Document:

EX-10.1

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

	 	 	 
	THE HUFF ALTERNATIVE FUND, L.P., and THE HUFF ALTERNATIVE PARALLEL FUND, L.P.

derivatively on behalf of CIRCLE ENTERTAINMENT INC., formerly known as FX REAL

ESTATE AND ENTERTAINMENT INC.,

Plaintiffs,

-against-

PAUL C. KANAVOS, HARVEY SILVERMAN, MICHAEL J. MEYER, JOHN D. MILLER, ROBERT

SUDACK, ROBERT F.X. SILLERMAN, BRETT TORINO, MITCHELL J. NELSON, LIRA PROPERTY

OWNER, LLC, LIRA LLC, BPS PARTNERS, LLC and BPS PARENT, LLC,

Defendants.

and

CIRCLE ENTERTAINMENT INC., formerly known as FX REAL ESTATE AND ENTERTAINMENT

INC.,

	 	Index No. 650338/2010E

Hon. Eileen Bransten

STIPULATION AND SETTLEMENT

AGREEMENT

	Nominal

	 	

	Defenda

nt.

	 	

	 

	 	 

STIPULATION AND SETTLEMENT AGREEMENT

This Stipulation and Settlement Agreement, dated July 12, 2012 (the “Agreement” or “Settlement
Agreement”) is entered into by and between (i) The Huff Alternative Fund, L.P. and The Huff
Alternative Parallel Fund, L.P. (collectively, “Huff” or the “Plaintiffs”), the plaintiffs in the
above captioned litigation (the “Litigation” or “Action”); (ii) Paul C. Kanavos, Harvey Silverman,
Michael J. Meyer, John D. Miller, Robert Sudack, Robert F.X. Sillerman, Brett Torino, Mitchell J.
Nelson, Lira Property Owner, LLC, Lira LLC, BPS Partners, LLC and BPS Parent, LLC (collectively,
“Defendants”); and (iii) nominal defendant Circle Entertainment Inc., formerly known as FX Real
Estate and Entertainment Inc. (“FXRE” or “the Company”) (i-iii collectively, the “Settling
Parties”), subject to approval of the Court pursuant to New York Business Corporation Law (“BCL”)
§§ 626(d) and (e).

WHEREAS, all terms with initial capitalization not otherwise defined herein shall have the
meanings ascribed to them in paragraph 1 herein;

WHEREAS, on April 28, 2010, Huff filed a Verified Shareholder Derivative Complaint (the
“Original Complaint”) in the Supreme Court of the State of New York, New York County (the “Court”),
in which it asserted derivative claims on behalf of the Company against the Original Defendants
for, among other things, breach of fiduciary duty and usurpation of corporate opportunity;

WHEREAS, on May 25, 2011, the Court entered a Decision and Order in which it (i) denied
Defendant Kanavos’s motion to dismiss the usurpation of corporate opportunity claim against him,
(ii) dismissed without leave to replead the usurpation of corporate opportunity claim against
Torino, (iii) dismissed with leave to replead the remaining breach of fiduciary duty claims against
the Original Defendants;

WHEREAS, on June 27, 2011, Huff filed a Notice of Appeal appealing dismissal of the usurpation
of corporate opportunity claim against Torino (the “Appeal”).

WHEREAS, on June 27, 2011, Huff filed a Verified Amended Complaint (the “Amended Complaint”),
in which it asserted both derivative claims on behalf of the Company as well as direct claims
against the Defendants for, among other things, breach of fiduciary duty, aiding and abetting
breach of fiduciary duty, unjust enrichment, conversion, fraud and imposition of a constructive
trust;

WHEREAS, the Defendants have denied, and continue to deny, any and all liability in connection
with the Action;

