presentation and that no alternative
means for obtaining information is available.


 


(h)          Class
Proceedings and Consolidations. No party hereto shall be entitled to join or consolidate disputes by or against others in
any arbitration, except parties who have executed any Loan Document, or to include in any arbitration any dispute as a representative
or member of a class, or to act in any arbitration in the interest of the general public or in a private attorney general capacity.


 


(i)          Payment
Of Arbitration Costs And Fees. The arbitrator(s) shall award all costs and expenses of the arbitration proceeding.


 


(j)          Miscellaneous.
To the maximum extent practicable, the AAA, the arbitrator(s) and the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator(s) or other party to an arbitration proceeding
may disclose the existence, content or results thereof, except for (i) filing of any results in a court having jurisdiction to
the extent necessary for enforcement, and (ii) disclosures of information by a party required in the connection with financial
reporting in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration
by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents
or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration
of any of the Loan Documents or any relationship between the parties.


 


(k)          Waiver
of Jury Trial. The parties hereto hereby acknowledge that by agreeing to binding arbitration they have irrevocably waived
their respective rights to a jury trial with respect to any action, claim or other proceeding arising out of any dispute in connection
this Agreement or any other agreement or document delivered in connection herewith, any rights or obligations hereunder or thereunder,
or the performance of such rights and obligations. This provision is a material inducement for the parties entering into this
Agreement.


 


(l)          Waiver
of Punitive Damages. NO CLAIM MAY BE MADE BY ANY PARTY TO THIS AGREEMENT AGAINST ANY OTHER PARTY TO THIS AGREEMENT, OR ANY
AFFILIATE OF ANY SUCH PARTY OR ANY DIRECTOR, OFFICER, EMPLOYEE, COUNSEL, REPRESENTATIVE, AGENT, OR ATTORNEY-IN-FACT OF ANY OF
THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER
THEORY OF LIABILITY ARISING OUT OF OR RELATED TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION THEREWITH, AND EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, RELEASES, AND AGREES
NOT TO SUE UPON ANY CLAIM FOR SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.


 




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  14.         ASSIGNMENTS;
SUCCESSORS.  This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties; provided, however, that no Borrower may assign this Agreement or
any rights or duties hereunder without Lender’s prior written consent and any prohibited assignment shall be absolutely
void ab initio. No consent to assignment by Lender shall release any Borrower or any other Loan Party from its Obligations. Lender
may assign this Agreement and the other Loan Documents in whole or in part and its rights and duties hereunder or grant participations
in the Obligations hereunder and thereunder and no consent or approval by any Borrower or any other Loan Party is required in
connection with any such assignment or participation.


 


  15.         AMENDMENTS;
WAIVERS.  No amendment or modification of this Agreement or any other Loan Document
or any other document or agreement described in or related to this Agreement shall be effective unless it has been agreed to by
each party hereto in a writing that specifically states that it is intended to amend or modify specific Loan Documents, or any
other document or agreement described in or related to this Agreement. No failure by Lender to exercise any right, remedy, or
option under this Agreement or any other Loan Document, or delay by Lender in exercising the same, will operate as a waiver thereof.
No waiver by Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Lender
on any occasion shall affect or diminish Lender’s rights thereafter to require strict performance by Borrowers of any provision
of this Agreement. Lender’s rights under this Agreement and the other Loan Documents will be cumulative and not exclusive
of any other right or remedy that Lender may have.


 


16.         TAXES.


 


(a)          All
payments made by any Borrower or any other Loan Party hereunder or under any note or other Loan Document will be made without
setoff, counterclaim, or other defense. In addition, all such payments will be made free and clear of, and without deduction or
withholding for, any present or future Taxes, and in the event any deduction or withholding of Taxes is required, each Borrower
shall comply with the next sentence of this Section 16(a). If any Taxes are so levied or imposed, each Borrower agrees
to pay the full amount of such Taxes and such additional amounts as may be necessary so that every payment of all amounts due
under this Agreement, any note, or Loan Document, including any amount paid pursuant to this Section 16(a) after withholding
or deduction for or on account of any Taxes, will not be less than the amount provided for herein; provided, however, that Borrowers
shall not be required to increase any such amounts if the increase in such amount payable results from Lender’s willful
misconduct or gross negligence (as finally determined by a court of competent jurisdiction). Each Borrower will furnish to Lender
as promptly as possible after the date the payment of any Tax is due pursuant to applicable law, certified copies of tax receipts
evidencing such payment by such Borrower.


 


(b)          Each
Borrower agrees to pay any present or future stamp, value added or documentary taxes or any other excise or property taxes, charges,
or similar levies that arise from any payment made hereunder or from the execution, delivery, performance, recordation, or filing
of, or otherwise with respect to this Agreement or any other Loan Document.


 


17.         GENERAL
PROVISIONS.


 


17.1         Effectiveness.  This
Agreement shall be binding and deemed effective when executed by each Borrower and Lender.


 


17.2         Section
Headings.  Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled
by the context, everything contained in each Section applies equally to this entire Agreement.


 


17.3         Interpretation.  Neither
this Agreement nor any uncertainty or ambiguity herein shall be construed against Lender or any Borrower, whether under any rule
of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted
according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.


 


17.4         Severability
of Provisions.  Each provision of this Agreement shall be severable from every other provision of this Agreement
for the purpose of determining the legal enforceability of any specific provision.


 


17.5         Debtor-Creditor
Relationship.  The relationship between Lender, on the one hand, and the Loan Parties, on the other hand, is
solely that of creditor and debtor. Lender shall not have (and shall not be deemed to have) any fiduciary relationship or duty
to any Loan Party arising out of or in connection with the Loan Documents or the transactions contemplated thereby, and there
is no agency or joint venture relationship between Lender, on the one hand, and the Loan Parties, on the other hand, by virtue
of any Loan Document or any transaction contemplated therein.


 




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17.6       Counterparts;
Electronic Execution.  This Agreement may be executed in any number of counterparts and by different parties
on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when
taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile
or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission
also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart
shall not affect the validity, enforceability, and binding effect of this Agreement.


 


17.7       Revival
and Reinstatement of Obligations.  If the incurrence or payment of the Obligations by any Borrower or any other
Loan Party or the transfer to Lender of any property should for any reason subsequently be asserted, or declared, to be void or
voidable under any state or federal law relating to creditors’ rights, including provisions of the Bankruptcy Code relating
to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (each, a “Voidable
Transfer”), and if Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects
to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Lender
is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of Lender related thereto,
the liability of such Borrower or such other Loan Party automatically shall be revived, reinstated, and restored and shall exist
as though such Voidable Transfer had never been made and all of Lender’s Liens in the Collateral shall be automatically
reinstated without further action.


 


17.8       Confidentiality.


 


(a)          Lender
agrees that material, non-public information regarding the Loan Parties and their Subsidiaries, their operations, assets, and
existing and contemplated business plans (“Confidential
Information”) shall be treated by Lender in a confidential manner, and shall not be disclosed by Lender to Persons
who are not parties to this Agreement, except: (i) to attorneys for and other advisors, accountants, auditors, and consultants
to Lender and to employees, directors and officers of Lender (the
Persons in this clause (i), “Lender Representatives”) on a “need to know” basis in connection with
this Agreement and the transactions contemplated hereby and on a confidential basis, (ii) to Subsidiaries and Affiliates
of Lender, provided that any such Subsidiary or Affiliate shall have agreed to receive such information hereunder subject to the
terms of this Section 17.8, (iii) as may be required by regulatory
authorities, (iv) as may be required by statute, decision, or judicial or administrative order, rule, or regulation; provided
that (x) prior to any disclosure under this clause (iv), the disclosing party agrees to provide Borrowers with prior notice thereof,
to the extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide such prior notice
to Borrowers pursuant to the terms of the applicable statute, decision, or judicial or administrative order, rule, or regulation
and (y) any disclosure under this clause (iv) shall be limited to the portion of the Confidential Information as may be required
by such statute, decision, or judicial or administrative order, rule, or regulation, (v)
as may be agreed to in advance in writing by Borrowers, (vi) as requested or required by any Governmental Authority pursuant to
any subpoena or other legal process, provided, that, (x) prior to
any disclosure under this clause (vi) the disclosing party agrees to provide Borrowers with prior written notice thereof, to the
extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide such prior written
notice to Borrowers pursuant to the terms of the subpoena or other legal process and (y) any disclosure under this clause (vi)
shall be limited to the portion of the Confidential Information as may be required by such Governmental Authority pursuant to
such subpoena or other legal process, (vii) as to any such information that is or becomes generally available to the public
(other than as a result of prohibited disclosure by Lender or Lender
Representatives), (viii) in connection with any assignment,
participation or pledge of any Lender’s interest under this Agreement, provided that prior to receipt of Confidential Information
any such assignee, participant, or pledgee shall have agreed in writing to receive such Confidential Information hereunder subject
to the terms of this Section 17.8, (ix) in connection
with, and to the extent reasonably necessary or advised by counsel for, any litigation or other adversary proceeding involving
parties hereto which such litigation or adversary proceeding involves claims related to the rights or duties of such parties under
this Agreement or the other Loan Documents; (x) to each Loan Party
and (xi) in connection with, and to the extent reasonably necessary for, the exercise of any secured creditor remedy under
this Agreement or under any other Loan Document.


 


(b)          Anything
in this Agreement to the contrary notwithstanding, Lender may use the name, logos, and other insignia of the Loan Parties and
the Maximum Revolver Amount in any “tombstone” or comparable advertising, on its website or in other marketing materials
of Lender.


 


17.9       Lender
Expenses.  Each Borrower agrees to pay the Lender Expenses on the earlier of (a) the first day of the month
following the date on which such Lender Expenses were first incurred, or (b) the date on which demand therefor is made by Lender
and each Borrower agrees that its obligations contained in this Section 17.9 shall survive payment or satisfaction in full
of all other Obligations.


 




    	31



    	 



    

 


17.10         Setoff.  Lender
may at any time, in its sole discretion and without demand or notice to anyone, setoff any liability owed to any Borrower or any
Guarantor by Lender against any of the Obligations, whether or not due.


 


17.11         Survival.  All
representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered
in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the
other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any loans and issuance
of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that
Lender may have had notice or knowledge of any Default or Event of Default or incorrect representation or warranty at the time
any credit is extended hereunder, and shall continue in full force and effect as long as any of the Obligations is outstanding
and unpaid or any Letter of Credit is outstanding and so long as the obligation of Lender to provide extensions of credit hereunder
has not expired or been terminated.


 


17.12         Patriot
Act.  Lender hereby notifies the Loan Parties that pursuant to the requirements of the Patriot Act, it is required
to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each
Loan Party and other information that will allow such Lender to identify each Loan Party in accordance with the Patriot Act. In
addition, if Lender is required by law or regulation or internal policies to do so, it shall have the right to periodically conduct
(a) Patriot Act searches, OFAC/PEP searches, and customary individual background checks for the Loan Parties, and (b) OFAC/PEP
searches and customary individual background checks of the Loan Parties’ senior management and key principals, and each
Borrower and each other Loan Party agrees to cooperate in respect of the conduct of such searches and further agrees that the
reasonable costs and charges for such searches shall constitute Lender Expenses hereunder and be for the account of Borrowers.


 


17.13         Integration.  This
Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions
contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.
The foregoing to the contrary notwithstanding, all Bank Product Agreements, if any, are independent agreements governed by the
written provisions of such Bank Product Agreements, which will remain in full force and effect, unaffected by any repayment, prepayments,
acceleration, reduction, increase, or change in the terms of any credit extended hereunder, except as otherwise expressly provided
in such Bank Product Agreement.


 


17.14         Bank
Product Providers.  Each Bank Product Provider shall be deemed a third party beneficiary hereof and of the provisions
of the other Loan Documents for purposes of any reference in a Loan Document to the parties for whom Lender is acting. Lender
hereby agrees to act as agent for such Bank Product Providers and, by virtue of entering into a Bank Product Agreement, the applicable
Bank Product Provider shall be automatically deemed to have appointed Lender as its agent and to have accepted the benefits of
the Loan Documents; it being understood and agreed that the rights and benefits of each Bank Product Provider under the Loan Documents
consist exclusively of such Bank Product Provider’s being a beneficiary of the Liens and security interests (and, if applicable,
guarantees) granted to Lender and the right to share in and receive payments and collections of the Collateral and payments from
Lender from amounts charged to the Loan Account or that are otherwise collected from the Loan Parties for the account of a Bank
Product Provider as more fully set forth herein and in the other Loan Documents. In addition, each Bank Product Provider, by virtue
of entering into a Bank Product Agreement, shall be automatically deemed to have agreed that Lender shall have the right, but
shall have no obligation, to establish, maintain, relax, or release Reserves in respect of the Bank Product Obligations and that
if Reserves are established there is no obligation on the part of Lender to determine or ensure whether the amount of any such
Reserve is appropriate or not. Notwithstanding anything to the contrary in this Agreement or any other Loan Document, no Bank
Product Provider (other than Lender in its capacity as lender hereunder) shall have any voting or approval rights hereunder solely
by virtue of its status as the provider or holder of such agreements or products or the Obligations owing thereunder, nor shall
the consent of any such provider or holder be required for any matter hereunder or under any of the other Loan Documents, including
as to any matter relating to the Collateral or the release of Collateral or any other Loan Party.


 


[Signature pages to follow]


 




    	32



    	 



    

 


IN WITNESS WHEREOF,
the parties hereto have caused this Credit and Security Agreement to be executed and delivered under seal as of the date first
above written.


 


	 	BORROWERS:


 


	 	CHARLES & COLVARD, LTD.


 


	 	By:	/s/ Kyle S. Macemore
	 	Name:	Kyle S. Macemore
	 	Title:	Senior Vice President and Chief Financial Officer


 


	 	Federal Employer Identification No.:
    56-1928817
	 	Organizational Identification No.:  0372374


 


	 	CHARLES & COLVARD DIRECT, LLC


 


	 	By:	/s/ Kyle S. Macemore
	 	Name:	Kyle S. Macemore
	 	Title:	Manager


 


	 	Federal Employer Identification No.:
    45-2976143
	 	Organizational Identification No.:  1214846


 


	 	MOISSANITE.COM, LLC


 


	 	By:	/s/ Kyle S. Macemore
	 	Name:	Kyle S. Macemore
	 	Title:	Manager


 


	 	Federal Employer Identification No.:
    45-2966911
	 	Organizational Identification No.:  1214844
	 	 
	 	LENDER:
	 	 
	 	WELLS FARGO BANK, NATIONAL ASSOCIATION


 


	 	By:	/s/ James B. Fisher
	 	Name:	James B. Fisher
	 	Title:	Authorized Signatory


 




    	 



    	 



    

 


Schedule 1.1


 


a.           Definitions.
As used in this Agreement, the following terms shall have the following definitions:


 


“Account”
means an account (as that term is defined in Article 9 of the Code).


 


“Account Debtor”
means an account debtor (as that term is defined in the Code).


 


“Additional
Documents” has the meaning specified therefor in Section 6.15.


 


“Administrative
Borrower” has the meaning specified therefor in Section 2.2.


 


“Advances”
has the meaning specified therefor in Section 2.1(a).


 


“Affiliate”
means, as applied to any Person, any other Person who controls, is controlled by, or is under common control with, such Person.
For purposes of this definition, “control” means the possession, directly or indirectly through one or more intermediaries,
of the power to direct the management and policies of a Person, whether through the ownership of Stock, by contract, or otherwise;
provided, however, that, for purposes of the definition of Eligible Accounts, Eligible Foreign Accounts and Section
7.12: (a) any Person which owns directly or indirectly 10% or more of the Stock having ordinary voting power for the election
of the board of directors or equivalent governing body of a Person or 10% or more of the partnership or other ownership interests
of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or
comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership in which a Person
is a general partner shall be deemed an Affiliate of such Person.


 


“Agreement”
means the Credit and Security Agreement to which this Schedule 1.1 is attached.


 


“Agreement
Date” means the date as of which this Agreement is dated.


 


“Applicable
Margin” means 2.50 percentage points when the Interest Rate is based on Daily Three Month LIBOR and 1.50 percentage
points when the Interest Rate is based on the Prime Rate.


 


“Authorized
Person” means any one of the individuals identified on Schedule A-2, as such schedule is updated from time to
time by written notice from Borrowers to Lender.


 


“Availability”
means, as of any date of determination, the amount that Borrowers are entitled to borrow as Advances under Section 2.1
(after giving effect to all then outstanding Obligations).


 


“Bank Product”
means any one or more of the following financial products or accommodations extended to a Loan Party or any of its/their Subsidiaries
by a Bank Product Provider: (a) commercial credit cards, (b) commercial credit card processing services, (c) debit cards, (d)
stored value cards, (e) purchase cards (including so-called “procurement cards” or “P-cards”), (f) Cash
Management Services, or (g) transactions under Hedge Agreements.


 


“Bank Product
Agreements” means those agreements entered into from time to time by a Loan Party or any of its/their Subsidiaries with
a Bank Product Provider in connection with the obtaining of any of the Bank Products, including all Cash Management Documents.


