Exhibit
10.1


 


LOAN
AGREEMENT


(Revolving
Line of Credit Loan and Term Loan)


 


This Loan Agreement (the “Agreement”)
is dated for reference purposes as of August 19, 2005, between POORE BROTHERS, INC., a Delaware
corporation (the “Borrower”) and U.S. BANK NATIONAL
ASSOCIATION, a national banking association (the “Bank”).


 


Unless
defined elsewhere in this Agreement, defined terms used herein have the
meanings given them in the Definitions Section hereof.


 


Factual
Background


 


A.            Bank has agreed to extend credit and/or other
financial accommodations to Borrower a follows: (1) Bank has agreed to make a revolving line of credit loan (“Facility 1”) to Borrower in the maximum
principal amount of Five Million and No/100 Dollars ($5,000,000.00) (the “Facility 1 Maximum Committed Amount”), and (2) Bank has agreed to make a term loan (“Facility 2”) to Borrower in the principal amount of Seven
Hundred Fifty Six Thousand Six Hundred Two and 56/100 Dollars ($756,602.56) (each,
individually, a “Loan” and collectively, the “Loans”).  Borrower
will use Facility 1 and Facility 2 to
refinance existing indebtedness of Borrower to Bank and for working capital of
Borrower.


 


B.            Borrower
is executing (1) a promissory note payable to Bank evidencing Facility 1 (the “Facility
1 Note”) and a promissory note payable to Bank evidencing the Facility 2 (the “Facility
2 Note”).  Facility 1 and Facility 2 will
be secured by a Security Agreement covering all business assets of Borrower.
The Facility 1 Note and the Facility 2 Note are herein collectively referred to
as the “Notes.”


 


C.            The
following parties have each agreed to guaranty all or certain of Borrower’s
obligations to Bank in accordance with one or more Guaranties:


 


(1)           La
Cometa Properties, Inc., an Arizona corporation (“La Cometa”)


 


(2)           Poore
Brothers - Bluffton, LLC, a Delaware limited liability company (the “PBC”)


 


(3)           Tejas
PB Distributing, Inc., an Arizona corporation (“Tejas”)


 


(4)           Boulder
Natural Foods, Inc., an Arizona corporation (“Boulder”)


 


(5)           BN
Foods Inc., a Colorado corporation (“BN Foods”)


 


D.            This
Agreement and the Notes, together with all of their exhibits (if any), and all
other documents which evidence, guaranty, secure, or otherwise pertain to the
Credit Facilities, including the Loans, collectively constitute the “Loan
Documents.”


 


THEREFORE, Bank
and Borrower agree as follows:


 


Agreement


 


Definitions:  The following capitalized words and terms
shall have the meanings set forth in the “Factual Background” section above, or
if not defined therein, shall have the following meanings when used in this
Agreement.  All references to dollar
amounts shall mean amounts in lawful money of the United States of
America.  Words and terms used in the
singular shall include the plural, and the plural shall include the singular,
as the context may require.  The term “Guarantor,”
as used in this Agreement and the other Loan Documents shall apply only if any
such party exists, and should be ignored if inapplicable.


 


“Account”
means Borrower’s checking account number 151701212137 at Bank.


 


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“Affiliate of” or “affiliated
with” means in control of, controlled by or under common control with.


 


“Capital Expenditures”
shall mean the aggregate amount of all purchases or acquisitions of fixed assets,
including real estate, motor vehicles, equipment, fixtures, leases and any
other items that would be capitalized on the books of Borrower under GAAP.


 


“Covered by Insurance”
is when defense of a lawsuit has been tendered to the applicable insurance carrier
under a valid insurance policy that provides coverage with respect to the claim
and has a deductible amount of less than Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00), such insurance carrier has accepted such tender of
defense, and such insurance carrier proceeds with such defense without denying
liability for any part of such claim which could result in liability of Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00) or more to Borrower or
any Guarantor.


 


“Credit
Facilities” means all extensions of credit from the Bank to
Borrower, whether now existing or hereafter arising, including but not limited
to the Loans described in Recital A
above.


 


“Default Rate” has
the meaning given it in the Note; provided, however, that if a
default rate is not used or defined in the Note, “Default Rate” shall mean a
per annum interest rate of five percent (5%) in excess of the rate of interest
charged from time to time under the Note. 
If more than one Note Rate (as such term is defined below) applies, the “Default
Rate” shall mean a per annum interest rate of five percent (5%) in excess of
the highest Note Rate.


 


“EBITDAR” means,
for Borrower for the applicable period, net income, plus interest expense, plus income tax expense, plus depreciation expense, plus amortization expense, plus rent or lease expense, plus One-Time Expenses, minus One-Time Income Items.


 


“EDGAR System”
means the Electronic Data Gathering Analysis and Retrieval System owned and
operated by the United States Securities and Exchange Commission or any
replacement system.


 


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


 


“Events of Default”
means those events of default set forth in Section 5.1
(each, an “Event of Default”).


 


“Facility 1” has
the meaning set forth in Recital A
above.


 


“Facility
1 Expiration Date” has the meaning set forth in Section
2.2 below


 


“Facility 1 Maximum
Committed Amount” has the meaning set forth in Recital A
above.


 


“Facility 1 Note”
has the meaning set forth in Recital B
above.


 


“Facility 2” has
the meaning set forth in Recital A
above.


 


“Facility 2 Note”
has the meaning set forth in Recital B
above.


 


“Fixed Charge Coverage
Ratio” means, for Borrower, (a) EBITDAR minus cash taxes, cash
dividends, and Unfinanced Capital Expenditures, divided by (b) the sum
of all required principal payments (on short and long term debt and capital
leases), interest and rental or lease expense.


 


“GAAP”
means generally accepted accounting
principles, consistently applied.


 


“Guarantor”
means, each person or entity guaranteeing all or any portion of Borrower’s
obligations under the Loan Documents, or all or any portion of any other party’s
obligations under the Loan Documents, pursuant to a Guaranty, including those
parties described in Recital C
above (collectively, the “Guarantor” or “Guarantors”).  “Guarantor” also means any indemnitor under
any indemnity agreement.


 


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“Guaranty” means,
each guaranty executed or required to be executed in favor of Bank in
connection with any of the Credit Facilities, including each continuing
guaranty, payment guaranty, payment and performance guaranty, or other guaranty
or indemnity agreement (collectively, the “Guaranty” or “Guaranties”).


 


“Home Page” means
the Borrower’s corporate home page on the World Wide Web accessible through the
Internet via the universal resource locator (URL) identified as “www.poorebrothers.com”
or such other universal resource locator that the Borrower shall designate in
writing to Bank as its corporate home page on the World Wide Web.


 


“Hazardous Substance”
means and includes any substance, material, or waste, including asbestos,
petroleum, and petroleum products (including crude oil), that is or becomes
designated, classified, or regulated as “toxic” or “hazardous” or a “pollutant,”
or that is or becomes similarly designated, classified, or regulated, under any
federal, state, or local law, regulation, or ordinance, but does not include
any such substance that is a customary and ordinary household, cleaning, or
office product used by Borrower or any tenant or agent of Borrower, provided
such use is in accordance with applicable hazardous materials laws and
regulations..


 


“Indemnified Costs”
means all actual or threatened liabilities, claims, actions, causes of action,
judgments, orders, damages (including foreseeable and unforeseeable
consequential damages), costs, expenses, fines, penalties and losses (including
sums paid in settlement of claims and all consultant, expert and legal fees and
expenses of Bank’s counsel), including those incurred in connection with any
investigation of site conditions or any clean-up, remedial, removal or
restoration work (with respect to any property), or any resulting damages,
harm, or injuries to the person or property of any third parties or to any
natural resources, excepting those arising out of, or resulting, solely from
the applicable Indemnified Party’s gross negligence or willful misconduct.