WHEREAS, Plaintiffs and Plaintiffs’ Counsel have concluded that the terms and conditions of
this Agreement are fair, reasonable and adequate to the Company, and in its best interests, and
have agreed to settle the Released Plaintiff Claims (defined herein) pursuant to the terms and
provisions of this Agreement, after considering (i) the substantial benefits that the Company will
receive from resolution of these claims on the terms set forth herein; (ii) the uncertainty that a
trial on the merits could result in a judgment providing the Company the same or substantially the
same benefits; (iii) the attendant risks and uncertainty of continued litigation of these claims;
and (iv) the desirability of permitting the Settlement to be consummated without delay as provided
by the terms of this Agreement;

WHEREAS, the Parties wish to resolve on the terms herein any and all claims that were asserted
or, could have been asserted directly or derivatively against the Released Defendant Parties in the
Action;

WHEREAS, Plaintiffs allege that Torino and/or one or more of the Torino Parties agreed,
promised, committed or otherwise undertook to purchase Huff’s shares in the Company (the “Torino
Stock Transaction”) and Torino and the Torino Parties deny ever so agreeing, promising, committing
or otherwise undertaking to purchase Huff’s shares in the Company;

WHEREAS, this Agreement does not settle or compromise any claim that Plaintiffs may have
against any of the Torino Parties relating to or arising out of the Torino Stock Transaction,
whether for breach of contract, tort, estoppel or otherwise;

WHEREAS, all rights of Plaintiffs against the Torino Parties with respect to claims relating
to or arising out of the Torino Stock Transaction, and any person or entity other than the Released
Defendant Parties are specifically reserved by Plaintiffs;

NOW THEREFORE, it is STIPULATED AND AGREED, by and among the Parties, through their respective
counsel, subject to approval of the Court pursuant to BCL §§ 626(d) and (e), in consideration of
the benefits flowing to the Settling Parties from the Settlement, that all Released Plaintiff
Claims as against the Released Defendant Parties, and all Released Defendant Claims against the
Released Plaintiff Parties, shall be compromised, settled, released and dismissed with prejudice,
upon and subject to the following terms and conditions:

DEFINITIONS

1. As used in this Agreement, the following terms shall have the following meanings:

(a) “Approval Order” means the proposed order and judgment to be entered approving the
Settlement, substantially in the form attached hereto as Exhibit A, or any other form of order
entered by the Court approving the Settlement that does not depart materially from the terms of
this Agreement.

(b) “Court” means Supreme Court of the State of New York, County of New York.

(c) “Defendants” means the defendants to the Litigation, including the Officer Defendants,
Non-Officer Defendants, Entity Defendants and nominal defendant, FXRE.

(d) “Defendants’ Counsel” means the law firm of Kramer Levin Naftalis &

Frankel LLP on behalf of Defendants except Torino with respect to Counts I-III of the Amended
Complaint and Defendants except Torino, BPS Partners, LLC and BPS Parent, LLC with respect to Count
X of the Amended Complaint, and the law firm of Kaye Scholer LLP on behalf of Defendant Torino with
respect to Counts I and II of the Amended Complaint, and Defendants with respect to Counts IV-XI of
the Amended Complaint.

(e) “Entity Defendants” means LIRA Property Owner, LLC; LIRA LLC; BPS Partners, LLC; BPS
Parent LLC.

(f) “Independent Director” means a director of the Company other than a current or former
executive, officer or employee of the Company.

(g) “Non-Officer Defendants” means Harvey Silverman (“Silverman”), Michael J. Meyer (“Meyer”),
John D. Miller (“Miller”), and Robert Sudack (“Sudack”).

(h) “Officer Defendants” means Robert F.X. Sillerman (“Sillerman”), Paul C. Kanavos
(“Kanavos”), Brett Torino (“Torino”) and Mitchell J. Nelson (“Nelson”).

(i) “Original Defendants” means Sillerman, Kanavos, Torino, Silverman, Meyer, Miller and
Sudack.

(j) “Plaintiffs” means the plaintiffs to this litigation.

(k) “Plaintiffs’ Counsel” means the law firm of Cadwalader, Wickersham & Taft LLP.