 


“Bank Product
Collateralization” means providing cash collateral (pursuant to documentation reasonably satisfactory to Lender) to
be held by Lender for the benefit of the Bank Product Provider in an amount determined by Lender as sufficient to satisfy the
reasonably estimated credit exposure with respect to the then existing Bank Product Obligations (other than Hedge Obligations).


 


“Bank Product
Obligations” means (a) all obligations, indebtedness, liabilities, reimbursement obligations, fees, or expenses owing
by a Loan Party or any of its/their Subsidiaries to Lender or another Bank Product Provider pursuant to or evidenced by a Bank
Product Agreement and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, liquidated
or unliquidated, determined or undetermined, voluntary or involuntary, due, not due or to become due, incurred in the past or
now existing or hereafter arising, however arising and (b) all Hedge Obligations.


 


“Bank Product
Provider” means Lender or any of its Affiliates that provide Bank Products to a Loan Party or any of its/ their Subsidiaries.


 




    	Schedule 1.1
Page 1



    	 



    

 


“Bank Product
Reserve Amount” means, as of any date of determination, the Dollar amount of reserves that Lender has determined it
is necessary or appropriate to establish (based upon Lender’s reasonable determination of the credit and operating risk
exposure to the Loan Parties and their Subsidiaries in respect of Bank Product Obligations) in respect of Bank Products then provided
or outstanding.


 


“Bankruptcy
Code” means title 11 of the United States Code, as in effect from time to time.


 


“Benefit Plan”
means a “defined benefit plan” (as defined in Section 3(35) of ERISA) for which any Borrower or any of its Subsidiaries
or ERISA Affiliates has been an “employer” (as defined in Section 3(5) of ERISA) within the past six years.


 


“Board of Directors”
means the board of directors (or comparable managers) of a Borrower or any other Loan Party or any committee thereof duly authorized
to act on behalf of the board of directors (or comparable managers).


 


“Books”
means books and records (including a Borrower’s or any other Loan Party’s Records indicating, summarizing, or evidencing
such Borrower’s or such other Loan Party’s assets (including the Collateral) or liabilities, such Borrower’s
or such other Loan Party’s Records relating to such Borrower’s or such other Loan Party’s business operations
or financial condition, or such Borrower’s or such other Loan Party’s Goods or General Intangibles related to such
information).


 


“Borrower Agreement”
means the Borrower Agreement dated on or about the date of this Agreement by Borrowers in favor of Ex-Im Bank and Lender.


 


“Borrowers”
has the meaning specified therefor in the introductory paragraph of this Agreement.


 


“Borrowing”
means a borrowing consisting of Advances (a) requested by Borrowers, (b) made automatically pursuant to Section 2.3(c)
without the request of Borrowers, (c) made by Lender pursuant to Section 2.6(c), or (d) a Protective Advance.


 


“Borrowing
Base” means, as of any date of determination, the result of:


 


(a)          85%
of the amount of Eligible Accounts, plus


 


(b)          the
lowest of (i) 65% of Borrowers’ cost with respect to Eligible Inventory, or (ii) 85% times the most recently
determined Net Liquidation Percentage times the Value of Eligible Inventory, plus


 


(c)          the
lowest of


 


(i)          the
Ex-Im Subfacility Amount, or


 


(ii)         the
sum of:


 


(A)         90%
of the amount of Eligible Foreign Accounts, plus


 


(B)         the
lowest of (1) 75% of Borrowers’ cost with respect to Eligible Export-Related Inventory, or (2) 85% times the
most recently determined Net Liquidation Percentage times the Value of Eligible Export-Related Inventory; minus


 


(c)          the
Ex-Im Bank Reserve, minus


 


(d)          the
aggregate amount of Reserves other than the Ex-Im Bank Reserve, if any.


 


In addition to and without limiting any
of the foregoing limitations, the aggregate outstanding amount of Advances made against the value of Eligible Inventory and Eligible
Export-Related Inventory shall not exceed the Inventory Sublimit at any time.


 


“Borrowing
Base Certificate” means a form of borrowing base certificate in form and substance acceptable to Lender.


 




    	Schedule 1.1
Page 2



    	 



    

 


“Business Day”
means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close pursuant to the
rules and regulations of the Federal Reserve System.


 


“Buyer”
has the meaning ascribed to such term in the Borrower Agreement.


 


“Capital Expenditures”
means, with respect to any Person for any period, the aggregate of all expenditures by such Person and its Subsidiaries during
such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or
financed.


 


“Capitalized
Lease Obligation” means that portion of the obligations under a Capital Lease that is required to be capitalized in
accordance with GAAP.


 


“Capital Lease”
means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.


 


“Cash Equivalents”
means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States or issued by any agency
thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition
thereof, (b) marketable direct obligations issued or fully guaranteed by any state of the United States or any political subdivision
of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and having
one of the two highest ratings obtainable from either Standard & Poor’s Rating Group (“S&P”)
or Moody’s Investors Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270
days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least
P-1 from Moody’s, (d) certificates of deposit, time deposits, overnight bank deposits or bankers’ acceptances maturing
within 1 year from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state
thereof or the District of Columbia or any United States branch of a foreign bank having combined capital and surplus of not less
than $250,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies the criteria described in clause (d)
above, or (ii) any other bank organized under the laws of the United States or any state thereof so long as the full amount maintained
with any such other bank is insured by the Federal Deposit Insurance Corporation, (f) repurchase obligations of any commercial
bank satisfying the requirements of clause (d) of this definition or recognized securities dealer having combined capital and
surplus of not less than $250,000,000, having a term of not more than seven days, with respect to securities satisfying the criteria
in clauses (a) or (d) above, (g) debt securities with maturities of six months or less from the date of acquisition backed by
standby letters of credit issued by any commercial bank satisfying the criteria described in clause (d) above, and (h) Investments
in money market funds substantially all of whose assets are invested in the types of assets described in clauses (a) through (g)
above.


 


“Cash Management
Documents” means the agreements governing each of the Cash Management Services of Lender utilized by a Loan Party, which
agreements shall include, without limitation, the Master Agreement for Treasury Management Services or other applicable treasury
management services agreement, the “Acceptance of Services”, the “Service Description” governing each
such treasury management service used by a Loan Party, and all replacement or successor agreements which govern such Cash Management
Services of Lender.


 


“Cash Management
Services” means any cash management or related services including treasury, depository, return items, overdraft, controlled
disbursement, merchant stored value cards, e-payables services, electronic funds transfer, interstate depository network, automatic
clearing house transfer (including the Automated Clearing House processing of electronic funds transfers through the direct Federal
Reserve Fedline system) and other cash management arrangements.


 


“Cash Management
Transition Period” has the meaning specified in Section 6.12(j)(i).


 


“Change of
Control” means that (a) any “person” or “group” (within the meaning of Sections 13(d) and 14(d)
of the Exchange Act), becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of 40%, or more, of the Stock of Parent having the right to vote for the election of members of Parent’s Board of Directors,
(b) a majority of the members of the Board of Directors do not constitute Continuing Directors, (c) Borrowers fail to own and
control, directly or indirectly, 100% of the Stock of each other Loan Party, or (d) Parent fails to own and control, directly
or indirectly, 100% of the Stock of each other Borrower.


 


“Chattel Paper”
means chattel paper (as that term is defined in the Code), and includes tangible chattel paper and electronic chattel paper.


 


“Code”
means the Georgia Uniform Commercial Code, as in effect from time to time; provided, however, that in the event
that, by reason of mandatory provisions of law, any or all of the attachment, perfection, priority, or remedies with respect to
Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other
than the State of Georgia, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect
in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or
remedies. To the extent that defined terms set forth herein shall have different meanings under different Articles under the Uniform
Commercial Code, the meaning assigned to such defined term under Article 9 of the Uniform Commercial Code shall control.


 




    	Schedule 1.1
Page 3



    	 



    

 


“Collateral”
means all of each Borrower’s now owned or hereafter acquired:


 


(a)          Accounts;


 


(b)          Books;


 


(c)          Chattel
Paper;


 


(d)          Deposit
Accounts;


 


(e)          Goods,
including Equipment and Fixtures;


 


(f)          General
Intangibles, including, without limitation, Intellectual Property and Intellectual Property Licenses;


 


(g)          Inventory;


 


(h)          Investment
Related Property;


 


(i)          Negotiable
Collateral;


 


(j)          Supporting
Obligations;


 


(k)          Commercial
Tort Claims;


 


(l)          money,
Cash Equivalents, or other assets of such Borrower that now or hereafter come into the possession, custody, or control of Lender
(or its agent or designee); and


 


(m)          all
of the proceeds (as such term is defined in the Code) and products, whether tangible or intangible, of any of the foregoing, including
proceeds of insurance or Commercial Tort Claims covering or relating to any or all of the foregoing, and any and all Accounts,
Books, Chattel Paper, Deposit Accounts, Equipment, Fixtures, General Intangibles (including, without limitation, Intellectual
Property and Intellectual Property Licenses), Inventory, Investment Related Property, Negotiable Collateral, Supporting Obligations,
money, or other tangible or intangible property resulting from the sale, lease, license, exchange, collection, or other disposition
of any of the foregoing, the proceeds of any award in condemnation with respect to any of the foregoing, any rebates or refunds,
whether for taxes or otherwise, and all proceeds of any such proceeds, or any portion thereof or interest therein, and the proceeds
thereof, and all proceeds of any loss of, damage to, or destruction of the above, whether insured or not insured, and, to the
extent not otherwise included, any indemnity, warranty, or guaranty payable by reason of loss or damage to, or otherwise with
respect to any of the foregoing (collectively, the “Proceeds”). Without limiting the generality of the foregoing,
the term “Proceeds” includes whatever is receivable or received when Investment Related Property or proceeds are sold,
exchanged, collected, or otherwise disposed of, whether such disposition is voluntary or involuntary, and includes proceeds of
any indemnity or guaranty payable to such Borrower or Lender from time to time with respect to any of the Investment Related Property;
provided that, notwithstanding anything to the contrary in this Agreement or in any other Loan Document, the “Collateral”
shall not include, and no Lien is granted under this Agreement or any other Loan Document in, any Excluded Collateral.


 


“Collateral
Access Agreement” means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman,
processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Books, Equipment,
Accounts or Inventory of any Loan Party or any of its Subsidiaries, in each case, in favor of Lender with respect to the Collateral
at such premises or otherwise in the custody, control or possession of such lessor, warehouseman, processor, consignee or other
Person and in form and substance reasonably satisfactory to Lender.


 


“Collection
Account” means the Deposit Account identified on Schedule A-1.


 




    	Schedule 1.1
Page 4



    	 



    

 


“Collections”
means all cash, checks, notes, instruments, wire transfers, ACH transfers and other items of payment (including insurance Proceeds,
cash Proceeds of asset sales, rental Proceeds, and tax refunds).


 


“Commercial
Tort Claims” means commercial tort claims (as that term is defined in the Code), and includes those commercial tort
claims listed on Schedule 5.6(d) to the Information Certificate.


 


“Compliance
Certificate” means a certificate substantially in the form of Exhibit A delivered by the chief financial officer
of each Borrower to Lender.


 


“Confidential
Information” has the meaning specified therefor in Section 17.8.


 


“Continuing
Director” means (a) any member of the Board of Directors who was a director (or comparable manager) of Parent on the
Agreement Date, and (b) any individual who becomes a member of the Board of Directors of Parent after the Agreement Date if such
individual was approved, appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors.


 


“Control Agreement”
means a control agreement, in form and substance reasonably satisfactory to Lender, executed and delivered by a Loan Party or
any Subsidiary of a Loan Party, Lender, and the applicable securities intermediary (with respect to a Securities Account) or bank
(with respect to a Deposit Account) or issuer, (with respect to uncertificated securities).


 


“Controlled
Account” has the meaning specified therefor in Section 6.12(j).


 


“Controlled
Account Bank” has the meaning specified therefor in Section 6.12(j).


 


“Copyrights”
means any and all rights in any works of authorship, including (i) copyrights and moral rights, (ii) copyright registrations and
recordings thereof and all applications in connection therewith including those listed on Schedule 5.26(b) to the Information
Certificate, (iii) income, license fees, royalties, damages, and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past,
present, or future infringements thereof, (iv) the right to sue for past, present, and future infringements thereof, and (v) all
of each Borrower’s and each other Loan Party’s rights corresponding thereto throughout the world.


 


“Copyright
Security Agreement” means each Copyright Security Agreement executed and delivered by a Borrower or another Loan Party
and Lender, in form and substance acceptable to Lender.


 


“Country Limitation
Schedule” has the meaning ascribed to such term in the Borrower Agreement. The Country Limitation Schedule as in effect
on the date of this Agreement is attached hereto as Exhibit F but remains subject to change from time to time as contemplated
by the Borrower Agreement.


 


“Cree”
means Cree Research, Inc.


 


“Cree Contract”
means that certain Amended and Restated Exclusive Supply Agreement dated as of June 6, 1997 between Parent and Cree Research,
Inc.


 


“Daily Balance”
means, as of any date of determination and with respect to any Obligation, the amount of such Obligation owed at the end of such
day.


 


“Daily Three
Month LIBOR” means, for any day the rate per annum for United States dollar deposits determined by Lender for the purpose
of calculating the effective Interest Rate for loans that reference Daily Three Month LIBOR as the Inter-Bank Market Offered Rate
in effect from time to time for the 3 month delivery of funds in amounts approximately equal to the principal amount of such loans.
Borrowers understand and agree that Lender may base its determination of the Inter-Bank Market Offered Rate upon such offers or
other market indicators of the Inter-Bank Market as Lender in its discretion deems appropriate, including but not limited to the
rate offered for U.S. dollar deposits on the London Inter-Bank Market. When interest is determined in relation to Daily Three
Month LIBOR, each change in the interest rate shall become effective each Business Day that Lender determines that Daily Three
Month LIBOR has changed.


 


“Default”
means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.


 




    	Schedule 1.1
Page 5



    	 



    

 


“Deposit Account”
means any deposit account (as that term is defined in the Code).


 


“Designated
Account” means the operating Deposit Account of Borrowers at Lender identified on Schedule D-1.


 


“Dilution”
means, as of any date of determination, a percentage that is the result of dividing the Dollar amount of (a) bad debt write-downs,
discounts, advertising allowances, credits, deductions, or other dilutive items as determined by Lender in its Permitted Discretion
with respect to Borrowers’ Accounts, by (b) Borrowers’ billings with respect to Accounts.


 


“Dilution Reserve”
means, as of any date of determination, the difference between (a) the dollar amount of Eligible Accounts and Eligible Foreign
Accounts calculated at the applicable stated advance rate against Eligible Accounts and Eligible Foreign Accounts set forth in
the definition of Borrowing Base and (b) the dollar amount of Eligible Accounts and Eligible Foreign Accounts calculated by reducing
the stated advance rate against Eligible Accounts and Eligible Foreign Accounts set forth in the definition of Borrowing Base
by 1 percentage point for each percentage point by which Dilution is in excess of 5.00%.


 


“Dollars”
or “$” means United States dollars.


 


“Drawing Document”
means any Letter of Credit or other document presented for purposes of drawing under any Letter of Credit.