 


“Indemnified Parties,”
means Bank, its parent, subsidiary, and any affiliated companies, any assignees
of any of Bank’s interest in any of the Credit Facilities or the Loan
Documents, any owners of participation or other interests in any of the Credit
Facilities or the Loan Documents, and the officers, directors, employees, and
agents of each of them (each individually, an “Indemnified Party”).


 


“Insolvency
Payments” means all monetary obligations incurred or accrued during the
pendency of any Insolvency Proceeding regardless of whether allowed or
allowable in such proceeding.


 


“Insolvency Proceeding”
means any bankruptcy, receivership, or other voluntary or involuntary
proceeding, in or out of court, for the adjustment of debtor-creditor
relationships.


 


“Loan” and “Loans”
have the meanings set forth in Recital A
above.


 


“Notes” means all
promissory notes, instruments, reimbursement agreements, or other contracts or
agreements evidencing the terms and conditions of the Obligations, including
the Facility 1 Note and the Facility 2 Note.


 


“One-Time Expense”
means, for the applicable period, any item of expense that Bank determines in
its sole and absolute discretion is a non-recurring, one-time expense
(collectively, “One-Time Expenses”)


 


“One-Time Income”
means, for the applicable period, any item of income that Bank determines in
its sole and absolute discretion is a non-recurring, one-time income item
(collectively, “One-Time Income Items”).


 


“Request for Credit”
means a written request signed by Borrower requesting a disbursement of funds
under this Agreement (or a telephonic or Telefax request as allowed pursuant to
the terms of this Agreement), together with such documentation and information
as Bank may require and meeting the requirements set forth in this Agreement and
the other Loan Documents.


 


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“Requirements”
means all existing and future laws, regulations, orders, codes, restrictions,
and requirements of, and all permits and approvals from, and agreements with
and commitments to, all governmental, judicial, or legal authorities having
jurisdiction over Borrower’s business.


 


“Security Agreement”
means any pledge, assignment, or grant of a security interest in favor of Bank
of all of any portion of Borrower’s assets, including the assignment and
security interest created in favor of Bank pursuant to that certain Security
Agreement (Blanket - All Business
Assets) being executed by Borrower in favor of Bank dated of even date
herewith.  Each Security Agreement shall
be in form and substance acceptable to Bank.


 


“Surrendered Payments”
means, collectively, the amount of any
payments made to Bank or any other party on behalf of Borrower (including
payments resulting from liquidation of collateral) which are recovered from the
Bank by a trustee, receiver, creditor, or other party pursuant to applicable
federal or state law.


 


“Tangible
Net Worth” means (1) the total of all assets properly appearing on the
balance sheet of Borrower in accordance with GAAP, less (2) the sum of
(i)   the
book amount of all such assets which would be treated as intangibles under
GAAP, including, without limitation, all such items as goodwill, trademarks,
trademark rights, trade names, trade name rights, brands, copyrights, patents,
patent rights, licenses, deferred charges and unamortized debt discount and
expenses, (ii) any write-up in the book value of any such assets resulting from
a revaluation thereof subsequent to the date of the Agreement, (iii) all
reserves which have not already been deducted in calculating total assets on
Borrower’s balance sheet, including reserves for depreciation, depletion,
insurance, and inventory valuation, but not including contingency
reserves not allocated for any particular purpose and not deducted from assets,
(iv) the amount, if any, at which any shares of stock of Borrower appear on the
asset side of such balance sheet, (v) all liabilities of Borrower shown on such
balance sheet, (vi) all investments in foreign affiliates and non-consolidated
domestic affiliates, and (vii) all accounts or notes due to Borrower from any
shareholder, director, officer, employee or affiliate of Borrower or from any
relative of such party.


 


“Unfinanced Capital
Expenditures” means, for the applicable period, the sum calculated as
follows:  (a) all Capital Expenditures of
Borrower, minus (b) all new financing received or assumed by Borrower to
fund such Capital Expenditures.


 


“Unmatured Event of
Default” means an event that, with notice or the passage of time, or both,
could become an Event of Default.


 


“Unused
Commitment Fee” has the meaning set forth in Section
2.2.


 


1.             Conditions
Precedent to Closing and Disbursements.


 


1.1          Conditions
to Closing.  Before Bank becomes
obligated to close the Loans herein contemplated or make any disbursement under
this Agreement, the following closing conditions shall have been satisfied at
Borrower’s sole cost and expense in a manner acceptable to Bank in its sole and
absolute discretion. No waiver of any closing condition is effective unless
expressly made in writing by Bank.


 


(a)           Financial
Statements of Borrower and Other Financial Information.  Borrower shall have delivered to Bank all
financial statements and other financial information currently required under
the Loan Documents, certified as being true, correct, and complete in all
material respects by an authorized officer, manager, member, or general partner
of Borrower or other applicable parties.


 


(b)           Organizational
Documents and Certificates.  Borrower
shall have delivered to Bank, for each party to each of the Loan Documents:


 


(i)            All
organization documents and evidence of due formation and good standing
requested by Bank in its sole and absolute discretion.


 


(ii)           All
resolutions, certificates of authority, incumbency certificates, or other
evidence of authorization requested by Bank in its sole and absolute
discretion.


 


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(iii)          Evidence
of such party’s Federal Tax Identification Number.


 


(iv)          An
Article 9 Certificate in form and substance acceptable to Bank.


 


(c)           Loan
Documents and Other Items.  Borrower
shall have duly executed or obtained the due execution of, and delivered to
Bank, all Loan Documents and other items required by Bank to be executed in
connection with the Loans, including but not limited to this Agreement, the
Note, the Security Agreement required hereunder, UCC-1 financing statements,
and any and all other such documentation otherwise required by Bank to fulfill
the purposes of this Agreement.


 


(d)           Security
Interests Perfected.  Bank’s security
interest in all property pledged as collateral security for the Loans, as
described in one or more Security Agreements executed by Borrower, and/or any
third party pledgor, in favor of Bank, shall have been duly perfected in a first-priority lien position.


 


(e)           Insurance.  Borrower shall have provided evidence that
there is in effect all insurance required by Bank pursuant to this Agreement
and the other Loan Documents, written by insurers, and in form and in amount
satisfactory to Bank in its sole and absolute discretion.


 


(f)            Accounts
Opened.  Borrower shall have opened
all accounts required pursuant to the Loan Documents, if any.


 


(g)           No Default.  No event shall have
occurred and be continuing which would constitute a default or Event of Default
(as defined in the applicable document) or an Unmatured Event of Default under
any of the Loan Documents.


 


(h)           Miscellaneous.  Borrower shall have delivered to Bank any
other item reasonably deemed necessary by Bank and shall have fulfilled any
other condition reasonably required by Bank to fulfill the intention of this
Agreement and any Loan commitment issued to Borrower.


 


1.2          Conditions
to Each Disbursement.  Before Bank becomes obligated to make
any disbursement of funds or to extend any credit or make any financial
accommodation under this Agreement, the following conditions shall have been
satisfied at Borrower’s sole cost and expense in a manner acceptable to Bank in
its sole and absolute discretion.  No
waiver of any condition is effective unless expressly made in writing by Bank.


 


(a)           Closing
Conditions.  All closing conditions
set forth above shall have been satisfied, and shall be and remain satisfied as
of the date of any disbursement of funds or extension any credit, or shall have
been waived or deferred by Bank in its sole and absolute discretion. 


 


(b)           Request
for Credit.  For each disbursement or
extension of credit under this Agreement, Bank shall have received a complete
and accurate Request for Credit from
Borrower as described below, and Bank shall have determined that all conditions
contained in this Agreement to the disbursement set forth in the Request for Credit have been met.


 


(c)           Representations.  All representations and warranties of
Borrower under this Agreement and the other Loan Documents shall be true and
correct in all material respects on and as of the date of any disbursement of
funds or extension any credit.


 


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2.             Credit
Facilities.