(l) “Released Defendant Claims” means any and all claims, demands, rights, actions, potential
actions, causes of action, liabilities, damages, losses, obligations, judgments, duties, suits,
agreements, costs, expenses, debts, interest, penalties, sanctions, fees, attorneys’ fees,
judgments, decrees, matters, issues, and controversies of any kind, nature or description
whatsoever, whether based on federal, state, local, statutory or common law or any other law, rule
or regulation, whether fixed or contingent, accrued or un-accrued, liquidated or un-liquidated, at
law or in equity, matured or un-matured, disclosed or un-disclosed, apparent or un-apparent,
including known claims and Unknown Claims (as defined below), which were or could have been alleged
or asserted in this Litigation or any other litigation by any of the Released Defendant Parties
against any of the Released Plaintiff Parties and their insurers; provided, however, Released
Defendant Claims do not include any claims relating to the enforcement of this Settlement.

(m) “Released Defendant Parties” means the Defendants and their respective estates, heirs,
beneficiaries, administrators, successors, assigns, subsidiaries, affiliates, agents and counsel,
and each of their respective current and former directors, officers, employees, trustees, managers,
governors, members of management committee or management board or equivalent positions.

(n) “Released Plaintiff Claims” means any and all claims, demands, rights, actions, potential
actions, causes of action, liabilities, damages, losses, obligations, judgments, duties, suits,
agreements, costs, expenses, debts, interest, penalties, sanctions, fees, attorneys’ fees,
judgments, decrees, matters, issues, and controversies of any kind, nature or description
whatsoever, whether based on federal, state, local, statutory or common law or any other law, rule
or regulation, whether fixed or contingent, accrued or un-accrued, liquidated or un-liquidated, at
law or in equity, matured or un-matured, disclosed or un-disclosed, apparent or un-apparent,
including known claims and Unknown Claims (as defined below), which were or could have been alleged
or asserted in this Litigation or any other litigation by any of the Released Plaintiff Parties
against any of the Released Defendant Parties and their insurers; provided, however, Released
Plaintiff Claims do not include any claim that Plaintiffs may have against any of the Torino
Parties relating to or arising out of the Torino Stock Transaction, or any other claims Plaintiffs
may have against any person or entity other than the Released Defendant Parties. Released
Plaintiff Claims also do not include any claims relating to the enforcement of this Settlement.

(o) “Released Plaintiff Parties” means Plaintiffs and their respective estates, heirs,
beneficiaries, administrators, successors, assigns, subsidiaries, affiliates, agents and counsel,
and each of their respective current and former directors, officers, employees, trustees, managers,
governors, members of management committee or management board or equivalent positions.

(p) “Settlement” means the settlement contemplated by this Agreement

(q) “Torino Parties” means defendant Brett Torino and his estates, heirs, beneficiaries,
administrators, successors, assigns, subsidiaries, agents, affiliates and any entity which Torino
directly or indirectly controls or controlled, or in which Torino has or had a financial or
ownership interest, but does not include any of: (i) the Non-Officer Defendants or Officer
Defendants, other than Torino, (ii) the Company, or (iii) the Entity Defendants.

(r) “Unknown Claims” means (i) any and all claims that FXRE, Plaintiffs or any other FXRE
shareholder does not know or suspect to exist in his, her or its favor at the time of the release
of the Released Defendant Parties, which if known, could have been alleged or asserted in this
Litigation or any other litigation; and (ii) any and all claims that any Defendant of any other
Released Defendant Party does not know or suspect to exist in his, her or its favor at the time of
the release of the Released Plaintiff Parties, which if known, could have been alleged or asserted
in this Litigation, or any other litigation.

SETTLEMENT TERMS

2. The Company shall elect to its board of directors, by no later than sixty (60) days after
the Effective Date, an additional Independent Director (the “New Director”). After the election of
the new Independent Director pursuant to the Settlement, the Company shall not decrease the number
of independent directors for a period of at least three (3) years from the Effective Date. The New
Director shall be a member of all Board Committees.