 


“Eligible Accounts”
means those Accounts created by each Borrower in the ordinary course of its business, that arise out of such Borrower’s
sale of Goods or rendition of services, that comply with each of the covenants, representations and warranties respecting Accounts
and/or Eligible Accounts made in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the excluding
criteria set forth below; provided, however, that such criteria may be revised from time to time by Lender in Lender’s
Permitted Discretion. In determining the amount to be included, Eligible Accounts shall be calculated net of customer deposits,
credits and unapplied cash. Eligible Accounts shall not include the following:


 


(a)          Accounts
that the Account Debtor has failed to pay within 30 days of original due date;


 


(b)          Accounts
with an original due date in excess of 90 days from the date of determination;


 


(c)          Accounts
owed by an Account Debtor (or its Affiliates) where 10% or more of all Accounts owed by that Account Debtor (or its Affiliates)
are deemed ineligible under clause (a) above or clauses (i) or (s) below;


 


(d)          Accounts
with respect to which the Account Debtor is an Affiliate, agent or equity owner of such Borrower or an employee or agent of such
Borrower or any Affiliate of such Borrower;


 


(e)          Accounts
arising in a transaction wherein Goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return,
a sale on approval, or any other terms by reason of which the payment by the Account Debtor may be conditional or contingent;


 


(f)          Accounts
that are not payable in Dollars;


 


(g)          Accounts
with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States, or (ii)
is not organized under the laws of the United States or any state thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political subdivision thereof, or of any department, agency,
public corporation, or other instrumentality thereof;


 


(h)          Accounts
with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the
United States (exclusive, however, of Accounts with respect to which such Borrower has complied, to the reasonable satisfaction
of Lender, with the Assignment of Claims Act, 31 USC §3727), or (ii) any state of the United States;


 


(i)          Accounts
with respect to which the Account Debtor is a creditor of such Borrower, has or has asserted a right of setoff, or has disputed
its obligation to pay all or any portion of the Account, to the extent of such claim, right of setoff, or dispute;


 




    	Schedule 1.1
Page 6



    	 



    

 


(j)          That
portion of Accounts which reflect a reasonable reserve for warranty claims or returns or amounts which are owed to account debtors,
including those for rebates, allowances, co-op advertising, new store allowances or other deductions;


 


(k)          Accounts
owing by a single Account Debtor or group of Affiliated Account Debtors whose total obligations owing to Borrower exceed fifteen
percent (15%) percent of the aggregate amount of all Accounts (but the portion of the Accounts not in excess of the foregoing
applicable percentages may be Eligible Accounts), such percentages being subject to reduction in the Lender’s Permitted
Discretion if the creditworthiness of such Account Debtor deteriorates;


 


(l)          Accounts
with respect to which the Account Debtor is subject to an Insolvency Proceeding, is not Solvent, has gone out of business, or
as to which such Borrower has received notice of an imminent Insolvency Proceeding or a material impairment of the financial condition
of such Account Debtor;


 


(m)        Accounts,
the collection of which, Lender, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor’s
financial condition;


 


(n)          Accounts
representing credit card sales or “C.O.D.” sales;


 


(o)          Accounts
that are not subject to a valid and perfected first priority Lien in favor of Lender or that are subject to any other Lien;


 


(p)          Accounts
that consist of progress billings (such that the obligation of the Account Debtors with respect to such Accounts is conditioned
upon such Borrower's satisfactory completion of any further performance under the agreement giving rise thereto) or retainage
invoices;


 


(q)          Accounts
with respect to which the Account Debtor is a Sanctioned Person or Sanctioned Entity;


 


(r)          that
portion of Accounts which represent finance charges, service charges, sales taxes or excise taxes;


 


(s)          that
portion of Accounts which has been restructured, extended, amended or otherwise modified;


 


(t)          bill
and hold invoices, except those with respect to which Lender shall have received an agreement in writing from the Account Debtor,
in form and substance satisfactory to Lender, confirming the unconditional obligation of the Account Debtor to take the Goods
related thereto and pay such invoice, so long as such Accounts satisfy all other criteria for Eligible Accounts hereunder;


 


(u)          Accounts
which have not been invoiced;


 


(v)          Accounts
constituting (i) Proceeds of copyrightable material unless such copyrightable material shall have been registered with the United
States Copyright Office, or (ii) Proceeds of patentable inventions unless such patentable inventions have been registered with
the United States Patent and Trademark Office; and


 


(w)          Accounts
or that portion of Accounts otherwise deemed ineligible by Lender in its Permitted Discretion.


 


Any Accounts which are not Eligible Accounts
shall nonetheless constitute Collateral. For the avoidance of doubt, no Account shall constitute both an Eligible Account and
an Eligible Foreign Account.


 


“Eligible Export-Related
Inventory” means Inventory consisting of first quality finished goods held for sale in the ordinary course of each Borrower’s
business, that complies with each of the covenants, representations and warranties respecting Inventory and/or Eligible Export-Related
Inventory made in the Loan Documents, and that is not excluded as ineligible by virtue of one or more of the excluding criteria
set forth below; provided, however, that such criteria may be revised from time to time by Lender in Lender’s
Permitted Discretion. An item of Inventory shall not be included in Eligible Export-Related Inventory if:


 


(a)          such
Borrower does not have good, valid, and marketable title thereto;


 




    	Schedule 1.1
Page 7



    	 



    

 


(b)          it
consists of work-in-process Inventory, raw materials, components which are not part of finished goods, supplies used or consumed
in such Borrower’s business, or Goods that constitute spare parts, maintenance parts, packaging and shipping materials,
or sample inventory or customer supplied parts or Inventory;


 


(c)          it
consists of Inventory that is perishable or live or where less than 8 weeks remain until the Inventory’s stated expiration
or “sell-by” or “use by” date;


 


(d)          such
Borrower does not have actual and exclusive possession thereof (either directly or through a bailee or agent of such Borrower);


 


(e)          it
is not located at one of the locations in the continental United States set forth on Schedule 5.29 to the Information Certificate;


 


(f)          it
is stored at locations holding less than $500,000 of the aggregate value of Borrowers’ Inventory;


 


(g)          it
is in-transit to or from a location of such Borrower (other than in transit from one location set forth on Schedule 5.29 to
the Information Certificate to another location set forth on Schedule 5.29 to the Information Certificate);


 


(h)          it
is located on real property leased by such Borrower or in a contract warehouse, in each case, unless it is subject to a Collateral
Access Agreement executed by the lessor or warehouseman, as the case may be, and unless it is segregated or otherwise separately
identifiable from Goods of others, if any, stored on the premises;


 


(i)          it
is the subject of a bill of lading or other document of title;


 


(j)          it
is on consignment from any consignor; or on consignment to any consignee or subject to any bailment unless the consignee or bailee
has (i) executed an agreement with Lender, and (ii) provided evidence acceptable to Lender that the applicable Borrower has properly
perfected a first priority security interest in such consigned Inventory and has properly notified in writing the other creditors
of consignee who hold an interest in such Inventory of Borrower’s security interest in such Inventory, and (iii) the applicable
Borrower has taken such other actions with respect to such consigned Inventory as Lender may reasonably request;


 


(k)          it
is not subject to a valid and perfected first priority Lender’s Lien;


 


(l)          it
consists of goods returned or rejected by such Borrower’s customers;


 


(m)        it
consists of Goods that are damaged, defective, obsolete or slow moving;


 


(n)          it
consists of Inventory that such Borrower has returned, has attempted to return, is in the process of returning or intends to return
to the vendor of such Inventory;


 


(o)          it
consists of Goods that are restricted or controlled, or regulated items;


 


(p)          it
consists of Goods that are bill and hold Goods;


 


(q)          it
consists of damaged or defective Goods or “seconds”;


 


(r)          it
is subject to third party trademark, licensing or other proprietary rights, unless Lender is satisfied that such Inventory can
be freely sold by Lender on and after the occurrence of an Event of a Default despite such third party rights;


 


(s)          it
consists of customer-specific Inventory not supported by purchase orders;


 


(t)          it
consists of Inventory that is produced in violation of the Fair Labor Standards Act or subject to the “hot goods”
provisions contained in 29 U.S.C. § 215 or any successor statute or section;


 


(u)          it
consists of Inventory that has been previously exported from the United States;


 


(v)          it
consists of Inventory that constitutes nuclear articles, defense articles or defense services;


 




    	Schedule 1.1
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(w)          it
consists of Inventory that is to be incorporated into Items destined for shipment to a country as to which Ex-Im Bank is prohibited
from doing business as designated in the Country Limitation Schedule;


 


(x)          it
consists of Inventory that is to be incorporated into Items destined for shipment to a Buyer located in a country in which Ex-Im
Bank coverage is not available for commercial reasons as designated in the Country Limitation Schedule, unless and only to the
extent that such Items are to be sold to such country on terms of a letter of credit confirmed by a bank acceptable to Ex lm Bank;


 


(y)          it
consists of Inventory that is the Foreign Content of Items containing less than fifty percent (50%) U.S. content;


 


(z)          for
Items containing at least 50% U.S. Content, such Inventory consists of any Foreign Content not incorporated into such Items in
the United States;


 


(aa)         it
consists of Inventory that is to be incorporated into Items whose sale would result in an Account which would not be an Eligible
Foreign Account;


 


(bb)         it
consists of Eligible Inventory; or


 


(cc)         it
consists of Inventory otherwise deemed ineligible by Lender in its Permitted Discretion.


 


Any Inventory which is not Eligible Export-Related Inventory
shall nonetheless constitute Collateral. For the avoidance of doubt, no item of Inventory shall constitute both Eligible Inventory
and Eligible Export-Related Inventory.


 


“Eligible Foreign
Accounts” means those Accounts created by each Borrower in the ordinary course of its business, that are owing by account
debtors located outside of the United States, that arise out of such Borrower’s sale of Goods or rendition of services,
that comply with each of the covenants, representations and warranties respecting Accounts and/or Eligible Foreign Accounts made
in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the excluding criteria set forth below;
provided, however, that such criteria may be revised from time to time by Lender in Lender’s Permitted Discretion.
In determining the amount to be included, Eligible Foreign Accounts shall be calculated net of customer deposits, credits and
unapplied cash. Eligible Foreign Accounts shall not include any Account:


 


(a)          that
does not arise from the sale of Items in the ordinary course of the applicable Borrower’s business;


 


(b)          that
is not subject to a valid, perfected first-priority Lien in favor of Lender;


 


(c)          as
to which any covenant, representation or warranty contained in the Loan Documents with respect to such Account has been breached;


 


(d)          that
is not owned by a Borrower or that is subject to any Lien of another Person other than the Lien in favor of Lender;


 


(e)          with
respect to which an invoice has not been sent;


 


(f)          that
arises from the sale of defense articles or defense services;


 


(g)          that
is due and payable from a Buyer located in a country with which Ex-Im Bank is prohibited from doing business as designated in
the Country Limitation Schedule;


 


(h)          that
does not comply with the requirements of the Country Limitation Schedule;


 


(i)          that
is due and payable more than 150 days from the date of determination;


 


(j)          that
is not paid within 30 calendar days from its original due date;


 


(k)          that
arises from a sale of goods to or performance of services for an employee, stockholder, subsidiary or other Affiliate of any Borrower;


 




    	Schedule 1.1
Page 9



    	 



    

 


(l)          that
is backed by a letter of credit unless the Items covered by the subject letter of credit have been shipped;


 


(m)          that
is due and payable in a currency other than Dollars, except as may be approved in writing by Ex-Im Bank;


 


(n)          that
is due and payable from a military Buyer, except as may be approved in writing by Ex-Im Bank;


 


(o)          that
does not comply with the terms of sale set forth in Section 7 of the Loan Authorization Notice;


 


(p)          that
is due and payable from a Buyer who (i) applies for, suffers, or consents to the appointment of, or the taking of possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or calls a meeting
of its creditors, (ii) admits in writing its inability, or is generally unable, to pay its debts as they become due or ceases
operations of its present business, (iii) makes a general assignment for the benefit of creditors, (iv) commences a
voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt
or insolvent, (vi) files a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesces
to, or fails to have dismissed, any petition which is filed against it in any involuntary case under such bankruptcy laws, or
(viii) takes any action for the purpose of effecting any of the foregoing;


 


(q)          that
arises from a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return
basis or is evidenced by chattel paper;


 


(r)          for
which the Items giving rise to such Account have not been shipped and delivered to and accepted by the Buyer or the services giving
rise to such Account have not been performed by the applicable Borrower and accepted by the Buyer, or the Account otherwise does
not represent a final sale;


 


(s)          that
is subject to any offset, deduction, defense, dispute, or counterclaim, or the Buyer is also a creditor or supplier of any Borrower
or the Account is contingent in any respect or for any reason;


 


(t)          for
which any Borrower has made any agreement with the Buyer for any deduction therefrom, except for discounts or allowances made
in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of
the face value of each respective invoice related thereto;


 


(u)          for
which any of the Items giving rise to such Account have been returned, rejected or repossessed;


 


(v)          constituting
(i) proceeds of copyrightable material unless such copyrightable material shall have been registered with the United States Copyright
Office, or (ii) proceeds of patentable inventions unless such patentable inventions have been registered with the United States
Patent and Trademark Office;


 


(w)          owed
by any unit of government, whether foreign or domestic (provided, however, that there shall be included in Eligible Accounts that
portion of Accounts owed by such units of government for which Borrowers have provided evidence satisfactory to Lender that (i) Lender
has a first-priority perfected security interest and (ii) such Accounts may be enforced by Lender directly against such unit
of government under all applicable laws);


 


(x)          if
any portion of such Account has been restructured, extended, amended or modified;


 


(y)          to
the extent that such Account constitutes advertising, finance charges, service charges or sales or excise taxes;


 


(z)          owed
by an account debtor, regardless of whether otherwise eligible, to the extent that the aggregate balance of such Accounts exceeds
15% of the aggregate amount of all Accounts (but the portion of such Accounts not in excess of the foregoing percentage may be
Eligible Foreign Accounts);


 


(aa)         owed
by an account debtor, regardless of whether otherwise eligible, if 10% or more of the total amount of Accounts due from such account
debtor is ineligible under clause (j) above;


 


(bb)         that
arises from the sale of Items containing less than 50% U.S. Content;


 




    	Schedule 1.1
Page 10



    	 



    

 


(cc)         that
arises from the sale of Items containing any Foreign Content not incorporated into such Items in the United States;


 


(dd)         that
arises from the sale of any Items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment,
reprocessing, research or heavy water production facilities; or


 


(ee)         that
is otherwise deemed ineligible for any reason by Lender in its Permitted Discretion or by Ex-Im Bank in its reasonable discretion.


 


Any Accounts owing by account debtors
located outside the United States which are not Eligible Foreign Accounts shall nonetheless constitute Collateral. For the avoidance
of doubt, no Account shall constitute both an Eligible Account and an Eligible Foreign Account.


 


“Eligible Inventory”
means Inventory consisting of first quality finished goods held for sale in the ordinary course of each Borrower’s business,
that complies with each of the covenants, representations and warranties respecting Inventory and/or Eligible Inventory made in
the Loan Documents, and that is not excluded as ineligible by virtue of one or more of the excluding criteria set forth below;
provided, however, that such criteria may be revised from time to time by Lender in Lender’s Permitted Discretion.
An item of Inventory shall not be included in Eligible Inventory if:


 


(a)          such
Borrower does not have good, valid, and marketable title thereto;


 


(b)          it
consists of work-in-process Inventory, raw materials, components which are not part of finished goods, supplies used or consumed
in such Borrower’s business, or Goods that constitute spare parts, maintenance parts, packaging and shipping materials,
or sample inventory or customer supplied parts or Inventory;


 


(c)          it
consists of Inventory that is perishable or live or where less than 8 weeks remain until the Inventory’s stated expiration
or “sell-by” or “use by” date;


 


(d)          such
Borrower does not have actual and exclusive possession thereof (either directly or through a bailee or agent of such Borrower);


 


(e)          it
is not located at one of the locations in the continental United States set forth on Schedule 5.29 to the Information Certificate;


 


(f)          it
is stored at locations holding less than $500,000 of the aggregate value of Borrowers’ Inventory;


 


(g)          it
is in-transit to or from a location of such Borrower (other than in transit from one location set forth on Schedule 5.29 to
the Information Certificate to another location set forth on Schedule 5.29 to the Information Certificate);


 


(h)          it
is located on real property leased by such Borrower or in a contract warehouse, in each case, unless it is subject to a Collateral
Access Agreement executed by the lessor or warehouseman, as the case may be, and unless it is segregated or otherwise separately
identifiable from Goods of others, if any, stored on the premises;


 


(i)          it
is the subject of a bill of lading or other document of title;


 


(j)          it
is on consignment from any consignor; or on consignment to any consignee or subject to any bailment unless the consignee or bailee
has (i) executed an agreement with Lender, and (ii) provided evidence acceptable to Lender that the applicable Borrower has properly
perfected a first priority security interest in such consigned Inventory and has properly notified in writing the other creditors
of consignee who hold an interest in such Inventory of Borrower’s security interest in such Inventory, and (iii) the applicable
Borrower has taken such other actions with respect to such consigned Inventory as Lender may reasonably request;


 


(k)          it
is not subject to a valid and perfected first priority Lender’s Lien;


 


(l)          it
consists of goods returned or rejected by such Borrower’s customers;


 


(m)          it
consists of Goods that are damaged, defective, obsolete or slow moving;


 




    	Schedule 1.1
Page 11



    	 



    

 


(n)          it
consists of Inventory that such Borrower has returned, has attempted to return, is in the process of returning or intends to return
to the vendor of such Inventory;


 


(o)          it
consists of Goods that are restricted or controlled, or regulated items;


 


(p)          it
consists of Goods that are bill and hold Goods;


 


(q)          it
consists of damaged or defective Goods or “seconds”;


 


(r)          it
is subject to third party trademark, licensing or other proprietary rights, unless Lender is satisfied that such Inventory can
be freely sold by Lender on and after the occurrence of an Event of a Default despite such third party rights;


 


(s)          it
consists of customer-specific Inventory not supported by purchase orders;


 


(t)          it
consists of Eligible Export-Related Inventory; or


 


(u)          it
consists of Inventory otherwise deemed ineligible by Lender in its Permitted Discretion.


 


Any Inventory which is not Eligible Inventory shall nonetheless
constitute Collateral. For the avoidance of doubt, no item of Inventory shall constitute both Eligible Inventory and Eligible
Export-Related Inventory.


 


“Environmental
Action” means any written complaint, summons, citation, notice, directive, order, claim, litigation, investigation,
judicial or administrative proceeding, judgment, letter, or other written communication from any Governmental Authority, or any
third party involving violations of Environmental Laws or releases of Hazardous Materials (a) from any assets, properties, or
businesses of any Loan Party, any Subsidiary of a Loan Party, or any of their predecessors in interest, (b) from adjoining properties
or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any Loan Party, any Subsidiary
of a Loan Party, or any of their predecessors in interest.


 


“Environmental
Law” means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code,
binding and enforceable guideline, binding and enforceable written policy, or rule of common law now or hereafter in effect and
in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order,
consent decree or judgment, in each case, to the extent binding on any Loan Party or any of its Subsidiaries, relating to the
environment, the effect of the environment on employee health, or Hazardous Materials, in each case as amended from time to time.