 


2.1          Scope.  The agreement governs Facility 1 and Facility
2, and covers other Credit Facilities, unless otherwise agreed to in writing by
Bank and Borrower or prohibited by applicable law.  If Bank and Borrower have entered into, or in
the future enter into, a separate agreement regarding any Credit Facility other
than Facility 1 and Facility 2, in the event of a conflict between the terms of
this Agreement and the terms of the other separate written loan agreement or
other agreement as to such Credit Facility, the terms of that separate
agreement as to such Credit Facility shall control.


 


2.2          Facility 1 - Revolving Line of Credit Loan.


 


(a)           Revolving Line of Credit.  Facility 1
is a revolving line of credit.  During
the availability period, Borrower may repay principal amounts and reborrow
them.


 


(b)           Availability Period.  The
Facility 1 line of credit is available between the date of this Agreement and June 30, 2007  (the “Facility 1 Expiration Date”) unless Borrower
is in default.


 


(c)           Maturity Date.  The
maturity date of Facility 1 is June 30, 2007  (the
“Facility 1 Maturity Date”).  All sums
owing under Facility 1 shall be due and payable no later than the Facility 1 Maturity Date.


 


(d)           Facility 1 Interest Rate and Repayment Terms. 
All advances under Facility 1 shall
bear interest at the interest rate set forth in the Facility 1 Note.  The Borrower shall repay Facility 1 pursuant to
the terms of the Facility 1 Note.


 


(e)           Unused Commitment Fee.  Borrower
shall pay to Bank an unused commitment fee (the “Unused Commitment Fee”) on the
average daily unused portion of Facility 1 at the rate of one-eighth of one
percent (0.125%) per annum, such fee calculated quarterly and payable in
arrears by Borrower, in immediately available funds, within fifteen (15) days
after the end of each calendar quarter for which the fee is owing.


 


2.3          Facility 2 - Term Loan.


 


(a)           Term Loan.  Facility 2
is a term loan.  The Facility 2 Loan
Amount shall be disbursed concurrently with the closing of the Loans in
a single disbursement (unless otherwise agreed by Bank).  Borrower
may not reborrow principal amounts repaid under Facility 2.


 


(b)           Maturity Date.  The
maturity date of Facility 2 is July 1, 2006  (the
“Facility 1 Maturity Date”).  All sums
owing under Facility 1 shall be due and payable no later than the Facility 1 Maturity Date.


 


(d)           Facility 2 Interest Rate and Repayment Terms. 
All advances under Facility 2 shall
bear interest at the interest rate set forth in the Facility 2 Note.  The Borrower shall repay Facility 2 pursuant to
the terms of the Facility 2 Note.


 


2.4          Disbursements.


 


(a)           Disbursement
to Pay Fees and Costs; Debit of Loans at Closing.  Acting in its reasonable discretion, Bank may
use loan funds to pay fees owing to Bank, interest on the Credit Facilities,
legal fees and expenses of Bank’s attorneys which are payable by Borrower, and
such other sums as may be owing from time to time by Borrower to Bank with
respect to the Credit Facilities, all without further notice to or
authorization by Borrower.  Bank at its
option may make any such payment on Borrower’s behalf by (a) debiting loan
funds in the amount of the payment and disbursing such amount to itself, or (b)
disbursing all or part of the payment amount into the Account (if any), and
then either debiting the Account (if any) or invoicing Borrower in the amount
of the payment(s).  As of the day the
Loans close, Bank is authorized to make payments on Borrower’s behalf by
debiting loan funds and disbursing such amounts to itself for all costs and
expenses payable by Borrower to Bank pursuant to the terms of this Agreement,
if such have not been received by Bank in immediately available funds directly
from Borrower’s own funds.


 


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(b)           Interest
on Disbursements.  Interest on each
disbursement, whether initiated by Borrower or Bank, shall be payable from the
time Bank debits loan funds in the amount of such disbursement.


 


(c)           Requests for Credit.   Each
request for an extension of credit will be made in writing in a manner
acceptable to the Bank, or by another means acceptable to the Bank (each, a “Request
for Credit”).  Borrower authorizes
either Richard Finkbeiner or David Gramza to sign all Requests for Credit and other documents in
connection with the administration of the Credit Facilities.  Borrower represents and warrants to Bank that
the following signatures are specimen signatures of the persons named in the
preceding sentence:


 


	
   

  	
  /s/ Rick Finkbeiner

  	
   

  	
  /s/ David A. Gramza

  	
   

  
	
   

  	
  Rick Finkbeiner

  	
  David Gramza

  



 


(d)           Disbursements
Into Account.  Unless Bank and
Borrower have otherwise agreed in writing, Bank shall make disbursements into
the Account.


 


(e)           Telephone and Telefax Authorization.


 


(i)            The Bank may honor telephone or telefax
instructions for advances or repayments given by any one of the individual
signer(s) of this Agreement or a person or persons authorized by any one of the
signer(s) of this Agreement.


 


(ii)           Advances will be deposited in and repayments will
be withdrawn from the Account, or such other of the Borrower’s accounts with
the Bank as designated in writing by the Borrower.


 


(iii)          The
Borrower indemnifies, defends, and holds Bank and all Indemnified Parties
harmless from all liability, loss, and costs in connection with any act
resulting from telephone or telefax instructions it reasonably believes are made
by any individual authorized by the Borrower to give such instructions. This
indemnity shall survive the termination of Agreement and/or the payment in full
of any and all Credit Facilities.


 


2.5          Disbursement
Conditions.


 


(a)           Fulfillment
of Conditions.  Bank need not make any disbursement under any
of the Credit Facilities until Borrower fulfills all conditions of the Loan
Documents, at Borrower’s sole cost and expense and in a manner
acceptable to Bank in it sole and absolute discretion (unless another standard
is specified) including the closing and disbursement conditions set forth in Section 1 above.  If
Bank makes a disbursement before fulfillment of one or more required
conditions, that disbursement alone shall not be a waiver of such conditions, and
Bank reserves the right to require their fulfillment before making any
subsequent disbursements.  Bank shall
have no obligation to disburse any loan funds or make an financial
accommodations to or for Borrower if an Event of Default has occurred or an Unmatured
Event of Default has occurred and is continuing.


 


(b)           Deferral
of Conditions; Conditions Subsequent. 
If Borrower has not fulfilled all closing and disbursement conditions
prior to the date set for closing the Loans, Bank, at its option, may close the
Loan and may disburse some or all loan funds subject to Borrower’s compliance
with any or all such condition(s) as conditions subsequent to the closing.  In such event, Bank shall notify Borrower of
the conditions subsequent that must be met and the time period(s) within which
Borrower is required to comply.  If no
time period for compliance is specified by Bank as to any condition subsequent,
then Borrower shall comply with such condition subsequent within thirty (30)
days of the date of closing of the Loans. 
Failure of Borrower to comply with all conditions subsequent within the
applicable time periods shall be an Event of Default hereunder.


 


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2.6          Automatic
Deduction.


 


(a)           Payments
and Fees.  Borrower agrees that
payments and fees due from Borrower to Bank on the Notes and/or pursuant to the
terms of this Agreement or other Loan Documents (each a “Payment” and
collectively, “Payments”), including any Unused Commitment Fees due hereunder,
will be deducted automatically on the due date from the Account.


 


(b)           Date
of Debit.  Bank will debit the
Account on the dates that Payments become due. 
If a due date does not fall on a Banking Day (as such term is defined in
the Note), Bank will debit the Account on the first Banking Day following the
due date.


 


(c)           Maintenance
of Funds.  Borrower will maintain
sufficient funds in the Account on the dates Bank enters debits authorized by
this Agreement.  If there are
insufficient funds in the Account on the date Bank enters any debit authorized
by this Agreement, the debit will be reversed.


 


(d)           Security.  Borrower hereby grants to Bank a security
interest in the Account, and any other accounts from which Borrower may
hereafter authorize Bank to debit payments due on the Credit Facilities, for
the purpose of securing the payment of amounts Bank is authorized to deduct
from the Account or such other accounts. 
The security interest is granted only to the extent of such authorized
deductions, and does not create a lien to secure any other obligation owed by
Borrower to Bank, whether under this Agreement or otherwise.