3. As a result of an arm’s length negotiation by Defendants’ Counsel and Plaintiffs’ Counsel,
the Defendants have agreed, subject to Court approval, to deliver the sum of $950,000 to Huff as
payment for part of the costs and expenses, including attorneys’ fees, incurred by Huff in
connection with matters relating to this Action and the results achieved in this Action (the “Fee
and Expense Award”).

4. Within 15 days after the Effective Date, the Company shall, by wire transfer of immediately
available funds (pursuant to the wire instructions annexed hereto as Exhibit B) or by check,
deliver the Fee and Expense Award to Huff.

5. Upon the Effective Date, Huff, the Company, and each and every Company shareholder, on
behalf of themselves, their heirs, executors, administrators, predecessors, successors and assigns,
shall be deemed by operation of law to have fully, finally and forever released, waived, discharged
and dismissed each and every Released Plaintiff Claim against the Released Defendant Parties and
their insurers, and shall forever be enjoined from prosecuting any or all Released Plaintiff Claims
against any and all Released Defendant Parties and their insurers.

6. Upon the Effective Date, each of the Defendants and the other Released Defendant Parties,
on behalf of themselves, their heirs, executors, administrators, predecessors, successors and
assigns, shall be deemed by operation of law to have fully, finally and forever released, waived,
discharged and dismissed each and every of the Released Defendant Claims against the Released
Plaintiff Parties and their insurers, and shall forever be enjoined from prosecuting any or all of
the Released Defendant Claims against any and all Released Plaintiff Parties and their insurers.

7. Upon the Effective Date, Huff shall withdraw the Appeal.

8. Each of the Settling Parties further covenants and agrees not to institute, nor cause to be
instituted, nor aid (except as required by law) any legal proceeding of any nature whatsoever
relating to claims that it has released pursuant to paragraphs 5 and 6 above.

9. Notwithstanding anything contained herein to the contrary, Released Plaintiff Claims do not
include, and this Agreement shall not release or compromise, any claim against the Torino Parties
relating to or arising out of the Torino Stock Transaction, or any person or entity other than the
Released Defendant Parties.

10. Except for the Torino Parties, each of the other Released Defendant Parties (the
“Non-Torino Defendants”) hereby represents and warrants that he, she or it did not undertake, or
assume, any obligation themselves to purchase Huff’s shares in the Company other than (1) as a
manner of facilitating the consummation of any Torino Stock Transaction, if and to the extent there
was such a transaction, (2) by such Non-Torino Defendant receiving less consideration for his, her
or its shares than Huff, (3) with the knowledge of Huff at or prior to the time of sale, if any.

PROCEDURE FOR APPROVAL

11. Promptly after this Agreement has been fully executed and no later than five business days
thereafter, the Settling Parties shall submit this Agreement together with its Exhibits to the
Court and shall apply for entry of an Approval Order and Judgment (the “Approval Order”),
substantially in the form attached hereto as Exhibit A.

12. The Company shall be responsible for providing any Notice of the Approval Order required
under New York law and paying any and all costs associated therewith, whether or not the Settlement
becomes effective.

EFFECTIVE DATE OF SETTLEMENT, WAIVER OR TERMINATION

13. The Settlement shall become effective on the Effective Date, which shall be the date when
all of the following shall have occurred:

(a) approval by the Court of the Settlement, as prescribed by BCL §§ 626(d) and (e);

(b) entry of the Approval Order, which shall be in all material respects substantially in the
form set forth in Exhibit A attached hereto;

(c) the claims asserted against the Defendants are dismissed with prejudice;

(d) the time for any party or objector to appeal has expired, if no notice of appeal is filed;
and

(e) if a notice of appeal is filed, entry of a final, non-appealable order affirming the
Approval Order, or expiration of the time to file any further appeals of the Approval Order.