 


“Environmental
Liabilities” means all liabilities, monetary obligations, losses, damages, costs and expenses (including all reasonable
fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines,
penalties, sanctions, and interest incurred as a result of any claim or demand, or Remedial Action required, by any Governmental
Authority or any third party, and which relate to any Environmental Action.


 


“Environmental
Lien” means any Lien in favor of any Governmental Authority for Environmental Liabilities.


 


“Equipment”
means equipment (as that term is defined in the Code).


 


“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto.


 


“ERISA Affiliate”
means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of any Loan
Party or its Subsidiaries under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as
employed by the same employer as the employees of any Loan Party or its Subsidiaries under IRC Section 414(c), (c) solely for
purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated
service group of which any Loan Party or any of its Subsidiaries is a member under IRC Section 414(m), or (d) solely for purposes
of Section 302 of ERISA and Section 412 and 430 of the IRC, any Person subject to ERISA that is a party to an arrangement with
any Loan Party or any of its Subsidiaries and whose employees are aggregated with the employees of a Loan Party or its Subsidiaries
under IRC Section 414(o).


 


“Event of Default”
has the meaning specified therefor in Section 9.


 




    	Schedule 1.1
Page 12



    	 



    

 


“Ex-Im Availability”
means the amount determined pursuant to clause (c) of the definition of “Borrowing Base”.


 


“Ex-Im Advance”
means an Advance made against Ex-Im Availability.


 


“Ex-Im Bank”
means The Export-Import Bank of the United States and any successor thereto.


 


“Ex-Im Bank
Reserve” means, from time to time, a reserve equal to ten percent (10%) of the amount of outstanding Ex-Im Advances.


 


“Ex-Im Subfacility
Amount” means $5,000,000.


 


“Ex-Im Subfacility
Documents” means the Borrower Agreement, the Joint Application, the Loan Authorization Notice, the Master Guaranty,
and any other agreement, document or instrument executed and/or delivered by any Borrower, Lender or Ex-Im Bank in connection
with any of the foregoing, including, without limitation, any agreements between Lender and Ex-Im Bank establishing or relating
to the guaranty by Ex-Im Bank of the Ex-Im Advances.


 


“Excess Availability”
means, as of any date of determination, the amount equal to Availability minus the aggregate amount, if any, of all trade
payables and other obligations each Borrower and its Subsidiaries aged in excess of 30 days beyond their terms as of the end of
the immediately preceding month, and all book overdrafts of each Borrower and its Subsidiaries, in each case as determined by
Lender in its Permitted Discretion.


 


“Exchange Act”
means the Securities Exchange Act of 1934, as in effect from time to time.


 


“Excluded Collateral”
means (a) any Stock of any controlled foreign corporation (as that term is defined in the IRC) (a “CFC”) solely
to the extent that (i) such Stock represents more than 65% of the outstanding voting Stock of such CFC, and (ii) pledging or hypothecating
more than 65% of the total outstanding voting Stock of such CFC would result in material adverse tax consequences to Borrowers,
and (b) any rights or interest in any contract, lease, permit, license, or license agreement covering real or personal property
of any Borrower if under the terms of such contract, lease, permit, license, or license agreement, or applicable law with respect
thereto, the grant of a security interest or lien therein is prohibited as a matter of law or under the terms of such contract,
lease, permit, license, or license agreement and such prohibition or restriction has not been waived or the consent of the other
party to such contract, lease, permit, license, or license agreement has not been obtained (provided, that, (y) the foregoing
exclusions from Collateral of this clause (b) shall in no way be construed (1) to apply to the extent that any described prohibition
or restriction is unenforceable under Section 9-406, 9-407, 9-408, or 9-409 of the Code or other applicable law, or (2) to apply
to the extent that any consent or waiver has been obtained that would permit Lender’s security interest or other Lien notwithstanding
the prohibition or restriction on the pledge of such contract, lease, permit, license, or license agreement and (z) the foregoing
exclusions from Collateral contemplated by clauses (a) and (b) shall in no way be construed to limit, impair, or otherwise affect
any of Lender’s continuing security interests in and other Liens upon any rights or interests of any Borrower in or to (1)
monies due or to become due under or in connection with any described contract, lease, permit, license, license agreement, or
Stock (including any Accounts or Stock), or (2) any proceeds from the sale, license, lease, or other dispositions of any such
contract, lease, permit, license, license agreement, or Stock).


 


“Export-Related
Inventory” has the meaning given such term in the Borrower Agreement.


 


“Fixtures”
means fixtures (as that term is defined in the Code).


 


“Foreign Content”
means, with respect to any Item, all of the labor, materials and services which are not of United States origin or manufacture,
or which are not incorporated into such Item in the United States.


 


“Funding Date”
means the date on which a Borrowing occurs.


 


“GAAP”
means generally accepted accounting principles as in effect from time to time in the United States, consistently applied; provided,
however, that all calculations relative to liabilities shall be made without giving effect to Statement of Financial Accounting
Standards No. 159.


 


“General Intangibles”
means general intangibles (as that term is defined in the Code), and includes payment intangibles, contract rights, rights to
payment, rights under Hedge Agreements (including the right to receive payment on account of the termination (voluntarily or involuntarily)
of any such Hedge Agreements), rights arising under common law, statutes, or regulations, choses or things in action, goodwill,
Intellectual Property, Intellectual Property Licenses, purchase orders, customer lists, monies due or recoverable from pension
funds, route lists, rights to payment and other rights under any royalty or licensing agreements, including Intellectual Property
Licenses, infringement claims, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax
refund claims, interests in a partnership or limited liability company which do not constitute a security under Article 8 of the
Code, and any other personal property other than Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, Goods,
Investment Related Property, Negotiable Collateral, and oil, gas, or other minerals before extraction.


 




    	Schedule 1.1
Page 13



    	 



    

 


“Goods”
means goods (as that term is defined in the Code).


 


“Governing
Documents” means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.


 


“Governmental
Authority” means any federal, state, local, or other governmental or administrative body, instrumentality, board, department,
or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving
panel or body.


 


“Guarantors”
means each Person that becomes a guarantor for all or any portion of the Obligations after the Agreement Date, and each of them
is a “Guarantor”.


 


“Guaranty”
means any guaranty agreement delivered at any time by a Guarantor in favor of Lender, and all of such guaranties are, collectively,
the “Guaranties”.


 


“Hazardous
Materials” means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws
or regulations as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or any other formulation intended to define, list, or classify substances by reason of deleterious properties
such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil,
petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters,
and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources,
(c) any explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million.


 


“Hedge Agreement”
means a “swap agreement” as that term is defined in Section 101(53B)(A) of the Bankruptcy Code.


 


“Hedge Obligations”
means any and all obligations or liabilities, whether direct or indirect, absolute or contingent, liquidated or unliquidated,
determined or undetermined, voluntary or involuntary, due, not due or to become due, incurred in the past or now existing or hereafter
arising, however arising of any Loan Party or any of its/their Subsidiaries arising under, owing pursuant to, or existing in respect
of Hedge Agreements entered into with Lender or another Bank Product Provider.


 


“Increased
Reporting Period” means each period following the first to occur of (a) the date on which Excess Availability is below
$3,000,000, and (b) the date on which Revolver Usage is greater than zero.


 


“Indebtedness”
as to any Person means, without duplication, (a) all obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect
of letters of credit, bankers acceptances, or other financial products, (c) all obligations of such Person as a lessee under Capital
Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of such Person, irrespective of whether such
obligation or liability is assumed, (e) all obligations of such Person to pay the deferred purchase price of assets (other than
trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices), (f) all
obligations of such Person owing under Hedge Agreements (which amount shall be calculated based on the amount that would be payable
by such Person if the Hedge Agreement were terminated on the date of determination), (g) any Prohibited Preferred Stock of such
Person, and (h) any obligation of such Person guaranteeing or intended to guarantee (whether directly or indirectly guaranteed,
endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any
of clauses (a) through (g) above. For purposes of this definition, (i) the amount of any Indebtedness represented by a guaranty
or other similar instrument shall be the lesser of the principal amount of the obligations guaranteed and still outstanding and
the maximum amount for which the guaranteeing Person may be liable pursuant to the terms of the instrument embodying such Indebtedness,
and (ii) the amount of any Indebtedness described in clause (d) above shall be the lower of the amount of the obligation and the
fair market value of the assets of such Person securing such obligation.


 


“Indemnified
Liabilities” has the meaning specified therefor in Section 11.3.


 




    	Schedule 1.1
Page 14



    	 



    

 


“Indemnified
Person” has the meaning specified therefor in Section 11.3.


 


“Information
Certificate” means the Information Certificate completed and executed by the Loan Parties attached hereto as Exhibit
E.


 


“Insolvency
Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under
any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, receiverships, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.


 


“Intellectual
Property” means any and all Patents, Copyrights, Trademarks, trade secrets, know-how, inventions (whether or not patentable),
algorithms, software programs (including source code and object code), processes, product designs, industrial designs, blueprints,
drawings, data, customer lists, URLs and domain names, specifications, documentations, reports, catalogs, literature, and any
other forms of technology or proprietary information of any kind, including all rights therein and all applications for registration
or registrations thereof.


 


“Intellectual
Property Licenses” means, with respect to any Person (the “Specified Party”), (a) any licenses or
other similar rights provided to the Specified Party in or with respect to Intellectual Property owned or controlled by any other
Person, and (b) any licenses or other similar rights provided to any other Person in or with respect to Intellectual Property
owned or controlled by the Specified Party, in each case, including (i) any software license agreements (other than license agreements
for commercially available off-the-shelf software that is generally available to the public which have been licensed to the Specified
Party pursuant to end-user licenses), (ii) the license agreements listed on Schedule 5.26(b) to the Information Certificate,
and (iii) the right to use any of the licenses or other similar rights described in this definition in connection with the enforcement
of Lender’s rights under the Loan Documents.


 


“Intercompany
Subordination Agreement” means an intercompany subordination agreement, dated as of even date with this Agreement, executed
and delivered by each Borrower and Lender, the form and substance of which is reasonably satisfactory to Lender.


 


“Interest Rate”
means an interest rate equal to Daily Three Month LIBOR, which interest rate shall change whenever Daily Three Month LIBOR changes.


 


“Inventory”
means inventory (as that term is defined in the Code).


 


“Inventory
Sublimit” means $3,000,000, as such amount may be increased from time to time pursuant to an effective Inventory Sublimit
Increase Request.


 


“Inventory
Sublimit Increase Request” means a request by one or more Borrowers to Lender for an increase in the Inventory Sublimit,
which request shall be provided at least 60 days prior to the proposed effective date of any such increase. For the avoidance
of doubt, Lender shall have no obligation to increase the Inventory Sublimit, any such increase shall be conditioned upon Lender’s
receipt of a satisfactory appraisal with respect to Borrowers’ Inventory and such other items and information as Lender
may require, and no such increase in the Inventory Sublimit shall be effective unless and until agreed to by Lender and Borrowers
in a signed amendment to this Agreement on terms and conditions acceptable to Lender.


 


“Investment”
means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, capital contributions (excluding (a) commission, travel, and similar advances to officers and employees
of such Person made in the ordinary course of business not to exceed $250,000 in the aggregate during any fiscal year of Borrowers,
and (b) bona fide Accounts arising in the ordinary course of business), or acquisitions of Indebtedness, Stock, or all
or substantially all of the assets of such other Person (or of any division or business line of such other Person), and any other
items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.


 


“Investment
Related Property” means any and all investment property (as that term is defined in the Code).


 


“IRC”
means the Internal Revenue Code of 1986, as in effect from time to time.


 


“ISP”
means, with respect to any Letter of Credit, the International Standby Practices 1998 (International Chamber of Commerce Publication
No. 590) and any subsequent revision thereof adopted by the International Chamber of Commerce on the date such Letter of Credit
is issued.


 




    	Schedule 1.1
Page 15



    	 



    

 


“Items”
means the finished goods or services which are intended for export from the United States, as specified in Section 4(A) of the
Loan Authorization Notice.


 


“Joint Application”
means the Joint Application for Working Capital Guarantee made by Borrowers and Lender to Ex-Im Bank.


 


“Lender”
has the meaning specified therefor in the preamble to this Agreement and its successors and assigns.


 


“Lender Expenses”
means all (a) reasonable costs or expenses (including taxes, and insurance premiums) required to be paid by any Borrower or any
of its Subsidiaries or any Guarantor under any of the Loan Documents that are paid, advanced, or incurred by Lender, (b) reasonable
out-of-pocket fees or charges paid or incurred by Lender in connection with Lender’s transactions with any Borrower or any
of its Subsidiaries or any Guarantor under any of the Loan Documents, including, fees or charges for photocopying, notarization,
couriers and messengers, telecommunication, public record searches (including tax lien, judgment lien, litigation, bankruptcy
and Code searches and including searches with the patent and trademark office, the copyright office, or the department of motor
vehicles), filing, recording, publication, appraisal (including periodic collateral appraisals or business valuations to the extent
of the fees and charges (and up to the amount of any limitation contained in this Agreement), real estate surveys, real estate
title insurance policies and endorsements, and environmental audits, (c) Lender’s customary fees and charges (as adjusted
from time to time) with respect to the disbursement of funds (or the receipt of funds) to or for the account of Borrowers (whether
by wire transfer or otherwise), together with any out of pocket costs and expenses incurred in connection therewith, (d) out-of-pocket
charges paid or incurred by Lender resulting from the dishonor of checks payable by or to any Loan Party, (e) reasonable out-of-pocket
costs and expenses paid or incurred by Lender to correct any default or enforce any provision of the Loan Documents, or during
the continuance of an Event of Default, in gaining possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated,
(f) fees and expenses to initiate electronic reporting by Borrowers to Lender, (g) reasonable out-of-pocket examination fees and
expenses (including reasonable travel, meals, and lodging) of Lender related to any inspections, audits, examinations, or appraisals
to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, (h) reasonable out-of-pocket
costs and expenses of third party claims or any other suit paid or incurred by Lender in enforcing or defending the Loan Documents
or in connection with the transactions contemplated by the Loan Documents or Lender’s relationship with any Loan Party or
any of its Subsidiaries, (i) Lender’s reasonable costs and expenses (including reasonable attorneys fees) incurred in advising,
structuring, drafting, reviewing, administering (including reasonable travel, meals, and lodging), or amending the Loan Documents,
(j) Lender’s reasonable costs and expenses (including reasonable attorneys, accountants, consultants, and other advisors
fees and expenses) incurred in terminating, enforcing (including reasonable attorneys, accountants, consultants, and other advisors
fees and expenses incurred in connection with a “workout,” a “restructuring,” or an Insolvency Proceeding
concerning any Loan Party or any of its Subsidiaries or in exercising rights or remedies under the Loan Documents), or defending
the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral, and (k)
usage charges, charges, fees, costs and expenses for amendments, renewals, extensions, transfers, or drawings from time to time
imposed by Lender in respect of Letters of Credit and out-of-pocket charges, fees, costs and expenses paid or incurred by Lender
in connection with the issuance, amendment, renewal, extension, or transfer of, or drawing under, any Letter of Credit or any
demand for payment thereunder.


 


“Lender Representatives”
has the meaning specified therefor in Section 17.8(a).


 


“Lender-Related
Persons” means Lender, together with its Affiliates (including in their capacity as a Bank Product Provider), officers,
directors, employees, attorneys, and agents.


 


“Lender’s
Liens” mean the Liens granted by Borrowers and the other Loan Parties and their Subsidiaries to Lender for its benefit
and for the benefit of any Bank Product Provider under the Loan Documents.


 


“Letter of
Credit” means a letter of credit (as that term is defined in the Code) issued by Lender.


 


“Letter of
Credit Agreements” means a Letter of Credit Application, together with any and all related letter of credit agreements
pursuant to which Lender agrees to issue, amend, or extend a Letter of Credit, or pursuant to which Borrowers agree to reimburse
Lender for all Letter of Credit Disbursements, each such application and related agreement to be in the form specified by Lender
from time to time.


 


“Letter of
Credit Application” means an application requesting Lender to issue, amend, or extend a Letter of Credit, each such
application to be in the form specified by Lender from time to time.


 




    	Schedule 1.1
Page 16



    	 



    

 


“Letter of
Credit Collateralization” means either (a) providing cash collateral (pursuant to documentation reasonably satisfactory
to Lender, including provisions that specify that the Letter of Credit fee and all usage charges set forth in this Agreement and
the Letter of Credit Agreements will continue to accrue while the Letters of Credit are outstanding) to be held by Lender for
the benefit of Lender in an amount equal to 110% of the then existing Letter of Credit Usage, (b) delivering to Lender the original
of each Letter of Credit, together with documentation executed by all beneficiaries under each Letter of Credit in form and substance
acceptable to Lender terminating all of such beneficiaries’ rights under such Letters of Credit, or (c) providing Lender
with a standby letter of credit, in form and substance reasonably satisfactory to Lender, from a commercial bank acceptable to
Lender (in its sole discretion) in an amount equal to 110% of the then existing Letter of Credit Usage (it being understood that
the Letter of Credit fee and all usage charges set forth in this Agreement will continue to accrue while the Letters of Credit
are outstanding and that any such fees that accrue must be an amount that can be drawn under any such standby letter of credit).