 


3.             Covenants of Borrower.   Borrower promises to keep each of the
covenants set forth below, unless Bank has waived compliance in writing.


 


3.1          Compliance
with Laws; Maintenance of Business. 
Borrower shall (a) comply with Requirements and shall maintain its
existence and business operations in accordance therewith, (b) pay its debts
and obligations when due under normal terms, and pay on or before their due date,
all taxes, assessments, fees, and other governmental monetary obligations
(except as may be contested in good faith by proper proceedings if properly
reflected on Borrower’s books, and (c) comply with the terms of any and all
agreements entered into by Borrower with respect to its business operations,
including but not limited to all franchise, licensing, or similar contracts or
agreements, unless the failure to comply would not a have materially adverse
effect on Borrower’s business, Borrower’s financial condition, or Borrower’s
ability to repay the Credit Facilities.


 


3.2          Taxes; Additional Costs.  Borrower
shall not deduct any taxes from any payments it makes to the Bank.  If any government authority imposes any taxes
on any payments made by Borrower, Borrower shall pay the taxes and shall also
pay to the Bank, at the time interest is paid, any additional amount which the
Bank specifies as necessary to preserve the after-tax yield the Bank would have
received if such taxes had not been imposed. 
Upon request by the Bank, the Borrower will confirm that it has paid the
taxes by giving the Bank official tax receipts (or notarized copies) within
thirty (30) days after the due date. 
However, the Borrower will not pay the Bank’s net income taxes.  Additionally, Borrower shall pay the Bank, on
demand, for the Bank’s costs or losses arising from any statute or regulation,
or any request or requirement of a regulatory agency.  The costs and losses (a) will be allocated to
the loan in a manner determined by the Bank, using any reasonable method, and
(b) include the following: (i) any reserve or deposit requirements, and (ii)
any capital requirements relating to the Bank’s assets and commitments for
credit.


 


3.3          Insurance.


 


(a)           Borrower
shall provide, maintain, and keep in force at all times until the Credit
Facilities are paid in full and no further credit or financial accommodations
are available to Borrower thereunder, any and all insurance Bank may from time to time require, covering (i) property damage (including loss of
use and occupancy) to any of the Borrower’s properties, (ii) public liability
insurance including coverage for contractual liability, product liability and
workers’ compensation, and (ii) any other insurance which is usual for the
Borrower and/or Borrower’s business, all such insurance to be satisfactory to Bank as to amount, nature, and
carrier.  Such insurance may include (A) comprehensive
liability insurance naming Bank as an additional insured, on an “occurrence”
basis against claims for “personal injury” liability, including bodily injury,
death, or


 


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property damage liability, with limits of not less than those required
under current Bank policy, such insurance to be primary and noncontributory
with any other insurance carried by Bank, and (B) such policy or policies of
worker’s compensation insurance as may be required by applicable worker’s
compensation insurance laws (including employer’s liability insurance, if
required by Bank), covering all employees of Borrower.


 


(b)           All
policies of insurance required by Bank shall be issued by companies approved by
Bank having an A.M. Best’s rating acceptable to Bank, with limits, coverage,
forms, deductibles, inception and expiration dates and cancellation provisions
acceptable to Bank.  An approval by Bank
is not, and may not be deemed to be, a representation of the solvency of any
insurer or the sufficiency of any amount of insurance.  Each policy of insurance required under the
Loan Documents shall provide that it may not be modified or canceled without at
least thirty (30) days’ prior written notice to Bank.  When any required insurance policy expires,
Borrower shall furnish Bank with proof acceptable to Bank that the policy has
been reinstated or a new policy issued, continuing in force the insurance
covered by the expired policy.  Borrower
shall also furnish evidence satisfactory to Bank that all premiums for such
policy have been paid within thirty (30) days of renewal or issuance.  If Bank fails to receive such proof and
evidence, Bank has the right, but not the obligation, to obtain current
coverage and advance funds to pay the premiums for it.  Borrower shall repay Bank immediately on
demand for any advance for such premiums, which will be an additional loan to
Borrower bearing interest at the Default Rate. 
At Bank’s request, Borrower shall supply Bank with an original,
countersigned original, or certified copy of any policy.


 


3.4          Payment
of Expenses.  Borrower shall pay
Bank’s reasonable costs and expenses incurred in connection with the making,
disbursement, and administration of the Credit Facilities.  Borrower shall also pay any and all of Bank’s
costs and expenses incurred in connection with any revisions, extensions,
renewals, or “workouts” of any of the Credit Facilities, and in the exercise of
any of Bank’s rights or remedies under this Agreement.  Such costs and expenses include charges for
document review and preparation, reasonable legal fees and expenses of Bank’s
counsel, and any other reasonable fees and costs for services, regardless of
whether such services are furnished by Bank’s employees or agents or
independent contractors.  Borrower
acknowledges that amounts payable under this Section are not included in any
loan or commitment fees for any of the Credit Facilities.  All such sums incurred by Bank and not
immediately reimbursed by Borrower will be considered an additional loan to
Borrower bearing interest at the Default Rate.


 


3.5          Financial and Other Information.  Borrower
shall keep true and correct financial books and records, using GAAP, or such
other accounting principles as Bank in its reasonable judgment may find
acceptable from time to time.  Borrower
shall provide to Bank the following:


 


(a)           Annual Financial Statements; Annual Report
on Form 10-K.  Via either the Edgar System or
Borrower’s Home Page, within ninety (90)
days after the filing of Borrower’s Annual Report
on Form 10-K for the fiscal year then ended
with the Securities and Exchange Commission, the financial statements
for such fiscal year as contained in such Annual
Report on Form 10-K and, as soon as it shall become available, the
annual report to shareholders of the Borrower for the fiscal year then ended.


 


(b)           Interim Financial Statements; Quarterly
Report on Form 10-Q.  For each fiscal quarter other than the last
fiscal quarter of each fiscal year, via the Edgar System or Borrower’s Home
Page, within forty-five (45) days after the filing of its Quarterly Report on
Form 10-Q for the fiscal quarter then ended
with the Securities and Exchange Commission, copies of the financial
statements for such fiscal quarter as contained in such Quarterly Report on
Form 10-Q


 


(c)           Other Reports.  Via either the Edgar
System or Borrower’s Home Page, promptly after the same become publicly
available, copies of all periodic reports, proxy statements, and other
materials filed by Borrower or any Affiliate of Borrower with the Securities and Exchange Commission or any
governmental authority succeeding to any or all of the functions of the
Securities and Exchange Commission.


 


(d)           Compliance
Certificate.  Within forty-five (45)
days after the end of each fiscal quarter, a certificate in the form attached
hereto as Exhibit A (each,
a “Compliance Certificate”), executed by Borrower’s chief financial officer or
other officer or person acceptable to Bank, certifying (1) that Borrower is in
compliance with the financial covenants set forth in this agreement, including
the minimum Tangible Net


 


9





















 


Worth, Fixed Charge Coverage Ratio, and current ratio requirements set
forth in Sections 3.16, 3.17, and 3.18
below, (2) that the representations and warranties set forth in the Agreement
are true and correct as of the date of the certificate, and (3) that, as of the
date of the certificate, no default or Event of Default, or Unmatured Event of
Default, has occurred and is continuing under the Agreement.


 


(e)           Other Information.  Promptly
upon the request of Bank, such other information as Bank may reasonably request
concerning the affairs and properties of Borrower.


 


Notwithstanding anything
in this Section to the contrary, if for any reason the EDGAR System and/or
Borrower’s Home Page are not available to Borrower as is required for making
available the financial statements or reports referred to above, Borrower shall
then furnish a copy of such financial statements or reports to Bank.