14. The Settling Parties shall have the right to terminate the Agreement by providing written
notice of their election to do so (“Termination Notice”), through counsel, to all other Settling
Parties hereto within thirty (30) calendar days of: (a) the Court’s refusal to approve this
Settlement Agreement substantially in the form submitted, in a manner that is materially
detrimental to any Settling Party; (b) the Court’s refusal to enter the Approval Order
substantially in the form attached hereto as Exhibit A or any other form that does not depart
materially from the terms of this Agreement (c) the date upon which the Approval Order is modified
or reversed substantially, in a manner that is materially detrimental to any Settling Party, by the
Supreme Court of the State of New York, Appellate Division or the New York Court of Appeals.

15. Except as otherwise provided herein, in the event the Settlement is terminated or the
Effective Date cannot occur for any reason, then: the Settlement shall be without prejudice, and
none of its terms shall be effective or enforceable except as specifically provided herein; the
Settling Parties shall be deemed to have reverted to their respective positions in this Litigation
immediately prior to the execution of this Settlement Agreement on July 12, 2012; and, except as
otherwise expressly provided, the Settling Parties shall proceed in all respects as if this
Agreement and any related orders had not been entered. In such event, the fact and terms of the
Settlement, and any aspect of the negotiations leading to this Settlement Agreement, shall not be
admissible in this Litigation and shall not be used by Plaintiffs against the Defendants or by the
Defendants against Plaintiffs in any court filings, depositions, at trial or otherwise, and any
judgments or orders entered by the Court in accordance with the terms of the Settlement Agreement
shall be treated as vacated nunc pro tunc.

NO ADMISSION OF WRONGDOING

16. This Agreement, whether or not approved by the Court, and any negotiations, proceedings or
agreements relating to it shall not be offered or received against any of the Settling Parties as
evidence of or construed as or deemed to be evidence of (a) any liability, negligence, fault, or
wrongdoing of any of the Settling Parties, (b) a presumption, concession, or admission with respect
to any liability, negligence, fault, or wrongdoing, or in any way referred to for any other reason
as against any of the Parties, in any other civil, criminal, or administrative action or
proceeding, other than such proceedings as may be necessary to effectuate the provisions of this
Agreement, (c) a presumption, concession, or admission by any of the Defendants with respect to the
truth of any fact alleged in the Litigation or the validity of any of the claims or the deficiency
of any defense that was or could have been asserted in the Litigation, (d) a presumption,
concession, or admission by Plaintiffs of any infirmity in the claims asserted, or (e) an admission
or concession that the consideration to be given hereunder represents the consideration which could
be or would have been recovered at trial.

17. Nothing herein, however, shall prevent any of the Settling Parties from using this
Agreement, or any document or instrument delivered hereunder (a) to effect or obtain Court approval
of this Agreement, (b) to enforce the terms of this Agreement, or (c) if the Settlement is approved
by the Court, for purposes of defending, on the grounds of res judicata, collateral estoppel,
release, or any other theory of claim preclusion or issue preclusion or similar defense or
counterclaim, any of the Released Plaintiff Claims and any Released Defendant Claims released
pursuant to this Agreement.

MISCELLANEOUS PROVISIONS

18. All of the Exhibits attached hereto are hereby incorporated by reference as though fully
set forth herein.

19. The Parties intend this Settlement to be a final and complete resolution of all disputes
asserted or which could be asserted by Plaintiffs against all Released Defendant Parties with
respect to all Released Plaintiff Claims. Accordingly, Plaintiffs and their respective counsel and
the Defendants and their respective counsel agree not to assert in any forum or to any media
representative (whether or not for attribution) that this Litigation was brought by Plaintiffs or
defended by the Defendants in bad faith or without a reasonable basis. The Parties shall assert no
claims of any violation of Section 130-1.1 of the New York Codes, Rules and Regulations relating to
the prosecution, defense, or settlement of this Litigation. The Parties agree that the terms of
this Settlement were negotiated at arm’s-length and in good faith, and reflect a settlement that
was reached voluntarily after consultation with experienced legal counsel.

20. This Agreement may not be modified or amended, nor may any of its provisions be waived
except by a writing signed by all signatories hereto or their successors-in-interest.