 


“Letter of
Credit Disbursement” means a payment made by Lender pursuant to a Letter of Credit.


 


“Letter of Credit Indemnified Costs”
has the meaning specified therefor in Section 2.13(e) of this Agreement.


 


“Letter of Credit Related Person”
has the meaning specified therefor in Section 2.13(e) of this Agreement.


 


“Letter of
Credit Usage” means, as of any date of determination, the sum of (a) the aggregate undrawn amount of all outstanding
Letters of Credit, and (b) the aggregate amount of outstanding reimbursement obligations with respect to Letters of Credit.


 


“Lien”
means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, lien
(statutory or other), security interest, or other security arrangement and any other preference, priority, or preferential arrangement
of any kind or nature whatsoever, including any conditional sale contract or other title retention agreement, the interest of
a lessor under a Capital Lease and any synthetic or other financing lease having substantially the same economic effect as any
of the foregoing.


 


“Loan Account”
has the meaning specified therefor in Section 2.8.


 


“Loan Authorization
Notice” means the Loan Authorization Notice executed and delivered in connection with the guaranty by Ex-Im Bank of
the Ex-Im Advances.


 


“Loan Documents”
means this Agreement, any Borrowing Base Certificate, the Control Agreements, the Cash Management Documents, each Patent and Trademark
Security Agreement, each Copyright Security Agreement, each Guaranty, the Ex-Im Subfacility Documents, the Intercompany Subordination
Agreement, the Letters of Credit, the Revolving Notes, any other note or notes executed by any Borrower in connection with this
Agreement and payable to Lender, any Letter of Credit Applications and other Letter of Credit Agreements entered into by any Loan
Party in connection with this Agreement, and any other instrument or agreement entered into, now or in the future, by any Loan
Party or any of its Subsidiaries and Lender and/or Ex-Im Bank in connection with this Agreement and/or one or more Ex-Im Subfacility
Documents, but specifically excluding all Hedge Agreements.


 


“Loan Management
Service” means Lender’s proprietary automated loan management program currently known as “Loan Manager”
and any successor service or product of Lender which performs similar services.


 


“Loan Parties”
means collectively, each Borrower and each Guarantor, and each of them is a “Loan Party”.


 


“Lockbox”
means the “Lockbox”, as defined and described in the Cash Management Documents.


 


“Margin Stock”
as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.


 


“Master Guaranty”
means that certain Master Guarantee Agreement Number MN-MGA-05-001 dated as of November 1, 2005 by and between Lender and Ex-Im
Bank.


 


“Material Adverse
Change” means (a) a material adverse change in the business, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrowers and their Subsidiaries taken as a whole, (b) a material impairment of the ability
of any Loan Party or any of its Subsidiaries to perform its obligations under the Loan Documents to which it is a party or of
Lender’s ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability
or priority of Lender’s Liens with respect to the Collateral as a result of an action or failure to act on the part of any
Loan Party or its Subsidiaries.


 




    	Schedule 1.1
Page 17



    	 



    

 


“Material Contract”
means, with respect to any Person, (a) each contract or agreement to which such Person or any of its Subsidiaries is a party involving
aggregate consideration payable to or by such Person or such Subsidiary of $1,000,000 or more (other than purchase orders in the
ordinary course of the business of such Person or such Subsidiary), (b) all other contracts or agreements, the loss of which could
reasonably be expected to result in a Material Adverse Change, and (c) the Cree Contract.


 


“Maturity Date”
has the meaning specified therefor in Section 2.9.


 


“Maximum Revolver
Amount” means $10,000,000, decreased by permanent reductions in such amount made in accordance with Section 2.11.


 


“Moody’s”
has the meaning specified therefor in the definition of Cash Equivalents.


 


“Negotiable
Collateral” means letters of credit, letter-of-credit rights, instruments, promissory notes, drafts and documents (as
each such term is defined in the Code).


 


“Net Liquidation
Percentage” means the percentage of the Value of a Borrower’s Inventory that is estimated to be recoverable in
an orderly liquidation of such Inventory as set forth in the most recent acceptable appraisal received by Lender and upon which
Lender may rely, net of all operating expenses and associated costs and expenses of such liquidation, such percentage to be as
determined from time to time by an appraisal company selected or approved by Lender with such most recent acceptable appraisal
to be in form, scope, methodology and content acceptable to Lender in its Permitted Discretion.


 


“Non-Financed
Capital Expenditures” means Capital Expenditures not financed by the seller of the capital asset, by a third party lender
or by means of any extension of credit by Lender other than by means of an Advance under the Revolving Credit Facility.


 


“Obligations”
means (a) all loans (including the Advances), debts, principal, interest (including any interest that accrues after the commencement
of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency
Proceeding), reimbursement or indemnification obligations with respect to Letters of Credit (irrespective of whether contingent),
premiums, liabilities (including all amounts charged to the Loan Account pursuant to this Agreement), obligations (including indemnification
obligations), fees, Lender Expenses (including any fees or expenses that accrue after the commencement of an Insolvency Proceeding,
regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), guaranties, and
all covenants and duties of any other kind and description owing by any Loan Party pursuant to or evidenced by this Agreement
or any of the other Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute
or contingent, liquidated or unliquidated, determined or undetermined, voluntary or involuntary, due, not due or to become due,
sole, joint, several or joint and several, incurred in the past or now existing or hereafter arising, however arising, and including
all interest not paid when due, and all other expenses or other amounts that any Borrower or any other Loan Party is required
to pay or reimburse by the Loan Documents or by law or otherwise in connection with the Loan Documents, and (b) all Bank Product
Obligations. Any reference in this Agreement or in the Loan Documents to the Obligations shall include all or any portion thereof
and any extensions, modifications, renewals, or alterations thereof, both prior and subsequent to any Insolvency Proceeding.


 


“OFAC”
means The Office of Foreign Assets Control of the U.S. Department of the Treasury.


 


“Overadvance
Amount” has the meaning specified therefor in Section 2.4(e).


 


“Parent”
has the meaning specified in the introductory paragraph of this Agreement.


 


“Pass-Through
Tax Liabilities” means the amount of state and federal income tax paid or to be paid by the owner of any Stock in a
Borrower on taxable income earned by a Borrower and attributable to such owner of Stock as a result of such Borrower’s “pass-through”
tax status, assuming the highest marginal income tax rate for federal and state (for the state or states in which any owner of
Stock is liable for income taxes with respect to such income) income tax purposes, after taking into account any deduction for
state income taxes in calculating the federal income tax liability and all other deductions, credits, deferrals and other reductions
available to such owners of Stock from or through such Borrower.


 




    	Schedule 1.1
Page 18



    	 



    

 


“Patents”
means patents and patent applications, including (a) the patents and patent applications listed on Schedule 5.26(b) to the
Information Certificate, (b) all continuations, divisionals, continuations-in-part, re-examinations, reissues, and renewals
thereof and improvements thereon, (c) all income, royalties, damages and payments now and hereafter due or payable under and with
respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past,
present, or future infringements thereof, (d) the right to sue for past, present, and future infringements thereof, and (e) all
of each Loan Party’s rights corresponding thereto throughout the world.


 


“Patent and
Trademark Security Agreement” means each Patent and Trademark Security Agreement executed and delivered by the applicable
Loan Party in favor of Lender, in form and substance acceptable to Lender.


 


“Patriot Act”
has the meaning specified therefor in Section 5.18 of Exhibit D to this Agreement.


 


“Pension Plan”
means a pension plan (as defined in Section 3(2) of ERISA) maintained for employees of any Borrower or any of its Subsidiaries
or any ERISA Affiliate and covered by Title IV of ERISA.


 


“Permitted
Discretion” means a determination made in the exercise of Lender’s reasonable (from the perspective of a secured
lender) business judgment.


 


“Permitted
Dispositions” means:


 


(a)          sales,
abandonment, or other dispositions of Equipment that is substantially worn, damaged, unusable in Borrowers’ business, or
obsolete in the ordinary course of business;


 


(b)          sales
of Inventory to buyers in the ordinary course of business;


 


(c)          the
sale or discount, in each case without recourse, of Accounts (but only to the extent the same are not included as Eligible Accounts
on the most recent Borrowing Base Certificate submitted to Lender) arising in the ordinary course of business, but only in connection
with the compromise or collection thereof;


 


(d)          the
granting of Permitted Liens;


 


(e)          the
making of a Restricted Junior Payment that is expressly permitted to be made pursuant to this Agreement;


 


(f)          the
making of a Permitted Investment; and


 


(g)          so
long as no Event of Default exists, the sale, assignment, disposition or other conveyance of assets by one Borrower to another
Borrower.


 


“Permitted
Indebtedness” means:


 


(a)          Indebtedness
evidenced by this Agreement or the other Loan Documents;


 


(b)          Indebtedness
set forth on Schedule 5.19 to the Information Certificate and any Refinancing Indebtedness in respect of such Indebtedness;


 


(c)          Purchase
Money Indebtedness and any Refinancing Indebtedness in respect of such Indebtedness;


 


(d)          endorsement
of instruments or other payment items for deposit;


 


(e)          the
incurrence by any Loan Party or its/their Subsidiaries of Indebtedness under Hedge Agreements that are incurred for the bona fide
purpose of hedging the interest rate, commodity, or foreign currency risks associated with such Loan Party’s and its/their
Subsidiaries’ operations and not for speculative purposes;


 


(f)          Indebtedness
incurred in respect of Bank Products other than pursuant to Hedge Agreements; and


 


(g)          Indebtedness
constituting Permitted Investments.


 


“Permitted
Intercompany Advances” means loans made by (a) a Loan Party to another Loan Party, (b) a Subsidiary of a Loan Party
which is not a Loan Party to another Subsidiary of a Loan Party which is not a Loan Party, and (c) a Subsidiary of a Loan Party
which is not a Loan Party to a Loan Party, so long as the parties thereto are party to the Intercompany Subordination Agreement.


 




    	Schedule 1.1
Page 19



    	 



    

 


“Permitted
Investments” means:


 


(a)          Investments
in cash and Cash Equivalents;


 


(b)          Investments
in negotiable instruments deposited or to be deposited for collection in the ordinary course of business;


 


(c)          advances
made in connection with purchases of Goods or services in the ordinary course of business;


 


(d)          Investments
owned by any Loan Party or any of its Subsidiaries on the Agreement Date and set forth on Schedule P-1;


 


(e)          Permitted
Intercompany Advances;


 


(f)          Investments
resulting from entering into (i) Bank Product Agreements, or (ii) agreements relative to Indebtedness that is permitted under
clause (g) of the definition of Permitted Indebtedness;


 


(g)          Investments
received in settlement of amounts due to any Loan Party or any of its Subsidiaries effected in the ordinary course of business
or owing to any Loan Party or any of its Subsidiaries as a result of Insolvency Proceedings involving an Account Debtor or upon
the foreclosure or enforcement of any Lien in favor of a Loan Party or its Subsidiaries;


 


(h)          to
the extent constituting Investments, Capital Expenditures permitted pursuant to Section 8(b); and


 


(i)          Investments
consisting of the issuance or ownership of Stock, or capital contributions, by a Borrower in or to another Borrower.


 


“Permitted
Liens” means


 


(a)          Liens
granted to, or for the benefit of, Lender to secure the Obligations;


 


(b)          Liens
for unpaid taxes, assessments, or other governmental charges or levies that either (i) are not yet delinquent, or (ii) do not
have priority over Lender’s Liens and the underlying taxes, assessments, or charges or levies are the subject of Permitted
Protests;


 


(c)          judgment
Liens arising solely as a result of the existence of judgments, orders, or awards that do not constitute an Event of Default under
Section 9.3;


 


(d)          Liens
set forth on Schedule P-2; provided, however, that to qualify as a Permitted Lien, any such Lien described
on Schedule P-2 shall only secure the Indebtedness or other obligation that it secures on the Agreement Date and any Refinancing
Indebtedness in respect thereof;


 


(e)          the
interests of lessors under operating leases and non-exclusive licensors under license agreements;


 


(f)          purchase
money Liens on Equipment or the interests of lessors of Equipment under Capital Leases to the extent that such Liens or interests
secure Purchase Money Indebtedness and so long as (i) such Lien attaches only to the Equipment purchased or acquired and the proceeds
thereof, and (ii) such Lien only secures the Indebtedness that was incurred to acquire the Equipment purchased or acquired or
any Refinancing Indebtedness in respect thereof;


 


(g)          Liens
that are replacements of Permitted Liens to the extent that the original Indebtedness is the subject of permitted Refinancing
Indebtedness and so long as the replacement Liens only encumber those assets that secured the original Indebtedness;


 




    	Schedule 1.1
Page 20



    	 



    

 


(h)          Liens
arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, in
each case to the extent incurred in the ordinary course of business and not in connection with the borrowing of money, and which
Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests; and


 


(i)          a
security interest in favor of Cree pursuant to the Cree Contract, but only to the extent that such security interest of Cree (i)
is junior in priority to the Security Interest, (ii) attaches only to goods sold by Cree to Parent, and (iii) secures only the
unpaid purchase price of such goods owing by Parent to Cree.


 


“Permitted
Preferred Stock” means and refers to any Preferred Stock issued by a Borrower (and not by one or more of its Subsidiaries)
that is not Prohibited Preferred Stock.


 


“Permitted
Protest” means the right of any Borrower or any other Loan Party or any of their respective Subsidiaries to protest
any Lien (other than any Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of
a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established
on books and records of such Borrower, such other Loan Party or such Subsidiary in such amount as is required under GAAP, (b)
any such protest is instituted promptly and prosecuted diligently by such Borrower, Loan Party or Subsidiary, as applicable, in
good faith, and (c) Lender is satisfied that, while any such protest is pending, there will be no impairment of the enforceability,
validity, or priority of any of Lender’s Liens.


 


“Person”
means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability
partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.


 


“Plan”
means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of any Borrower or any of its Subsidiaries
or any ERISA Affiliate.


 


“Preferred
Stock” means, as applied to the Stock of any Person, the Stock of any class or classes (however designated) that is
preferred with respect to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation
or dissolution of such Person, over shares of Stock of any other class of such Person.


 


“Prime Rate”
means at any time the rate of interest most recently announced by Lender at its principal office as its Prime Rate, with the understanding
that the Prime Rate is one of Lender’s base rates, and serves as the basis upon which effective rates of interest are calculated
for those loans making reference to it, and is evidenced by its recording in such internal publication or publications as Lender
may designate. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced by Lender.


 


“Proceeds”
has the meaning specified therefor in the definition of “Collateral” set forth in Schedule 1.1.


 


“Prohibited
Preferred Stock” means any Preferred Stock that by its terms is mandatorily redeemable or subject to any other payment
obligation (including any obligation to pay dividends, other than dividends of shares of Preferred Stock of the same class and
series payable in kind or dividends of shares of common stock) on or before a date that is less than 1 year after the Maturity
Date, or, on or before the date that is less than 1 year after the Maturity Date, is redeemable at the option of the holder thereof
for cash or assets or securities (other than distributions in kind of shares of Preferred Stock of the same class and series or
of shares of common stock).


 


“Projections”
means Borrowers’ forecasted (a) balance sheets, (b) profit and loss statements, (c) Availability projections, and (d) cash
flow statements, all prepared on a consolidated basis consistent with such Borrower’s historical financial statements, together
with appropriate supporting details and a statement of underlying assumptions.


 


“Protective
Advance” has the meaning specified therefor in Section 2.3(d).


 


“PTO”
means the United States Patent and Trademark Office.


 


“Purchase Money
Indebtedness” means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred
at the time of, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the
acquisition cost thereof.


 


“Real Property”
means any estates or interests in real property now owned or hereafter acquired by a Loan Party and the improvements thereto.


 




    	Schedule 1.1
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“Record”
means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable
in perceivable form.


 


“Refinancing
Indebtedness” means refinancings, renewals, or extensions of Indebtedness so long as:


 


(a)          such
refinancings, renewals, or extensions do not result in an increase in the principal amount of the Indebtedness so refinanced,
renewed, or extended, other than by the amount of premiums paid thereon and the fees and expenses incurred in connection therewith
and by the amount of unfunded commitments with respect thereto,


 


(b)          such
refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity (measured as of the refinancing,
renewal, or extension) of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken
as a whole, are or could reasonably be expected to be materially adverse to the interests of Lender,


 


(c)          if
the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms
and conditions of the refinancing, renewal, or extension must include subordination terms and conditions that, taken as a whole,
are at least as favorable to Lender as those that were applicable to the refinanced, renewed, or extended Indebtedness, and


 


(d)          the
Indebtedness that is refinanced, renewed, or extended is not recourse to any Person that is liable on account of the Obligations
other than those Persons which were obligated with respect to the Indebtedness that was refinanced, renewed, or extended.


 


“Remedial Action”
means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous
Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials
so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c)
restore or reclaim natural resources or the environment, (d) perform any pre-remedial studies, investigations, or post-remedial
operation and maintenance activities, or (e) conduct any other actions with respect to Hazardous Materials required by Environmental
Laws.