 


3.6          Notices.  Borrower shall notify Bank promptly in
writing of any and all of the following:


 


(a)           Any
existing and/or threatened litigation, claims, investigations, administrative
proceedings, and similar actions affecting Borrower where, if monetary in nature, the amount claimed is or may be Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00) or more, and which
(i) is not dismissed within sixty (60) days of the filing thereof, and (ii) is
not Covered by Insurance.


 


(b)           Any
material adverse change in Borrower’s financial condition, any material adverse
change in Borrower’s operations, or any other circumstance, event, or
occurrence that results in a material adverse change in Borrower’s ability to
timely perform any of its obligations under any of the Loan Documents.


 


(c)            Any
notice that the Borrower’s business fails in any respect to comply with any
Requirement, and/or any substantial dispute
between the Borrower and any government authority.


 


(d)            Any (i) material dispute between the Borrower and
any third party franchisor or licensor, where such party’s franchise or license
is material to Borrower’s business, or (ii) any default or breach under
any franchise agreement or license
agreement to which Borrower is a party, where the franchise or license under
such agreement is material to Borrower’s business.


 


(e)            Any change in the Borrower’s name, legal
structure or business structure, state
in which the Borrower has filed its entity incorporation or organizational
documents, and/or location of its
place of business or its chief executive office if it has more than one place
of business, Borrower’s organizational identification number assigned by the
state of its incorporation or organization, and/or any change in the location
of Borrower’s books and records,
which are currently located at Borrower’s chief executive office.


 


(f)             The
institution of any steps by Borrower to withdraw from or terminate any employee
benefit plan as to which Borrower may have liability.


 


(g)            Any
default, Event of Default, or Unmatured Event of Default under any of the Loan
Documents by Borrower and any alleged breach or default any of the Loan Documents
by Bank.


 


3.7          Audits.  Borrower shall allow Bank and its agents to
inspect Borrower’s properties and examine, audit, and make copies of Borrower’s
books and records at any reasonable time. 
If any of Borrower’s properties, books, or records are in the possession
of a third party, Borrower authorizes that third party to permit Bank or its
agents to have access to perform inspections or audits and to respond to Bank’s
requests for information concerning such properties, books and records.


 


3.8          Keeping
Guarantors and Third Party Pledgors Informed.  If any Credit Facility is guaranteed at any
time, or of any third party has pledged or hypothecated any collateral for any
Credit Facility, Borrower shall keep each such Guarantor and/or third party
pledgor informed of Borrower’s financial condition and business operations, and
any and all other circumstances that may affect Borrower’s ability to pay or
perform its obligations under the Loan Documents.  However, any failure to do so shall not give
rise to any defense to any Guarantor and/or third party pledgor.


 


10





















 


3.9          Use of Proceeds.  Borrower shall use the Loans for the purposes
described in Recital A.
above unless other wise agreed in writing by Bank.


 


3.10        Performance
of Acts.  Upon Bank’s request,
Borrower shall perform all acts necessary or advisable to perfect any lien or
security interest provided for in the Loan Documents or to carry out the intent
of the Loan Documents.


 


3.11        Maintenance of Properties; Preservation of
Rights.  Borrower
shall make any repairs, renewals, or
replacements to keep the Borrower’s properties in good working condition.  Borrower shall obtain, preserve and maintain
in good standing, as applicable, all rights, privileges and franchises
necessary or desirable for the operation of Borrower’s business.


 


3.12        Indemnity
Regarding Hazardous Substances and Other Risks.  Borrower indemnifies, defends, and holds the
Indemnified Parties harmless for, from, and against any and all actual or threatened
liabilities, claims, actions, causes of action, judgments, orders, damages
(including foreseeable and unforeseeable consequential damages), costs,
expenses, fines, penalties, and losses (including sums paid in settlement of
claims and all reasonable consultant, expert and legal fees and expenses of
Bank’s counsel), and any resulting damages, harm or injuries to the person or
property of any third parties, directly or indirectly arising out of or
resulting from (a) the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of any Hazardous Substance by Borrower or any of
its affiliates, and the officers, directors, employees, and agents of each of
them, (d) any failure to satisfy any Requirements, (e) breach of any
representation or warranty made or given by Borrower to any of the Indemnified
Parties, and/or (f) any claim or cause of action of any kind by any party that
any Indemnified Party is liable for any act or omission of Borrower or any other
person or entity in connection with the ownership or operation or Borrower’s
business or any property of Borrower, excepting those arising out of, or
resulting, solely from the applicable Indemnified Party’s gross negligence or
willful misconduct.  Notwithstanding,
anything to the contrary in any other Loan Document, the provisions of this
Section shall survive the termination of this Agreement and the repayment of
any and/or all of the Credit Facilities.


 


3.13        Other Debts.  Except as otherwise disclosed
in writing to Bank prior to the date of this Agreement or provided herein or in
any other Loan Document, without Bank’s prior written consent, Borrower shall
not have outstanding or incur any direct or contingent debts or lease
obligations (other than those to Bank), or become liable for the debts of
others.  This does not prohibit:


 


(a)           Acquiring goods, supplies, or merchandise on
normal trade credit.


 


(b)           Endorsing negotiable instruments received in the
usual course of business.


 


(c)           Debts, lines of credit, and/or leases in
existence on the date of this Agreement previously disclosed in writing to
Bank.


 


3.14        Other Liens.  Except as otherwise disclosed
in writing to Bank prior to the date of this Agreement or provided herein or in
any other Loan Document, without Bank’s prior written consent, Borrower shall
not create, assume, or allow any security interest or lien (including judicial
liens) on property Borrower now or later owns, except:


 


(a)           Security agreements and other security
instruments in favor of Bank.


 


(b)           Liens for taxes not yet due.


 


(c)           Liens outstanding on the date of this Agreement
previously disclosed in writing to the Bank.


 


3.15        Negative
Covenants.  Without Bank’s prior
written consent, Borrower shall not:


 


(a)            engage in
any business activities substantially different from Borrower’s present
business;


 


11





















 


(b)            liquidate
or dissolve Borrower’s business;


 


(c)            lease
or dispose of all or a substantial part of Borrower’s business or Borrower’s
assets;


 


(d)            enter
into any consolidation, merger, pool, joint venture, syndicate or other
combination;


 


(e)            acquire or purchase a business or its assets;


 


(f)             sell or otherwise dispose of any assets for less
than fair market value or enter into any sale and leaseback agreement covering
any of its fixed or capital assets;


 


(g)            make any loans, advances, or other extensions of
credit to anyone; or


 


(h)            sell
or make any distribution of Borrower’s
assets that could adversely affect Borrower’s financial condition.


 


3.16        Tangible Net Worth.  Borrower shall maintain Tangible Net Worth as
of the end of each fiscal quarter in an amount of at least Seventeen
Million Five Hundred Thousand and No/100 Dollars ($17, 500,000.00) (the “Minimum
TNW Amount”); provided, however, that such Minimum TNW Amount
shall be increased annually, as of the end of each fiscal year of Borrower, by
an amount equal to fifty percent (50%) of Borrower’s positive net income in
accordance with GAAP.


 


3.17        Fixed
Charge Coverage Ratio.  Borrower shall maintain a Fixed Charge
Coverage Ratio of at least 1.20 to 1.00. 
This Fixed Charge Coverage Ratio shall be tested quarterly on a rolling
four (4) quarter basis, calculated at the end of each fiscal quarter, using the
results of that fiscal quarter and each of the three (3) immediately preceding
fiscal quarters.


 


3.18        Current
Ratio.  Borrower shall maintain, a ratio of current
assets to current liabilities of at least 1.50 to 1.00.  This current ratio shall be tested
quarterly.  For purposes of this calculation
of Borrower’s current ratio, borrowings under Facility 1 shall be deemed to be
current liabilities.