21. The headings herein are used for the purpose of convenience only and are not meant to have
legal effect.

22. The waiver by any Settling Party of any breach of this Agreement by any other Settling
Party shall not be deemed a waiver of any other prior or subsequent breach of this Agreement.

23. This Agreement and its Exhibits constitute the entire agreement among the Settling Parties
concerning this Settlement, and no representations, warranties, or inducements have been made by
any party hereto concerning this Agreement and its Exhibits other than those contained and
memorialized in such documents. For avoidance of doubt, this Agreement does not preclude any party
from pursuing claims against any of the Torino Parties relating to or arising out the Torino Stock
Transaction.

24. This Agreement may be executed in one or more original and/or faxed counterparts. All
executed counterparts and each of them shall be deemed to be one and the same instrument provided
that counsel for the signatories of this Agreement shall exchange among themselves original signed
counterparts.

25. This Agreement shall be binding upon, and inure to the benefit of, the successors and
assigns of the Settling Parties.

26. The construction, interpretation, operation, effect and validity of this Agreement, and
all documents necessary to effectuate it, shall be governed, construed and enforced in accordance
with the laws of the State of New York, without regard to the conflict of laws principles thereof.

27. The consummation of this Settlement as embodied in this Agreement shall be under the
authority of the Court, and the Court shall retain jurisdiction for the purpose of enforcing the
terms of this Agreement.

28. This Agreement shall not be construed more strictly against one Settling Party than
another merely by virtue of the fact that it, or any part of it, may have been prepared by counsel
for one of the Settling Parties, it being recognized that it is the result of arm’s-length
negotiations between the Settling Parties and all Settling Parties have contributed substantially
and materially to the preparation of this Agreement.

29. All counsel and any other person executing this Agreement and any of the Exhibits hereto,
or any related Settlement documents, warrant and represent that they have the full authority to do
so and that they have the authority to take appropriate action required or permitted to be taken
pursuant to the Agreement to effectuate its terms.

30. Plaintiffs’ Counsel and Defendants’ Counsel agree to cooperate fully with one another in
seeking Court approval of the Approval Order, the Agreement and this Settlement, and to use best
efforts to promptly agree upon and execute all such other documentation as may be reasonably
required to obtain final approval by the Court of the Settlement.

31. The fact of entry into and execution of this Agreement does not confer personal
jurisdiction over the Torino Parties in the State of New York and subject to and without waiver of
each and every position otherwise that Huff has asserted or may assert as to personal jurisdiction
over the Torino Parties in the State of New York, Huff agrees that it will not under any
circumstances argue that the entry into and execution of this Agreement by the Torino Parties
provides a basis for personal jurisdiction over any or all of them in the State of New York, except
solely with respect to any obligations of the Torino Parties to implement this Agreement.

IN WITNESS WHEREOF, the Settling Parties have caused this Agreement to be executed by their
duly authorized counsel.

	 	 	 
	DATED:

	 	New York, New York

     , 2012

CADWALADER, WICKERSHAM

& TAFT LLP

By:       

Louis M. Solomon

Hal S. Shaftel

One World Financial Center

New York, New York 10281

(212) 504-6000

Attorneys for Plaintiffs The Huff Alternative Fund,
L.P. & The Huff Alternative Parallel Fund, L.P.

1

KRAMER LEVIN NAFTALIS & FRANKEL LLP

By:       

David S. Frankel

Jeremy A. Cohen

1177 Avenue of the Americas

New York, New York 10036

(212)715-9100

Attorneys for Defendants except Torino with respect
to Counts I-III of the Amended Complaint, and
Defendants except Torino, BPS Partners, LLC, and BPS

Parent, LLC with respect to Count X of the Amended
Complaint

KAYE SCHOLER LLP

By:       

Vincent A. Sama

425 Park Avenue

New York, New York 10022-3506

(212) 836-8000

Attorneys for Defendant Torino with respect to Counts
I and II of the Amended Complaint and Defendants with
respect to Counts IV-XI of the Amended Complaint

2bfdi_ex101.htm

EXHIBIT 10.1

 

	 Loan Agreement	 

 

THIS LOAN AGREEMENT (the “Agreement”), is entered into as of June _____, 2012, between BREKFORD CORP. (the “Borrower”), with an address at 7020 Dorsey Road, Suite C, Hanover, Maryland  21076, and PNC BANK, NATIONAL ASSOCIATION (the “Bank”), with an address at Two Hopkins Plaza, 20th Floor, Baltimore, Maryland  21201.