 


“Reserves”
means, as of any date of determination, the sum of (a) an amount or percent of a specified item or category of items that Lender
establishes from time to time in its Permitted Discretion to reduce Availability under the Borrowing Base or the Maximum Revolver
Amount to reflect (i) such matters, events, conditions, contingencies or risks which affect or which may reasonably be expected
to affect the assets, business or prospects of a Borrower, any other Loan Party or the Collateral or its value or the enforceability,
perfection or priority of Lender’s Liens in the Collateral, or (ii) Lender’s judgment that any collateral report or
financial information relating to a Borrower or any other Loan Party delivered to Lender is incomplete, inaccurate or misleading
in any material respect, plus (b) the Ex-Im Bank Reserve, the Dilution Reserve and the Bank Product Reserve Amount. Without
limiting the generality of the foregoing, Lender may, from time to time in its Permitted Discretion, establish a Reserve for the
amounts owing by one or more Borrowers to Cree.


 


“Restricted
Junior Payment” means (a) any declaration or payment of any dividend or the making of any other payment or distribution
on account of Stock issued by any Loan Party (including any payment in connection with any merger or consolidation involving any
Loan Party) or to the direct or indirect holders of Stock issued by any Loan Party in their capacity as such (other than dividends
or distributions payable in Stock (other than Prohibited Preferred Stock) issued by any Loan Party, or (b) any purchase, redemption,
or other acquisition or retirement for value (including in connection with any merger or consolidation involving any Loan Party)
of any Stock issued by any Loan Party, in each case, so long as no Event of Default exists, a dividend or distribution paid by
one Borrower to another or a purchase, redemption or other acquisition of the Stock of one Borrower by another Borrower.


 


“Revolver Usage”
means, as of any date of determination, the sum of (a) the amount of outstanding Advances, plus (b) the amount of the Letter
of Credit Usage.


 


“Revolving
Credit Facility” means the revolving line of credit facility described in Section 2.1 and Section 2.13
pursuant to which Lender provides Advances to Borrowers and issues Letters of Credit for the account of Borrowers.


 


“Revolving
Note” means each of Borrowers’ revolving promissory notes in connection with this Agreement, payable to the order
of Lender and in form and substance acceptable to Lender, as the same may be renewed and amended from time to time, and all replacements
thereof.


 




    	Schedule 1.1
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“Sanctioned
Entity” means (a) a country or a government of a country, (b) an agency of the government of a country, (c) an organization
directly or indirectly controlled by a country or its government, or (d) a Person resident in or determined to be resident in
a country, in each case, that is subject to a country sanctions program administered and enforced by OFAC.


 


“Sanctioned
Person” means a person named on the list of Specially Designated Nationals maintained by OFAC.


 


“S&P”
has the meaning specified therefor in the definition of Cash Equivalents.


 


“SEC”
means the United States Securities and Exchange Commission and any successor thereto.


 


“Securities
Account” means a securities account (as that term is defined in the Code).


 


“Securities
Act” means the Securities Act of 1933, as amended from time to time, and any successor statute.


 


“Security Interest”
has the meaning specified therefor in Section 3.1.


 


“Solvent”
means, with respect to any Person as of any date of determination, that (a) at fair valuations, the sum of such Person’s
debts (including contingent liabilities) is less than all of such Person’s assets, (b) such Person is not engaged or about
to engage in a business or transaction for which the remaining assets of such Person are unreasonably small in relation to the
business or transaction or for which the property remaining with such Person is an unreasonably small capital, and (c) such Person
has not incurred and does not intend to incur, or reasonably believe that it will incur, debts beyond its ability to pay such
debts as they become due (whether at maturity or otherwise), and (d) such Person is “solvent” or not “insolvent”,
as applicable within the meaning given those terms and similar terms under applicable laws relating to fraudulent transfers and
conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount
that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected
to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under
Statement of Financial Accounting Standard No. 5).


 


“Standard Letter
of Credit Practice” means, for Lender, any domestic or foreign law or letter of credit practices applicable in the city
in which Lender issued the applicable Letter of Credit or, for its branch or correspondent, such laws and practices applicable
in the city in which it has advised, confirmed or negotiated such Letter of Credit, as the case may be, in each case, (a) which
letter of credit practices are of banks that regularly issue letters of credit in the particular city, and (b) which laws or letter
of credit practices are required or permitted under ISP or UCP 600, as chosen in the applicable Letter of Credit.


 


“Stock”
means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or any other “equity security” (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).


 


“Subsidiary”
of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other
comparable managers) of such corporation, partnership, limited liability company, or other entity.


 


“Supporting
Obligations” means supporting obligations (as such term is defined in the Code), and includes letters of credit and
guaranties issued in support of Accounts, Chattel Paper, documents, General Intangibles, instruments or Investment Related Property.


 


“Taxes”
means any taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments and all interest,
penalties or similar liabilities with respect thereto; provided, however, that Taxes shall exclude any tax imposed
on the net income or net profits of Lender (including any branch profits taxes), in each case imposed by the jurisdiction (or
by any political subdivision or taxing authority thereof in which Lender is organized or the jurisdiction (or by any political
subdivision or taxing authority thereof) in which Lender’s principal office is located in each case as a result of a present
or former connection between Lender and the jurisdiction or taxing authority imposing the tax (other than any such connection
arising solely from Lender having executed, delivered or performed its obligations or received payment under, or enforced its
rights or remedies under this Agreement or any other Loan Document).


 




    	Schedule 1.1
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“Termination
Date” has the meaning specified therefor in Section 2.9.


 


“Trademarks”
means any and all trademarks, trade names, registered trademarks, trademark applications, service marks, registered service marks
and service mark applications, including (a) the trade names, registered trademarks, trademark applications, registered service
marks and service mark applications listed on Schedule 5.26(b) to the Information Certificate, (b) all renewals thereof,
(c) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments
under all licenses entered into in connection therewith and damages and payments for past or future infringements or dilutions
thereof, (d) the right to sue for past, present and future infringements and dilutions thereof, (e) the goodwill of each Loan
Party’s business symbolized by the foregoing or connected therewith, and (f) all of each Loan Party’s rights corresponding
thereto throughout the world.


 


“UCP 600”
means, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits 2007 Revision, International
Chamber of Commerce Publication No. 600 and any subsequent revision thereof adopted by the International Chamber of Commerce on
the date such Letter of Credit is issued.


 


“United States”
means the United States of America.


 


“URL”
means “uniform resource locator,” an internet web address.


 


“U.S. Content”
has the meaning ascribed to such term in the Borrower Agreement.


 


“Value”
means, as determined by Lender in good faith in its Permitted Discretion, with respect to Inventory, the lower of (a) cost computed
on a weighted average cost basis in accordance with GAAP or (b) market value, provided that for purposes of the calculation
of the Borrowing Base, (i) the Value of the Inventory shall not include: (A) the portion of the value of Inventory equal to the
profit earned by any Affiliate on the sale thereof to any Borrower or (B) write-ups or write-downs in value with respect to changes
in currency exchange rates and (ii) notwithstanding anything to the contrary contained herein, the cost of the Inventory shall
be computed in the same manner and consistent with the most recent appraisal of the Inventory received and accepted by Lender,
if any.


 


“Voidable Transfer”
has the meaning specified therefor in Section 17.7.


 


b.           Accounting
Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP; provided, however,
that if any Borrower notifies Lender that such Borrower requests an amendment to any provision hereof to eliminate the effect
of any change in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial
Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with
similar functions) (an “Accounting Change”) occurring after the Agreement Date, or in the application thereof (or
if Lender notifies any Borrower that Lender requests an amendment to any provision hereof for such purpose), regardless of whether
any such notice is given before or after such Accounting Change or in the application thereof, then Lender and Borrowers agree
that they will negotiate in good faith amendments to the provisions of this Agreement that are directly affected by such Accounting
Change with the intent of having the respective positions of Lender and each Borrower after such Accounting Change conform as
nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed
upon, the provisions in this Agreement shall be calculated as if no such Accounting Change had occurred. Whenever used herein,
the term “financial statements” shall include the footnotes and schedules thereto. Whenever the term “Borrower”
is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrowers and their respective
Subsidiaries on a consolidated basis, unless the context clearly requires otherwise.


 


c.           Code.
Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise
defined herein. The meaning of any term defined herein by reference to the Code will not be limited by reason of any limitation
set forth on the scope of the Code, whether under Section 9-109 of the Code, by reason of federal preemption or otherwise.


 




    	Schedule 1.1
Page 24



    	 



    

 


d.           Construction.
Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms “includes” and “including” are not
limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase
“and/or.” The words “hereof,” “herein,” “hereby,” “hereunder,” and
similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may
be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section,
subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in
this Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein). The words “asset” and “property” shall be
construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including
cash, securities, accounts, and contract rights. Any reference herein or in any other Loan Document to the satisfaction, repayment,
or payment in full of the Obligations shall mean the repayment in full in cash or immediately available funds (or, (a) in the
case of contingent reimbursement obligations with respect to Letters of Credit, providing Letter of Credit Collateralization,
and (b) in the case of obligations with respect to Bank Products (other than Hedge Obligations), providing Bank Product Collateralization)
of all of the Obligations (including the payment of any Lender Expenses that have accrued irrespective of whether demand has been
made therefor and the payment of any termination amount then applicable (or which would or could become applicable as a result
of the repayment of the other Obligations) under Hedge Agreements) other than unasserted contingent indemnification Obligations.
Any reference herein to any Person shall be construed to include such Person’s successors and assigns. Any requirement of
a writing contained herein or in any other Loan Document shall be satisfied by the transmission of a Record. References herein
to any statute or any provision thereof include such statute or provision (and all rules, regulations and interpretations thereunder)
as amended, revised, re-enacted, and /or consolidated from time to time and any successor statute thereto.


 


e.           Schedules
and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.


 




    	Schedule 1.1
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Schedule 2.12


 


TO CREDIT AND SECURITY AGREEMENT


 


Borrowers shall pay to Lender each of the following fees:


 


On the Agreement Date:


 


		(a)	Origination Fee. A one-time origination fee of
$20,000, which shall be fully earned and payable upon the execution of this Agreement.



 


		(b)	Ex-Im Origination Fee. A one-time origination
fee of $75,000, which shall be fully earned and payable upon the execution of this Agreement.



 


Monthly:


 


(a)          Collateral
Monitoring Fee. A collateral monitoring fee of $350 per month, due and payable monthly in advance on the first day of the
month.


 


(b)          Cash
Management and Other Service Fees. Service fees to Lender for Cash Management Services provided pursuant to the Cash Management
Documents, Bank Product Agreements or any other agreement entered into by the parties, including Lender’s customary fees
and charges (as adjusted from time to time) with respect to the disbursement of funds (or the receipt of funds) to or for the
account of Borrowers (whether by wire transfer or otherwise) in the amount prescribed in Lender’s current service fee schedule.


 


(c)          Letter
of Credit Fees. A Letter of Credit fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.13(e))
which shall accrue at a rate equal to 2.50% per annum times the Daily Balance of the undrawn amount of all outstanding
Letters of Credit, payable in arrears on the first day of each month and on the Termination Date and continuing until all undrawn
Letters of Credit have expired or been returned for cancellation. All fees upon the occurrence of any other activity with respect
to any Letter of Credit (including, without limitation, the issuance, transfer, amendment, extension or cancellation of any Letter
of Credit and honoring of draws under any Letter of Credit) determined in accordance with Lender’s standard fees and charges
then in effect for such activity.


 


Annually:


 


(a)          Facility
Fee. An annual facility fee in an amount equal to (i) $75,000, less (ii) interest payments received by Lender with respect
to the Revolving Credit Facility during the immediately preceding one-year period (exclusive of interest payments received as
a result of the imposition of the Default Rate), which facility fee will be fully earned and payable in advance on each anniversary
of the Agreement Date. No installment of such annual facility fee will be pro-rated upon any early termination of this Agreement.


 


(b)          Ex-Im
Facility Fee. An annual facility fee in an amount equal to 1.50% of the Ex-Im Subfacility Amount, which facility fee will
be fully earned and payable in advance upon each anniversary of the Agreement Date. No installment of such annual facility fee
will be pro-rated upon any early termination of this Agreement.


 


Upon demand by Lender
or as otherwise specified in this Agreement:


 


(a)          Collateral
Exam Fees, Costs and Expenses. Lender’s fees, costs and out-of-pocket expenses in connection with any collateral exams
or inspections conducted by or on behalf of Lender at the current rates established from time to time by Lender as its fee for
collateral exams or inspections (which fees are currently $1,000 per day per collateral examiner), together with all actual out-of-pocket
costs and expenses incurred in conducting any collateral exam or inspection. For the avoidance of doubt, Borrowers shall be obligated
to reimburse Lender for all fees, costs and expenses related to any collateral exams or inspections obtained prior to the Agreement
Date. Applicable fees related to electronic collateral reporting will also be charged.


 


(b)          Appraisal
Fees, Costs and Expenses. Lender’s fees, costs and out-of-pocket expenses (including any fees, costs and expenses incurred
by any appraiser) in connection with any appraisal of all or any part of the Collateral conducted at the request of Lender; provided,
however, that Borrowers shall not be obligated to reimburse Lender for fees, costs and expenses for any appraisal of Borrowers’
Inventory unless (i) an Event of Default shall have occurred and be continuing, or (ii) such appraisal occurs in connection with
an Inventory Sublimit Increase Request or at any time that the Inventory Sublimit is in excess of $3,000,000.


 




    	Schedule 2.12
Page 1



    	 



    

 


(c)          Termination
and Reduction Fees. If (i) Lender terminates the Revolving Credit Facility after the occurrence of an Event of Default, or
(ii) Borrowers terminate the Revolving Credit Facility on a date prior to the Maturity Date, or (iii) Borrowers reduce the Maximum
Revolver Amount or if Borrowers and Lender agree to reduce the Maximum Revolver Amount, then Borrowers shall pay Lender as liquidated
damages (and not as a penalty) a termination or reduction fee in an amount equal to a percentage of the Maximum Revolver Amount
in the case of a termination of the Revolving Credit Facility, or a percentage of the amount of reduction of the Maximum Revolver
Amount in the case of a reduction in the Maximum Revolver Amount, as the case may be, calculated as follows: (A) two percent
(2.00%) if the termination or reduction occurs on or before the first anniversary of the Agreement Date; (B) one percent
(1.00%) if the termination or reduction occurs after the first anniversary of the Agreement Date, but on or before the second
anniversary of the Agreement Date; and (C) zero percent (0.00%) if the termination or reduction occurs after the second anniversary
of the Agreement Date.


 




    	Schedule 2.12
Page 2



    	 



    

 


Schedule 6.1


 


TO CREDIT AND SECURITY AGREEMENT


 


Borrowers shall deliver
to Lender each of the financial statements, reports, or other items set forth below at the following times in form satisfactory
to Lender:


 


	as
    soon as available, but in any event within 25 days after the end of each month, or, in the case of the last month of each
    fiscal quarter, within 45 days after the end of such month,	(a)          an
        unaudited consolidated balance sheet, income statement, statement of cash flow, and statement of owner’s equity
        with respect to Borrowers and their respective Subsidiaries during such period and compared to the prior period and plan,
        prepared in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes, together with a
        corresponding discussion and analysis of results from management; and

         

        (b)          a
        Compliance Certificate along with the underlying calculations, including the calculations to establish compliance with
        the financial covenants set forth in Section 8 and certain other covenants under this Agreement.

         

	as
    soon as available, but in any event within 120 days after the end of each fiscal year,	(a)          consolidated
        financial statements of Borrowers and their respective Subsidiaries for such fiscal year, audited by independent certified
        public accountants reasonably acceptable to Lender, prepared in accordance with GAAP, and certified, without any qualifications
        (including any (i) “going concern” or like qualification or exception, (ii) qualification or exception as
        to the scope of such audit, or (iii) qualification which relates to the treatment or classification of any item and which,
        as a condition to the removal of such qualification, would require an adjustment to such item), by such accountants to
        have been prepared in accordance with GAAP (such audited financial statements to include a balance sheet, income statement,
        statement of cash flow, and statement of owner’s equity and, if prepared, such accountants’ letter to management);
        and

         

        (b)          a
        Compliance Certificate along with the underlying calculations, including the calculations to establish compliance with
        the financial covenants set forth in Section 8 and certain other covenants under this Agreement.

         

	as
    soon as available, but in any event within 30 days before the start of each of Borrowers’ fiscal years,	(a)          copies
        of Borrowers’ Projections, in form and substance (including as to scope and underlying assumptions) satisfactory
        to Lender, in its Permitted Discretion, for the forthcoming fiscal year, on a monthly basis, certified by the chief financial
        officer of Borrowers as being such officer’s good faith estimate of the financial performance of Borrowers and their
        respective Subsidiaries during the period covered thereby.

         

	if
    and when filed by any Borrower, unless publicly available on the SEC’s website,	(a)          Form
        10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current reports;

         

        (b)          any
        other filings made by any Borrower with the SEC; and

         

        (c)          any
        other information that is provided by any Borrower to its shareholders generally.