 


3.19        Employee
Benefit Plans; ERISA Compliance.  Borrower shall at all times maintain, and
cause each Guarantor to at all times maintain, each employee benefit plan as to
which Borrower, or any Guarantor, as the case may be, may have any liability,
in compliance with all applicable laws, rules, and regulations.  Borrower shall at all times comply with, and
cause each Guarantor to comply with, the provisions of ERISA with respect to
any retirement or other employee benefit plan to which it/they is/are a party
as employer.  As soon as possible after
Borrower knows, or has reason to know, that any Reportable Event (as defined in
ERISA) with respect to any such plan of Borrower or any Guarantor has occurred,
it shall furnish to Bank a written statement setting forth details as to such
Reportable Event and the action, if any, which Borrower or applicable Guarantor
proposes to take with respect thereto, together with a copy of the notice of
such Reportable Event furnished to the Pension Benefit Guaranty Corporation.


 


4.             Representations
and Warranties.  Borrower
promises that each representation and warranty set forth below is and will be
true, accurate and correct as of the date of this Agreement.  Each Request for Credit delivered to Bank
will be deemed a reaffirmation of each and every representation and warranty
made by Borrower in this Agreement.


 


4.1          Authority;
Enforceability.  Borrower has
complied with any and all laws and regulations concerning its organization,
existence, and the transaction of its business. 
Borrower is authorized to execute, deliver, and perform its obligations
under the Loan Documents.  Those
documents are valid and binding obligations of Borrower.


 


4.2          Compliance
With Law.  Borrower is familiar
and has complied with all of the Requirements, as well as all other applicable
laws, regulations, and ordinances.  No
provision or obligation of Borrower


 


12





















 


contained in any of the Loan Documents violates any of the Requirements
or any order or ruling of any court or governmental entity.


 


4.3          No
Violation.  The execution and
delivery of this Agreement and the other Loan Documents and performance by
Borrower of its obligations hereunder and thereunder will not result in a
default under any other material agreement to which Borrower is a party.


 


4.4          No
Claims.  No claims, actions,
proceedings, or investigations are pending against Borrower, except for those
previously disclosed by Borrower to Bank in writing.  To the best of Borrower’s knowledge, no
threat of any such claim, action, proceeding, or investigation exists, except
for those previously disclosed by Borrower to Bank in writing.


 


4.5          Financial
Information.  All financial
information delivered to Bank, including all information relating to the
financial condition of Borrower and/or any of its Affiliates fairly and
accurately represents the financial condition being reported on as of its
date.  All such information is prepared
in accordance with GAAP consistently applied, unless otherwise noted.  There has been no material adverse change in
the financial condition of Borrower and/or any of its Affiliates, except as
previously disclosed to Bank in writing in later financial information and
found acceptable to Bank in its sole and absolute discretion.


 


4.6          Accuracy.  All reports, documents, instruments,
information, and forms of evidence delivered to Bank concerning the Credit
Facilities or required by this Agreement, any loan commitment, and/or the other
Loan Documents are accurate, correct, and sufficiently complete to give Bank
true and accurate knowledge of their subject matter.  None of them contains any misrepresentation
or material omission.


 


4.7          Taxes.  Borrower has filed all required state,
federal, and local income tax returns and has paid all taxes when due and
payable.  Borrower knows of no basis for
any additional assessment of taxes.


 


4.8          Borrower
Not a “Foreign Person”.  Borrower
is not a “foreign person” within the meaning of Section 1445(f)(3) of the
Internal Revenue Code of 1986, as amended from time to time.


 


4.9          No
Breaches or Defaults. No event has occurred and is continuing which
would constitute a default or Event of Default (as defined in the applicable
document) or an Unmatured Event of Default under any of the Loan Documents.


 


4.10        Disclosure
to Guarantors and Third Parties. 
Before any Guarantor and/or any other third party (if any) became
obligated in connection with the Credit Facilities (or any of them) or under
any of the Loan Documents, Borrower made full disclosure to that Guarantor
and/or third party trustor or pledgor regarding Borrower’s financial condition
and business operations, and all other circumstances bearing upon Borrower’s
ability to pay and perform its obligations under the Loan Documents.


 


5.             Default
and Remedies.


 


5.1          Events of Default.  An Event of Default will occur under this
Agreement upon the occurrence of any of the following events:


 


(a)           Borrower
fails to make any payment of principal or interest under the Note within ten
(10) days after the date when due; or


 


(b)           Borrower
fails to comply with any provision or covenant contained in this Agreement
calling for the payment of money and does not cure that failure within ten (10)
days after written notice from Bank; or


 


(c)           Borrower
or any Guarantor becomes insolvent or the subject of any Insolvency Proceeding,
or any such party consents to the appointment or taking of possession by a
receiver (or similar official) with respect to its business or property, or
makes an assignment for the benefit of creditors; provided, however,
that any involuntary Insolvency Proceeding shall not be considered an Event of
Default


 


13





















 


hereunder if it is either (i) consented to in writing by Bank, or
(ii) dismissed within ninety (90) days of the filing thereof; or


 


(d)           Borrower
or any Guarantor dissolves or liquidates; or


 


(e)           Any
representation or warranty when made or given in any of the Loan Documents
proves to be false or misleading in any material respect; or


 


(f)            A
material adverse change in Borrower’s or any Guarantor’s financial condition,
or an event or condition materially impairing Borrower’s or any Guarantor’s
ability to repay the Loan occurs; or


 


(g)           Borrower
fails to meet the conditions of, or fails to perform any obligation under, any
other agreement Borrower has with Bank or any affiliate of Bank; or


 


(h)           Any
Guarantor fails to meet the conditions of, or fails to perform any obligation
under, any other agreement any of Guarantor or such affiliated person has with
Bank or any affiliate of Bank (subject to applicable notice and cure periods);
or


 


(i)            Borrower
defaults under any agreement in connection with any credit in the amount of Twenty-Five Thousand and No/100
Dollars ($25,000.00) or more that Borrower has obtained from anyone else
if the default consists of failing to make a payment when due or gives the
other lender the right to accelerate the obligation; or


 


(j)            Any
Guarantor defaults under any agreement in connection with any credit in the amount of Twenty-Five Thousand and No/100
Dollars ($25,000.00) or more that Guarantor has obtained from anyone
else if the default consists of failing to make a payment when due or gives the
other lender the right to accelerate the obligation (each subject to applicable
notice and cure periods); or


 


(k)           Any
of the following occurs:  (i) a lawsuit
is filed against Borrower or any Guarantor where
the amount claimed is Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00) or more and which (A) is not dismissed within sixty (60)
days of the filing thereof, and (B) is not Covered by Insurance, (ii) a
judgment or judgments are entered against Borrower or any Guarantor, or (iii)
any government authority takes action materially adversely affecting Borrower’s
or any Guarantor’s ability to repay the Loan; or


 


(l)            Bank fails to have an enforceable first-priority lien on or first-priority security interest in
any property given as security for the Loan (except as otherwise agreed by Bank
in writing); or


 


(m)          Under any
of the Loan Documents, a default or an Event of Default (as defined in that
document, subject to applicable notice and cure periods) occurs.


 


(n)           A default or Event of Default (as defined in that document,
subject to applicable notice and cure periods) occurs under any Guaranty, or any Guaranty becomes unenforceable for
any reason, or any Guarantor purports to revoke or terminate its Guaranty; or


 


(k)           Borrower
has failed to timely deliver to Bank any Compliance Certificate, or fails to
maintain (i) the minimum Tangible Net Worth required under Section 3.16, or (ii) the minimum Fixed
Charge Coverage Ratio required under Section 3.17,
or (iii) the minimum current ration required under Section 3.18; or


 


(l)            Borrower
fails to comply with any provision contained in this Agreement, other than
those events specifically referred to above and thus set out as separate Events
of Default in this Section 5.1.


 


5.2          Remedies.


 


(a)           If
an Event of Default occurs under this Agreement, Bank may exercise any right or
remedy under any of the Loan Documents or otherwise available at law or in
equity, and all of Bank’s rights and remedies are cumulative.  If any Event of Default occurs, Bank’s obligation
to lend under the Loan


 


14





















 


Documents automatically terminates, and Bank in its sole and absolute
discretion may withhold any one or more disbursements.  Bank may also withhold any one or more
disbursements after an Unmatured Event of Default occurs and is
continuing.  By making any disbursement
under any Credit Facility, Bank will not be deemed to have waived any Event of
Default unless Bank agrees otherwise in writing in each instance.


 


(b)           If
Borrower becomes the subject of any Insolvency Proceeding (which, if an
involuntary Insolvency Proceeding has not been (i) consented to in writing by
Bank, or (ii) dismissed within ninety (90) days of the filing thereof), all of
Borrower’s obligations under the Loan Documents automatically become
immediately due and payable upon the filing of the petition commencing such
proceeding, all without notice of default, presentment or demand for payment,
protest, or notice of nonpayment or dishonor, or other notices or demands of
any kind or character.  Upon the
occurrence of any other Event of Default, all of Borrower’s obligations under
the Loan Documents may become due and payable immediately without notice of
default, presentment, or demand for payment, protest, or notice of nonpayment
or dishonor, or other notices or demands of any kind or character, all at Bank’s
option, exercisable in its sole and absolute discretion.  If such acceleration occurs, Bank may apply
any undisbursed loan funds and any sums in the Account (if any) to Borrower’s
obligations under the Loan Documents, in any order and proportions as Bank may
determine in its sole and absolute discretion.


 


(c)           As security for the payment and performance of all obligations of Borrower
under the Loan Documents, Borrower hereby grants Bank a security interest in, a
lien on, and an express contractual right to set off against all depository
account balances, cash, and any other property of Borrower now or hereafter in
the possession of Bank and the right to refuse to allow withdrawals from any
account.  Without limiting the foregoing,
the security interest granted herein and the right of setoff granted to Bank
hereunder is intended to cover and include the Account.  Bank may, at any time upon the occurrence of
any default or Event of Default or Unmatured Event of Default under this
Agreement or any other Loan Document, setoff against any amounts outstanding
under any of the Credit Facilities whether or not such Credit Facility or any
portion thereof is then due or has been accelerated, all without any advance or
contemporaneous notice of demand of any kind to Borrower, such notice and
demand being expressly waived.


 


6.             Waiver
of Jury Trial.  BORROWER HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY OR
OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION BASED UPON OR ARISING UNDER
THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO
THE DISCUSSIONS, DEALINGS, OR ACTIONS OF THE PARTIES TO THIS AGREEMENT OR
EITHER OF THEM (WHETHER ORAL OR WRITTEN) WITH RESPECT THERETO, OR TO THE
TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREINAFTER
ARISING, AT LAW OR IN EQUITY, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS.  BORROWER HEREBY CONSENTS AND
AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED
BY A TRIAL COURT WITHOUT A JURY, AND THAT EITHER PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY HEREOF WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE BORROWER TO THE WAIVER OF ITS RIGHT TO TRIAL BY
JURY.  BORROWER ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND
EACH OTHER PROVISION OF THIS AGREEMENT AND EACH OTHER DOCUMENT TO WHICH IT IS A
PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK IN MAKING THE
LOAN.  BORROWER FURTHER REPRESENTS AND
WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN
THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE
OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN
FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.


 


7.             Miscellaneous
Provisions.


 


7.1          No
Waiver; Consents.  Each waiver by
Bank must be in writing, and no waiver may be construed as a continuing
waiver.  No waiver shall be implied from
Bank’s delay in exercising or failure to exercise any right or remedy against
Borrower.  Bank’s consent to any act or
omission by Borrower shall not


 


15





















 


be construed as a consent to any other or subsequent act or omission or
as a waiver of the requirement for Bank’s consent to be obtained in any future
or other instance.  All Bank’s rights and
remedies are cumulative.


 


7.2          Standard
for Bank Approvals; Purpose and Effect of Bank Approval. Unless a
different standard is specifically prescribed, (a) all documents and items
submitted to Bank under this Agreement or under the other Loan Documents must
be acceptable to Bank in its sole and absolute discretion, and (b) consents and
approvals by Bank required under this Agreement or under the other Loan
Documents shall be in Bank’s sole and absolute discretion.  Bank’s approval of any matter in connection
with any Credit Facility is for the sole purpose of protecting Bank’s and
rights.  No such approval shall result in
a waiver of any default of Borrower.  In
no event shall Bank’s approval be a representation of any kind with regard to
the matter being approved.


 


7.3          No
Third Parties Benefited.  This
Agreement is made and entered into for the sole protection and benefit of Bank
and Borrower and their permitted successors and assigns.  No trust fund is created by this Agreement,
and no other persons or entities have any right of action under this Agreement
or any right to any funds, credit, or financial accommodation under any Credit Facility.


 


7.4          Joint
and Several Liability.  If more
than one person or entity executes this Agreement as Borrower, each shall be
jointly and severally liable to Bank for the faithful performance of the
obligations of Borrower under this Agreement and the other Loan Documents.


 


7.5          Notices.  All notices given under this Agreement shall
be in writing and be given by personal delivery, overnight receipted courier
(such as UPS, Airborne, or Federal Express) or by registered or certified
United States mail, postage prepaid, sent to the party at its address appearing
below its signature.  Notices shall be
effective upon the first to occur of receipt, when proper delivery is refused,
or the expiration of forty-eight (48) hours after deposit in registered or
certified United States mail as described above.  Addresses for notice may be changed by any
party by notice to any other party in accordance with this Section.  If Borrower is a partnership, service of any
notice on any general partner of Borrower is effective service on Borrower for
all purposes. If more than one person or entity executes this Agreement as
Borrower, service of any notice on any one Borrower shall be effective service
on all Borrower parties for all purposes.


 


7.6          Actions.  Bank shall have the right, but not the
obligation, to commence, appear in, and defend any action or proceeding that
might affect its security or its rights, duties, or liabilities relating to the
Credit Facilities or any of the Loan Documents. 
Borrower shall pay promptly on demand all of Bank’s out-of-pocket costs,
expenses, and reasonable legal fees and expenses of Bank’s counsel incurred in
those actions or proceedings.


 


7.7          Attorneys’
Fees.  In any lawsuit or
arbitration arising out of or relating to this Agreement, the Loan Documents or
any of the Credit Facilities, the prevailing party will be entitled to recover
from each other party such sums as the court or arbitrator adjudges to be
reasonable attorneys’ fees in the action or arbitration, in addition to costs
and expenses otherwise allowed by law. 
In all other actions or proceedings, including any matter arising out of
or relating to any Insolvency Proceeding, Borrower agrees to pay all of Bank’s
costs and expenses, including reasonable attorneys’ fees, incurred in enforcing
or protecting Bank’s rights or interests. 
From the time(s) incurred until paid in full to Bank, all such sums
shall bear interest at the Default Rate. 
Whenever Borrower is obligated to pay or reimburse Bank for any
attorneys’ fees, those fees include the allocated costs for services of
in-house counsel, to the extent not prohibited by applicable law.


 


7.8          Governing
Law.  This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Arizona, without regard to the choice of law rules of that State, except to the
extent that any of such laws may now or hereafter be preempted by Federal
law.  Borrower consents to the
jurisdiction of any Federal or State court within the State of Arizona, submits
to venue in such state, and also consents to service of process by any means
authorized by Federal law or the law of such state.  Without
limiting the generality of the foregoing, Borrower hereby waives and agrees not to assert by way of
motion, defense, or otherwise in such suit, action, or proceeding, any claim
that (i) Borrower is not subject to
the jurisdiction of the courts of the above-referenced state or the United
States District Court for such state, or (ii) such suit, action, or proceeding
is brought in an inconvenient forum, or (iii) the venue of such suit, action,
or proceeding is improper.