         



 




    	Schedule 6.1
Page 1



    	 



    

 


Schedule 6.2


 


TO CREDIT AND SECURITY AGREEMENT


 


Borrowers shall provide Lender with each of the documents and
information set forth below at the following times in form and substance satisfactory to Lender:


 


	Monthly
    (no later than the 15th day of each month), or, during any Increased Reporting Period, weekly (on the first Business
    Day of each week), or more frequently if Lender requests	(a)          a
        Borrowing Base Certificate;

         

        (b) an Account roll-forward
        with supporting details supplied from sales journals, collection journals, credit registers and any other records;

         

        (c)          notice
        of all claims, offsets, or disputes asserted by Account Debtors with respect to each Borrower’s and its Subsidiaries’
        Accounts; and

         

        (d)          copies
        of invoices together with corresponding shipping and delivery documents and credit memos together with corresponding supporting
        documentation with respect to invoices and credit memos in excess of an amount determined in the sole discretion of Lender
        from time to time.

         

	Monthly
    (no later than the 15th day of each month) or more frequently if Lender requests	(a)          a
        monthly Account roll-forward, in a format acceptable to Lender in its discretion;

         

        (b)          a
        detailed aging of each Borrower’s Accounts, together with a reconciliation to the monthly Account roll-forward and
        supporting documentation for any reconciling items noted (delivered electronically in an acceptable format, if such Borrower
        has implemented electronic reporting);

         

        (c)          a
        detailed calculation of those Accounts that are not eligible for the Borrowing Base, together with a detailed calculation
        of Eligible Foreign Accounts and Eligible Export-Related Inventory;

         

        (d)          a
        detailed Inventory system/perpetual report specifying the cost of each Borrower’s Inventory, by location and by
        category (delivered electronically in an acceptable format, if such Borrower has implemented electronic reporting);

         

        (e)          a
        detailed calculation of Inventory categories that are not eligible for the Borrowing Base;

         

        (f)          a
        summary aging, by vendor, of each Borrower’s and its Subsidiaries’ accounts payable (delivered electronically
        in an acceptable format, if such Borrower has implemented electronic reporting); and

         

        (g)          a
        detailed report regarding each Borrower’s and its Subsidiaries’ cash and Cash Equivalents.

         

	Monthly
    (no later than the 30th day of each month) or more frequently if Lender requests	(a)          a
    reconciliation of Accounts aging, trade accounts payable aging, and Inventory perpetual of each Borrower to the general ledger
    and the monthly financial statements, including any book reserves related to each category.
	Annually,
    or more frequently, if requested by Lender	(a)          a
    detailed list of each Borrower’s and its Subsidiaries’ customers, with address and contact information.
	Upon
    request by Lender from time to time	(a)          such
    other reports and information as to the Collateral and as to each Loan Party and its Subsidiaries as Lender may reasonably
    request.


 




    	Schedule 6.2
Page 1



    	 



    

 


EXHIBIT A


 


TO CREDIT AND SECURITY AGREEMENT


 


FORM OF COMPLIANCE CERTIFICATE


 


[on Parent’s letterhead]


 


		To:	Wells Fargo Bank,
                                         National Association



1100 Abernathy Road, NE - Suite 1600


MAC Code: G0189-60


Atlanta, Georgia 30328


Attn: Portfolio Manager (Charles &
Colvard)


 


		Re:	Compliance Certificate
                                         dated [                                             ]



 


Ladies and Gentlemen:


 


Reference is made to that certain Credit
and Security Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”)
dated as of June 25, 2014 by and among CHARLES & COLVARD, LTD., CHARLES & COLVARD DIRECT, LLC,
MOISSANITE.COM, LLC (“Borrowers”) and Wells FarGO BANK, NATIONAL
ASSOCIATION (“Lender”). Capitalized terms used in this Compliance Certificate have the meanings
set forth in the Credit Agreement unless specifically defined herein.


 


Pursuant to Schedule 6.1 of the Credit Agreement, the
undersigned officer of Parent hereby certifies that:


 


1.          Attached
is the financial information of Borrowers and their Subsidiaries which is required to be furnished to Lender pursuant to Section
6.1 of the Credit Agreement for the period ended ____________, __________ (the “Reporting Date”). Such
financial information has been prepared in accordance with GAAP, and fairly presents in all material respects the financial condition
of Borrowers and their Subsidiaries, subject (in the case of monthly financial information) to customary year-end adjustments
and the absence of footnotes.


 


2.          Such
officer has reviewed the terms of the Credit Agreement and has made, or caused to be made under his/her supervision, a review
in reasonable detail of the transactions and condition of each Borrower and its Subsidiaries during the accounting period covered
by the financial statements delivered pursuant to Schedule 6.1 of the Credit Agreement.


 


3.          Such
review has not disclosed the existence on and as of the date hereof, and the undersigned does not have knowledge of the existence
as of the date hereof, of any event or condition that constitutes a Default or Event of Default.


 


4.          The
representations and warranties of each Loan Party and its Subsidiaries set forth in the Credit Agreement and the other Loan Documents
are true and correct in all material respects on and as of the date hereof (except to the extent they relate to a specified earlier
date).


 


5.          As
of the Reporting Date, the Borrowers and their respective Subsidiaries are in compliance with the applicable covenants contained
in Section 8 of the Credit Agreement as demonstrated on Schedule 1 hereof.


 


IN WITNESS WHEREOF,
this Compliance Certificate is executed by the undersigned this [_____] day of [_______________], [________].


 


	 	CHARLES & COLVARD, LTD. 


 


	 	By:	 
	 	Name:	 
	 	Title:	 


 


Exhibit A


 




    	 



    	 



    

 


SCHEDULE 1 TO COMPLIANCE CERTIFICATE


 


Financial Covenants


 


I further certify that (Please check and
complete each of the following):


 


		1.	Excess Availability. Excess Availability
□ was □ was not at least $1,000,000 at all times during the fiscal month ending on the Reporting Date, which
□ satisfies □ does not satisfy the requirement set forth in Section 8(a) of the Credit Agreement
that Excess Availability be not less than $1,000,000 at all times.



 


		2.	Non-Financed Capital Expenditures. Borrowers
have made or incurred Non-Financed Capital Expenditures in the aggregate amount of $_________ for the fiscal-year-to-date period
ending on the Reporting Date, which □ satisfies □ does not satisfy the requirement set forth in
Section 8(b) of the Credit Agreement that Non-Financed Capital Expenditures be not more than $2,000,000 during any fiscal
year.



 


Schedule
1 to Compliance Certificate 


 




    	 



    	 



    

 


Exhibit
B


 


TO CREDIT AND SECURITY AGREEMENT


 


CONDITIONS PRECEDENT


 


The
obligation of Lender to make its initial extension of credit provided for in this Agreement is subject to the fulfilment, to the
satisfaction of Lender, of each of the following conditions precedent:


 


(a)          Lender
shall have received evidence that appropriate financing statements have been duly filed in such office or offices as may be necessary
or, in the opinion of Lender, desirable to perfect Lender’s Liens in and to the Collateral, and Lender shall have received
searches reflecting the filing of all such financing statements;


 


(b)          Lender
shall have received each of the following documents, in each case in form and substance satisfactory to Lender, duly executed,
and each such document shall be in full force and effect:


 


(i)          this
Agreement, the Revolving Notes, the Patent and Trademark Security Agreement and the other Loan Documents,


 


(ii)         the
Cash Management Documents,


 


(iii)        the
Control Agreements,


 


(iv)         the
Intercompany Subordination Agreement,


 


(vi)         the
Borrower Agreement, the Joint Application, the Loan Authorization Notice, an exceptions approval executed and delivered by Ex-Im
Bank, and such other agreements, documents and instruments as Ex-Im Bank may require or as Lender deems necessary or appropriate
in order to ensure that Ex-Im Bank has validly guaranteed at least 90% of the Ex-Im Advances,


 


(vii)        a
letter from PNC Bank, National Association (“Existing Lender”) to Lender with respect to the amount necessary
to repay in full all of the obligations of the Borrowers and their Subsidiaries owing to Existing Lender and to obtain a release
of all of the Liens existing in favor of Existing Lender in and to the assets of Loan Parties and their Subsidiaries, together
with termination statements and other documentation evidencing the termination by Existing Lender of its Liens in and to the properties
and assets of the Loan Parties and their Subsidiaries, and


 


(viii)      a
disbursement letter executed and delivered by each Borrower to Lender regarding the extensions of credit to be made on the Agreement
Date.


 


(g)          Lender
shall have received a certificate from the Chief Financial Officer or Manager of each Borrower (i) attesting to the resolutions
of such Borrower’s Board of Directors authorizing its execution, delivery, and performance of this Agreement and the other
Loan Documents to which such Borrower is a party, (ii) authorizing specific officers of such Borrower to execute the same, and
(iii) attesting to the incumbency and signatures of such specific officers of such Borrower;


 


(h)          Lender
shall have received copies of each Borrower’s Governing Documents, as amended, modified, or supplemented to the Agreement
Date, certified as true, correct and complete by the Chief Financial Officer or Manager of such Borrower;


 


(i)          Lender
shall have received a certificate of status with respect to each Borrower, dated within 20 days of the Agreement Date, such certificate
to be issued by the appropriate officer of the jurisdiction of organization of each Borrower, which certificate shall indicate
that such Borrower is in good standing in such jurisdiction;


 


(j)          Lender
shall have received certificates of status with respect to each Borrower, each dated within 30 days of the Agreement Date, such
certificates to be issued by the appropriate officer of the jurisdictions (other than the jurisdiction of organization of such
Borrower) in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates
shall indicate that such Borrower is in good standing in such jurisdictions;


 




    	Exhibit B
Page 1



    	 



    

 


(k)          Lender
shall have received copies of the policies of insurance and certificates of insurance, together with the endorsements thereto,
as are required by Section 6.6, the form and substance of which shall be satisfactory to Lender;


 


(l)          Lender
shall have received a completed and duly executed Borrowing Base Certificate, which Borrowing Base Certificate shall demonstrate
that Borrowers have Excess Availability of at least $2,000,000 after giving effect to (i) the initial extensions of credit hereunder,
and (ii) the payment of all fees and expenses required to be paid by Borrowers on the Agreement Date under this Agreement or the
other Loan Documents;


 


(m)        Borrowers
shall have paid all Lender Expenses incurred in connection with the transactions evidenced by this Agreement to the extent the
same have become due and payable;


 


(n)          each
Borrower and each of its Subsidiaries shall have received all licenses, approvals or evidence of other actions required by any
Governmental Authority in connection with the execution and delivery by such Borrower or its Subsidiaries of the Loan Documents
or with the consummation of the transactions contemplated thereby;


 


(o)          Lender
shall have received a set of Borrower projections satisfactory to Lender, it being agreed that the projections previously delivered
to Lender are satisfactory; and


 


(p)          all
other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to Lender.


 




    	Exhibit B
Page 2



    	 



    

 


EXHIBIT C


 


TO CREDIT AND SECURITY AGREEMENT


 


CONDITIONS SUBSEQUENT


 


1.          No
later than 30 days following the Agreement Date, Borrowers shall transfer all Inventory and other tangible Collateral held in
bank vaults with PNC Bank, National Association to Borrowers’ premises located at 170 Southport Drive, Morrisville, NC 27560
and/or to one or more bank vaults maintained by Lender.


 


2.          No
later than 30 days following the Agreement Date, Borrowers shall provide to Lender lender’s loss payee endorsements and
additional insured endorsements as required by Section 6.6 of the Agreement.


 


3.          Other
than the Advances to be made on the Agreement Date described on the disbursement authorization letter from Borrowers to Lender
dated as of the Agreement Date, Lender shall have no obligation to make any Advance or to issue any Letter of Credit unless and
until Lender receives evidence reasonably satisfactory to Lender that PNC Bank, National Association, has released all of its
Liens on the assets of each Borrower, including, without limitation, copies of duly recorded termination statements with respect
to the following financing statements:


 


(a)          Financing
statement #20130090919F filed on 9/20/13 in favor of PNC Bank, National Association with the North Carolina Secretary of
State;


 


(b)          Financing
statement #20130090920H filed on 9/20/13 in favor of PNC Bank, National Association with the North Carolina Secretary of
State; and


 


(c)          Financing
statement #20130090921J filed on 9/20/13 in favor of PNC Bank, National Association with the North Carolina Secretary of
State.


 




    	Exhibit C
Page 1



    	 



    

 


EXHIBIT D


 


TO CREDIT AND SECURITY AGREEMENT


 


REPRESENTATIONS
AND WARRANTIES


 


5.1         Due
Organization and Qualification; Subsidiaries.


 


(a)          Each
Loan Party and each Subsidiary of each Loan Party (i) is duly organized and existing and in good standing under the laws of the
jurisdiction of its organization, (ii) is qualified to do business in any jurisdiction where the failure to be so qualified could
reasonably be expected to result in a Material Adverse Change, and (iii) has all requisite power and authority to own and operate
its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents to
which it is a party and to carry out the transactions contemplated thereby.


 


(b)          Set
forth on Schedule 5.1(b) to the Information Certificate is a complete and accurate description of the authorized capital
Stock of each Loan Party, by class, and, as of the Agreement Date, a description of the number of shares of each such class that
are issued and outstanding. Other than as described on Schedule 5.1(b) to the Information Certificate, there are no subscriptions,
options, warrants, or calls relating to any shares of any Loan Party’s capital Stock, including any right of conversion
or exchange under any outstanding security or other instrument. No Loan Party is subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable
for any of its capital Stock.


 


(c)          Set
forth on Schedule 5.1(c) to the Information Certificate (as such Schedule may be updated from time to time to reflect changes
resulting from transactions permitted under this Agreement), is a complete and accurate list of the Loan Parties’ direct
and indirect Subsidiaries, showing: (i) the number of shares of each class of common and preferred Stock authorized for each of
such Subsidiaries, and (ii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly
by each Loan Party. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and
non-assessable.


 


(d)          Except
as set forth on Schedule 5.1(c) to the Information Certificate, there are no subscriptions, options, warrants, or calls
relating to any shares of any capital stock or any Loan Party or of any of its Subsidiaries, including any right of conversion
or exchange under any outstanding security or other instrument. No Loan Party nor any of its Subsidiaries is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any shares of such Loan Party’s Subsidiaries’
capital Stock or any security convertible into or exchangeable for any such capital Stock.


 


5.2         Due
Authorization; No Conflict.


 


(a)          As
to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan Documents to which it is a party have
been duly authorized by all necessary action on the part of such Loan Party.


 


(b)          As
to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan Documents to which it is a party do
not and will not (i) violate any material provision of federal, state, or local law or regulation applicable to any Loan Party
or its Subsidiaries, the Governing Documents of any Loan Party or its Subsidiaries, or any order, judgment, or decree of any court
or other Governmental Authority binding on any Loan Party or its Subsidiaries, (ii) conflict with, result in a breach of,
or constitute (with due notice or lapse of time or both) a default under any Material Contract of any Loan Party or its Subsidiaries
except to the extent that any such conflict, breach or default could not individually or in the aggregate reasonably be expected
to cause a Material Adverse Change, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever
upon any assets of any Loan Party, other than Permitted Liens, or (iv) require any approval of any Loan Party’s equity interest
holders or any approval or consent of any Person under any Material Contract of any Loan Party, other than consents or approvals
that have been obtained and that are still in force and effect and except, in the case of Material Contracts, for consents or
approvals, the failure to obtain could not individually or in the aggregate reasonably be expected to cause a Material Adverse
Change.


 


5.3         Governmental
and Other Consents. No consent, approval, authorization, or other order or other action by, and no notice to or filing
with, any Governmental Authority or any other Person is required (a) for the grant of a Lien by such Loan Party in and to the
Collateral pursuant to this Agreement or the other Loan Documents or for the execution, delivery, or performance of this Agreement
by such Loan Party, or (b) for the exercise by Lender of the voting or other rights provided for in this Agreement with respect
to the Investment Related Property or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required
in connection with such disposition of Investment Related Property by laws affecting the offering and sale of securities generally.
No Intellectual Property License of any Loan Party that is necessary to the conduct of such Loan Party’s business requires
any consent of any other Person in order for such Loan Party to grant the security interest granted hereunder in such Loan Party’s
right, title or interest in or to such Intellectual Property License.


 




    	Exhibit D
Page 1



    	 



    

 


5.4         Binding
Obligations. Each Loan Document has been duly executed and delivered by each Loan Party that is a party thereto and is
the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective
terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws relating to or limiting creditors’ rights generally.


 


5.5         Title
to Assets; No Encumbrances. Each of the Loan Parties and its Subsidiaries has (a) good, sufficient and legal title to
(in the case of fee interests in Real Property), (b) valid leasehold interests in (in the case of leasehold interests in real
or personal property), and (c) good and marketable title to (in the case of all other personal property), all of their respective
assets reflected in their most recent financial statements delivered pursuant to Section 6.1 and most recent collateral
reports delivered pursuant to Section 6.2, in each case except for assets disposed of since the date of such financial
statements to the extent permitted hereby. All of such assets are free and clear of Liens except for Permitted Liens.


 


5.6         Jurisdiction
of Organization; Location of Chief Executive Office; Organizational Identification Number; Commercial Tort Claims.