 


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7.9          Heirs,
Successors, and Assigns; Participations.  The terms of this Agreement shall bind and
benefit the heirs, legal representatives, successors, and assigns of the
parties; provided, however, that Borrower may not assign this
Agreement or any rights under any Credit Facility, or assign or delegate any of
its rights or obligations, without the prior written consent of Bank in each
instance.  Bank in its sole and absolute
discretion may sell or assign any Credit Facility or participations or other
interests in all or part of Credit Facility on the terms and subject to the
conditions of the Loan Documents, all without notice to or the consent of
Borrower.  Also without notice to or the
consent of Borrower, Bank or its affiliates may disclose to any actual or
prospective purchaser of any securities issued or to be issued by Bank and to
any actual or prospective purchaser or assignee of any participation or other
interest in any Credit Facility (whether under this Agreement or otherwise),
any financial or other information, data or material in Bank’s possession
relating to Borrower or any Credit Facility.


 


7.10        Relationships
With Other Bank Customers.  From
time to time, Bank may have business relationships with Borrower’s customers,
suppliers, contractors, tenants, partners, members, shareholders, officers, or
directors, or with businesses offering products or services similar to those of
Borrower, or with persons seeking to invest in, borrow from, or lend to
Borrower.  Borrower agrees that Bank may
extend credit to such parties and take any action it deems necessary to collect
the credit, regardless of the effect that such extension or collection of
credit may have on Borrower’s financial condition or operations.  Borrower further agrees that in no event
shall Bank be obligated to disclose to Borrower any information concerning any
other Bank customer.


 


7.11        Severability.  The invalidity or unenforceability of any one
or more provisions of this Agreement shall in no way affect any other
provision.  If any court of competent
jurisdiction determines any provision of this Agreement or any of the other Loan
Documents to be invalid, illegal or unenforceable, that portion shall be deemed
severed from the rest, which shall remain in full force and effect as though
the invalid, illegal or unenforceable portion had never been a part of the Loan
Documents.


 


7.12        Interpretation.  Whenever the context requires, all words used
in the singular shall be construed to have been used in the plural, and vice
versa, and each gender shall include any other gender.  The captions of the sections of this
Agreement are for convenience only and do not define or limit any terms or
provisions.  The word “include(s)” means “include(s),
without limitation,” and the word “including” means “including, but not limited
to.”  No listing of specific instances,
items or matters in any way limits the scope or generality of any language of
this Agreement.  Whenever any provision
of this Agreement, including any representation, covenant, or Event of Default
contained herein, applies to a guarantor, third party pledgor, or any other
party to any Loan Document other than Borrower, such provision only applies to
such party during the time that such party’s guaranty, pledge, or other Loan
Document, as applicable, remains in effect.


 


7.13        Amendments.  This Agreement may not be modified or amended
except by a written agreement signed by the party against whom enforcement is
sought.


 


7.14        Counterparts.  This Agreement and any attached consents or
exhibits requiring signatures may be executed in counterparts, and all
counterparts constitute but one and the same document.


 


7.15        Language
of Agreement.  The language of
this Agreement shall be construed as a whole according to its fair meaning and
not strictly for or against any party.


 


7.16        Exchange
of Information.  Borrower agrees
that Bank may exchange or disclose financial and other information about
Borrower with or to any of Bank’s affiliates or other related entities and with
any party that acquires a participation or other interest in all or part of any
Credit Facility.


 


7.17        Survival.  The representations, warranties,
acknowledgments, and agreements set forth herein shall survive the date of this
Agreement.


 


7.18        Further
Performance.  Borrower, whenever
and as often as they shall be requested by Bank, shall execute, acknowledge,
and deliver, or cause to be executed, acknowledged, and delivered to Bank, such
further instruments and documents, and do any and all things as may be
requested, in order to carry out the intent and purpose of this Agreement and
the other Loan Documents.


 


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7.19        Time
is of the Essence.  Time is of
the essence in the performance of this Agreement and the other Loan Documents
by Borrower, and each and every term thereof.


 


7.20        Recitals.  The recitals to this Agreement set forth
above in the “Factual Background” are true, complete, accurate, and correct,
and such recitals are incorporated hereby by reference.


 


7.21        Loan
Commission.  Except as otherwise
agreed in writing by Bank:  (a) Bank
shall not be obligated to pay any brokerage commission or fee in connection
with or arising out of any Credit Facility, and (b) Borrower shall pay any and
all brokerage commissions or fees arising out of or in connection with the
Credit Facilities.


 


7.22        Patriot Act Provisions.  The following notification is provided to
Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C.
Section 5318 (as such maybe amended or recodified from time to time, the “Patriot
Act”):


 


(a)           Important
Information About Procedures for Opening a New Account.  To help the government fight the funding of
terrorism and money laundering activities, federal law requires all financial
institutions to obtain, verify, and record information that identifies each
person or entity that opens an account, including any deposit account, treasury
management account, loan, other extension of credit, or other financial
services product.  Borrower is hereby
notified that when Borrower opens an account, including but not limited to any
Borrower’s Funds Account, and any reserve account that may be required pursuant
to the terms of this Agreement, (i) if Borrower is not an individual, Bank will
ask for Borrower’s name, taxpayer identification number, business address, and
other information that will allow Bank to identify Borrower, and may also ask
to see Borrower’s legal organizational documents or other identifying
documents, and (ii) if Borrower is an individual, Bank will ask for Borrower’s
name, taxpayer identification number, residential address, date of birth, and
other information that will allow Bank to identify Borrower, and may also ask
to see Borrower’s driver’s license or other identifying documents.


 


(b)           Government
Regulation.  Borrower shall not (a)
be or become subject at any time to any law, regulation, or list of any
government agency (including, without limitation, the U.S. Office of Foreign
Asset Control list) that prohibits or limits Bank from making any advance or
extension of credit to Borrower or from otherwise conducting business with
Borrower, or (b) fail to provide documentary and other evidence of Borrower’s
identity as may be requested by Bank at any time to enable Bank to verify
Borrower’s identity or to comply with any applicable law or regulation,
including, without limitation, Section 326 of the Patriot Act.


 


7.23        Integration
and Relation to Loan Commitment. 
The Loan Documents (a) integrate all the terms and conditions mentioned
in or incidental to this Agreement, (b) supersede all oral negotiations and
prior writings with respect to their subject matter, including Bank’s loan
commitment to Borrower, and (c) are intended by the parties as the final
expression of the agreement with respect to the terms and conditions set forth
in those documents and as the complete and exclusive statement of the terms
agreed to by the parties.  No
representation, understanding, promise or condition shall be enforceable
against any party unless it is contained in the Loan Documents.  If there is any conflict between the terms,
conditions and provisions of this Agreement and those of any other agreement or
instrument, including any other Loan Document, the terms, conditions and
provisions of this Agreement shall prevail.


 


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IN WITNESS WHEREOF,
Borrower and Bank have executed this Agreement as of the date first above
written.


 


	
  “BORROWER”

  	
   

  
	
   

  	
   

  
	
  POORE
  BROTHERS, INC.,

  	
  Address for notices to Borrower:

  

  Poore Brothers, Inc.,

  3500 S La Cometa Drive

  Goodyear, Arizona  85338

  Attention:  Rick Finkbeiner

  
	
  a Delaware
  corporation

  
	
   

  
	
  By:

  	
  /s/ Rick
  Finkbeiner

  	
   

  
	
   

  	
  Rick Finkbeiner,
  Senior Vice President,

  Chief Financial Officer, Secretary, and

  Treasurer

  
				



 


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  “BANK”

  	
   

  
	
   

  	
   

  
	
  U.S.
  BANK NATIONAL ASSOCIATION,

  	
  Address for notices to Bank:

  
U.S. Bank National Association

  101 North First Avenue, Suite 1600

  Phoenix, AZ  85003

  Attention:  Commercial Banking

  
	
  a national
  banking association

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Bradley
  Parker

  	
   

  
	
   

  	
  Bradley D.
  Parker, Senior Vice President

  
				



 


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