 


(a)          The
exact legal name of (within the meaning of Section 9-503 of the Code) and jurisdiction of organization of each Loan Party and
each of its Subsidiaries is set forth on Schedule 5.6(a) to the Information Certificate (as such Schedule may be updated
from time to time to reflect changes resulting from transactions permitted under this Agreement).


 


(b)          The
chief executive office of each Loan Party and each of its Subsidiaries is located at the address indicated on Schedule 5.6(b)
to the Information Certificate (as such Schedule may be updated from time to time to reflect changes resulting from transactions
permitted under this Agreement).


 


(c)          The
tax identification number and organizational identification number, if any, of each Loan Party and each of its Subsidiaries are
identified on Schedule 5.6(c) to the Information Certificate (as such Schedule may be updated from time to time to reflect
changes resulting from transactions permitted under this Agreement).


 


(d)          As
of the Agreement Date, no Loan Party and no Subsidiary of a Loan Party holds any Commercial Tort Claims, except as set forth on
Schedule 5.6(d) to the Information Certificate.


 


5.7         Litigation.


 


(a)          There
are no actions, suits, or proceedings pending or, to the knowledge of any Loan Party, after due inquiry, threatened in writing
against a Loan Party or any of its Subsidiaries that either individually or in the aggregate could reasonably be expected to result
in a Material Adverse Change.


 


(b)          Schedule
5.7(b) to the Information Certificate sets forth a complete and accurate description, with respect to each of the actions,
suits, or proceedings that, as of the Agreement Date, is pending or, to the knowledge of any Loan Party, after due inquiry, threatened
against any Loan Party or any of its Subsidiaries, including (i) the parties to such actions, suits, or proceedings, (ii) the
nature of the dispute that is the subject of such actions, suits, or proceedings, (iii) the status, as of the Agreement Date,
with respect to such actions, suits, or proceedings, and (iv) whether any liability of any Loan Party or any Subsidiary in connection
with such actions, suits, or proceedings is covered by insurance.


 


5.8         Compliance
with Laws. No Loan Party nor any of its Subsidiaries (a) is in violation of any applicable laws, rules, regulations,
executive orders, or codes (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected
to result in a Material Adverse Change, or (b) is subject to or in default with respect to any final judgments, writs, injunctions,
decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Change.


 


5.9         No
Material Adverse Change. All historical financial statements relating to the Loan Parties and their Subsidiaries that
have been delivered by Borrowers to Lender have been prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit adjustments) and present fairly in all material respects,
the consolidated financial condition of the Loan Parties and their Subsidiaries as of the date thereof and results of operations
for the period then ended. Since the date of the most recent financial statement delivered to Lender, no event, circumstance,
or change has occurred that has or could reasonably be expected to result in a Material Adverse Change with respect to the Loan
Parties and their Subsidiaries.


 




    	Exhibit D
Page 2



    	 



    

 


5.10         Fraudulent
Transfer.


 


(a)          Each
Loan Party is Solvent.


 


(b)          No
transfer of property is being made by any Loan Party and no obligation is being incurred by any Loan Party in connection with
the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of such Loan Party.


 


5.11         Employee
Benefits. No Loan Party, none of their Subsidiaries, nor any of their ERISA Affiliates maintains or contributes to any
Benefit Plan.


 


5.12         Environmental
Condition. Except as set forth on Schedule 5.12 to the Information Certificate, (a) to each Loan Party’s
knowledge, no properties or assets of any Loan Party or any of its Subsidiaries have ever been used by a Loan Party, its Subsidiaries,
or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous
Materials, where such disposal, production, storage, handling, treatment, release or transport was in violation, in any material
respect, of any applicable Environmental Law, (b) to each Loan Party’s knowledge, after due inquiry, no Loan Party’s
nor any of its Subsidiaries’ properties or assets have ever been designated or identified in any manner pursuant to any
environmental protection statute as a Hazardous Materials disposal site, (c) no Loan Party nor any of its Subsidiaries has received
notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated
by a Loan Party or its Subsidiaries, and (d) no Loan Party nor any of its Subsidiaries nor any of their respective facilities
or operations is subject to any outstanding written order, consent decree, or settlement agreement with any Person relating to
any Environmental Law or Environmental Liability that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Change.


 


5.13         Intellectual
Property. Each Loan Party and each of its Subsidiaries own, or hold licenses in, all trademarks, trade names, copyrights,
patents, and licenses that are necessary to the conduct of its business as currently conducted.


 


5.14         Leases.
Each Loan Party and each of its Subsidiaries enjoy peaceful and undisturbed possession under all leases material to their
business and to which it is a party or under which it is operating, and, subject to Permitted Protests, all of such material leases
are valid and subsisting and no material default by the applicable Loan Party or the applicable Subsidiary exists under any of
them.


 


5.15         Deposit
Accounts and Securities Accounts. Set forth on Schedule 5.15 to the Information Certificate is a listing of all
of the Deposit Accounts and Securities Accounts of each Loan Party and each of its Subsidiaries, including, with respect to each
bank or securities intermediary (a) the name and address of such Person, and (b) the account numbers of the Deposit Accounts or
Securities Accounts maintained with such Person.


 


5.16         Complete
Disclosure. All factual information taken as a whole (other than forward-looking information and projections and information
of a general economic nature and general information about the industry of a Loan Party or any of its Subsidiaries) furnished
by or on behalf of a Loan Party or any of its Subsidiaries in writing to Lender (including all information contained in the Schedules
hereto or in the other Loan Documents) for purposes of or in connection with this Agreement or the other Loan Documents, and all
other such factual information taken as a whole (other than forward-looking information and projections and information of a general
economic nature and general information about the industry of a Loan Party or any of its Subsidiaries) hereafter furnished by
or on behalf of a Loan Party or any of its Subsidiaries in writing to Lender will be, true and accurate, in all material respects,
on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make
such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which
such information was provided. The Projections most recently delivered to Lender represent, and as of the date on which any other
Projections are delivered to Lender, such additional Projections represent, each Borrowers’ good faith estimate, on the
date such Projections are delivered, of the future performance of a Loan Party or any of its Subsidiaries for the periods covered
thereby based upon assumptions believed by Borrowers to be reasonable at the time of the delivery thereof to Lender.


 


5.17         Material
Contracts. Set forth on Schedule 5.17 to the Information Certificate (as such Schedule may be updated from time
to time in accordance herewith) is a reasonably detailed description of the Material Contracts of each Loan Party and each of
its Subsidiaries as of the most recent date on which Borrowers provided their Compliance Certificate pursuant to Section 6.1;
provided, however, that any Borrower may amend Schedule 5.17 to the Information Certificate to add additional
Material Contracts so long as such amendment occurs by written notice to Lender on the date that such Borrower provides its Compliance
Certificate. Except for matters which, either individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Change, each Material Contract (other than those that have expired at the end of their normal terms) (a) is
in full force and effect and is binding upon and enforceable against the applicable Loan Party or the applicable Subsidiary and,
to such Borrower’s knowledge, after due inquiry, each other Person that is a party thereto in accordance with its terms,
(b) has not been otherwise amended or modified (other than amendments or modifications permitted by Section 7.7(b)), and
(c) is not in default due to the action or inaction of the applicable Loan Party or the applicable Subsidiary.


 




    	Exhibit D
Page 3



    	 



    

 


5.18         Patriot
Act. To the extent applicable, each Loan Party and each of its Subsidiaries is in compliance, in all material respects,
with the (a) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating
thereto, and (b) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
(USA Patriot Act of 2001) (the “Patriot Act”). No part of the proceeds of the loans made hereunder will be
used by any Loan Party or any of its Subsidiaries or any of their Affiliates, directly or indirectly, for any payments to any
governmental official or employee, political party, official of a political party, candidate for political office, or anyone else
acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of
the United States Foreign Corrupt Practices Act of 1977, as amended.


 


5.19         Indebtedness.
Set forth on Schedule 5.19 to the Information Certificate is a true and complete list of all Indebtedness of each Loan
Party and each of its Subsidiaries outstanding immediately prior to the Agreement Date that is to remain outstanding immediately
after giving effect to the closing hereunder on the Agreement Date and such Schedule accurately sets forth the aggregate principal
amount of such Indebtedness as of the Agreement Date.


 


5.20         Payment
of Taxes. Except as otherwise permitted under Section 6.5, all tax returns and reports of each Loan Party and each
of its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be
due and payable and all assessments, fees and other governmental charges upon a Loan Party and its Subsidiaries and upon their
respective assets, income, businesses and franchises that are due and payable have been paid when due and payable. Each Loan Party
and each of its Subsidiaries have made adequate provision in accordance with GAAP for all taxes not yet due and payable. No Borrower
knows of any proposed tax assessment against a Loan Party or any of its Subsidiaries that is not being actively contested by such
Loan Party or such Subsidiary diligently, in good faith, and by appropriate proceedings; provided such reserves or other
appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor.


 


5.21         Margin
Stock. No Loan Party nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the loans
made to Borrowers will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing
or carrying any such Margin Stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors
of the United States Federal Reserve.


 


5.22         Governmental
Regulation. No Loan Party nor any of its Subsidiaries is subject to regulation under the Federal Power Act or the Investment
Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness
or which may otherwise render all or any portion of the Obligations unenforceable. No Loan Party nor any of its Subsidiaries is
a “registered investment company” or a company “controlled” by a “registered investment company”
or a “principal underwriter” of a “registered investment company” as such terms are defined in the Investment
Company Act of 1940.


 


5.23         OFAC.
No Loan Party nor any of its Subsidiaries is in violation of any of the country or list based economic and trade sanctions
administered and enforced by OFAC. No Loan Party nor any of its Subsidiaries (a) is a Sanctioned Person or a Sanctioned Entity,
(b) has its assets located in Sanctioned Entities, or (c) derives revenues from investments in, or transactions with Sanctioned
Persons or Sanctioned Entities. No proceeds of any loan made hereunder will be used to fund any operations in, finance any investments
or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Entity.


 


5.24         Employee
and Labor Matters. There is (a) no unfair labor practice complaint pending or, to the knowledge of Borrowers, threatened
against any Loan Party or any of its Subsidiaries before any Governmental Authority and no grievance or arbitration proceeding
pending or threatened against any Loan Party or any of its Subsidiaries which arises out of or under any collective bargaining
agreement and that could reasonably be expected to result in a material liability, (b) no strike, labor dispute, slowdown, stoppage
or similar action or grievance pending or threatened in writing against any Loan Party or any of its Subsidiaries that could reasonably
be expected to result in a material liability, or (c) to the knowledge of Borrowers, after due inquiry, no union representation
question existing with respect to the employees of any Loan Party or any of its Subsidiaries and no union organizing activity
taking place with respect to any of the employees of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries
has incurred any liability or obligation under the Worker Adjustment and Retraining Notification Act or similar state law, which
remains unpaid or unsatisfied. The hours worked and payments made to employees of each Loan Party and each of its Subsidiaries
have not been in violation of the Fair Labor Standards Act or any other applicable legal requirements, except to the extent such
violations could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. All material
payments due from any Loan Party or any of its Subsidiaries on account of wages and employee health and welfare insurance and
other benefits have been paid or accrued as a liability on the books of such Loan Party, except where the failure to do so could
not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change.


 




    	Exhibit D
Page 4



    	 



    

 


5.25         Reserved.



 


5.26         Collateral.


 


(a)          Real
Property. Schedule 5.26(a) to the Information Certificate sets forth all Real Property owned in fee by any of the Loan
Parties as of the Agreement Date.


 


(b)          Intellectual
Property.


 


(i) As of the Agreement
Date, Schedule 5.26(b) to the Information Certificate provides a complete and correct list of: (A) all registered Copyrights
owned by any Loan Party, all applications for registration of Copyrights owned by any Loan Party, and all other Copyrights owned
by any Loan Party and material to the conduct of the business of any Loan Party; (B) all Intellectual Property Licenses entered
into by any Loan Party pursuant to which (x) any Loan Party has provided any license or other rights in Intellectual Property
owned or controlled by such Loan Party to any other Person or (y) any Person has granted to any Loan Party any license or other
rights in Intellectual Property owned or controlled by such Person that is material to the business of such Loan Party, including
any Intellectual Property that is incorporated in any Inventory, software, or other product marketed, sold, licensed, or distributed
by such Loan Party; (C) all Patents owned by any Loan Party and all applications for Patents owned by any Loan Party; and (D)
all registered Trademarks owned by any Loan Party, all applications for registration of Trademarks owned by any Loan Party, and
all other Trademarks owned by any Loan Party and material to the conduct of the business of any Loan Party;


 


(ii)         all
employees of each Loan Party who were involved in the creation or development of any Intellectual Property for such Loan Party
that is necessary to the business of such Loan Party have signed agreements containing assignment of Intellectual Property rights
to such Loan Party and obligations of confidentiality;


 


(iii)        to
each Loan Party’s knowledge after reasonable inquiry, no Person has infringed or misappropriated or is currently infringing
or misappropriating any Intellectual Property rights owned by such Loan Party, in each case, that either individually or in the
aggregate could reasonably be expected to result in a Material Adverse Change;


 


(iv)         to
each Loan Party’s knowledge after reasonable inquiry, all registered Copyrights, registered Trademarks, and issued Patents
that are owned by such Loan Party and necessary in to the conduct of its business are valid, subsisting and enforceable and in
compliance with all legal requirements, filings, and payments and other actions that are required to maintain such Intellectual
Property in full force and effect; and


 


(v)          each
Loan Party has taken reasonable steps to maintain the confidentiality of and otherwise protect and enforce its rights in all trade
secrets owned by such Loan Party that are necessary in the business of such Loan Party.


 


(c)          Motor
Vehicles. Schedule 5.26(c) to the Information Certificate sets forth all motor vehicles owned by each Loan Party as
of the Agreement Date by model, model year and vehicle identification number.


 


(d)          Valid
Security Interest. This Agreement creates a valid security interest in the Collateral of each Loan Party, to the extent a
security interest therein can be created under the Code, securing the payment of the Obligations. Except to the extent a security
interest in the Collateral cannot be perfected by the filing of a financing statement under the Code, all filings and other actions
necessary or desirable to perfect and protect such security interest have been duly taken or will have been taken upon the filing
of financing statements listing each applicable Loan Party, as a debtor, and Lender for itself and as agent for the Bank Product
Providers, as secured party, in the jurisdictions listed next to such Loan Party’s name on Schedule 5.6(a) to the Information
Certificate. Upon the making of such filings, Lender shall have a first priority perfected security interest in the Collateral
of each Loan Party to the extent such security interest can be perfected by the filing of a financing statement, subject only
to Permitted Liens. Upon filing of the Copyright Security Agreement with the United States Copyright Office, filing of the Patent
and Trademark Security Agreement with the PTO, and the filing of appropriate financing statements in the jurisdictions listed
on Schedule 5.6(a) to the Information Certificate, all action necessary or desirable to protect and perfect the Security
Interest in and to on each Loan Party’s Patents, Trademarks, or Copyrights has been taken and such perfected Security Interest
is enforceable as such as against any and all creditors of and purchasers from any Loan Party. All action by any Loan Party necessary
to protect and perfect such security interest on each item of Collateral has been duly taken.


 




    	Exhibit D
Page 5



    	 



    

 


5.27         Eligible
Accounts and Eligible Foreign Accounts. As to each Account that is identified by a Borrower as an Eligible Account or
an Eligible Foreign Account in a Borrowing Base Certificate submitted to Lender, such Account is (a) a bona fide existing payment
obligation of the applicable Account Debtor created by the sale and delivery of Inventory or the rendition of services to such
Account Debtor in the ordinary course of such Borrower’s business, (b) owed to such Borrower, and (c) not excluded as ineligible
by virtue of one or more of the excluding criteria (other than Lender-discretionary criteria) set forth in the definition of Eligible
Accounts or Eligible Foreign Accounts, as applicable.


 


5.28         Eligible
Inventory and Eligible Export-Related Inventory. As to each item of Inventory that is identified by Borrower as Eligible
Inventory or Eligible Export-Related Inventory in a Borrowing Base Certificate submitted to Lender, such Inventory is (a) of good
and merchantable quality, free from known defects, and (b) not excluded as ineligible by virtue of one or more of the excluding
criteria (other than Lender-discretionary criteria) set forth in the definition of Eligible Inventory or Eligible Export-Related
Inventory, as applicable.


 


5.29         Locations
of Inventory and Equipment. The Inventory and Equipment (other than vehicles or Equipment out for repair) of the Loan
Parties and their Subsidiaries are not stored with a bailee, warehouseman, or similar party (except as noted on Schedule 7.16
to the Information Certificate) and are located only at, or in-transit between or to, the locations identified on Schedule
5.29 to the Information Certificate (as such Schedule may be updated pursuant to Section 6.14).


 


5.30         Inventory
Records. Each Loan Party keeps correct and accurate records itemizing and describing the type, quality, and quantity
of its Inventory and of the Inventory of its Subsidiaries and the book value thereof.


 




    	Exhibit D
Page 6



    	 



    

 


EXHIBIT E


 


TO CREDIT AND SECURITY AGREEMENT


 


INFORMATION CERTIFICATE


OF


CHARLES
& COLVARD, LTD.


Charles
& Colvard Direct, LLC


Moissanite.com,
LLC


 


 






 


Dated: June 25, 2014