The Borrower and the Bank, with the intent to be legally bound, agree as follows:

1.  Loan.  The Bank has made or may make one or more loans (collectively, the “Loan”) to the Borrower subject to the terms and conditions and in reliance upon the representations and warranties of the Borrower set forth in this Agreement.  The Loan is or will be evidenced by a promissory note or notes of the Borrower and all renewals, extensions, amendments and restatements thereof (if one or more, collectively, the “Note”) acceptable to the Bank, which shall set forth the interest rate, repayment and other provisions, the terms of which are incorporated into this Agreement by reference. The Loan governed by the Agreement shall include, but are not limited, to the following:

1.1.  Committed Line of Credit.  A committed revolving line of credit under which the Borrower may request and the Bank, subject to the terms and conditions of this Agreement, will make advances to the Borrower from time to time until the Expiration Date, in an amount in the aggregate at any time outstanding not to exceed $3,000,000.00 (the “Line of Credit”).  The “Expiration Date” means June ___, 2013, or such later date as may be designated by the Bank by written notice from the Bank to the Borrower.  Advances under the Line of Credit will be used for working capital or other general corporate purposes of the Borrower.

1.1.1.  Commitment Fee. Beginning on the first day of the calendar quarter after the date of the this Agreement and continuing on the first day of each calendar quarter thereafter until the Expiration Date, the Borrower shall pay a fee to the Bank, in arrears, at the rate of one quarter of one percent (0.25%) per annum on the average daily balance of the Line of Credit which is undisbursed and uncancelled during the preceding calendar quarter.

1.2  Equipment Line of Credit.  A committed non-revolving line of credit under which the Borrower may request and the Bank, subject to the terms and conditions of this Agreement, will make advances to the Borrower from time to time until the Equipment Line Expiration Date in an amount in the aggregate at any time outstanding not to exceed $500,000.00 (the “Equipment Line of Credit”).  Prior to the Equipment Line Expiration Date, the Borrower shall have the option to finance the cost of equipment purchases by separate term loans (each, an “Equipment Loan”), subject to the terms and conditions hereof.  Borrower shall have the option to finance up to ninety percent (90%) of the price of equipment purchased by advances under the Equipment Line of Credit, subject to the terms and conditions hereof.  As a condition to making any advances for the purchase of equipment, the Borrower shall provide to the Bank (i) an invoice or purchase order for the equipment to be financed, and (ii) such security agreements, financing statements, original title and such other items as the Bank may reasonably request to ensure that the Bank will have a first priority security interest in the financed equipment.  Upon the Borrower’s election to finance the purchase of equipment through an Equipment Loan, then on the date of such Equipment Loan, the available amount under the Equipment Line of Credit shall be reduced by an amount equal to the principal amount of such Equipment Loan without need for any further action or documentation.  The obligation of the Borrower to repay each Equipment Loan shall be evidenced by a separate promissory note executed by the Borrower (each, an “Equipment Note”), in form and substance satisfactory to the Bank.  The principal amount of each Equipment Loan, together with interest, shall be payable in consecutive monthly installments over such period as agreed on by the Borrower and the Bank at the time of such Equipment Loan, but in no event greater than (a) the depreciable life of the equipment financed or (b) seven (7) years, whichever is less, and in an amount necessary to fully amortize such Equipment Loan over such period.  Interest on the unpaid balance of each Equipment Loan shall be due and payable as set forth in each Equipment Note.  The “Equipment Line Expiration Date” means June __, 2013, or such later date as may be designated by the Bank by written notice to the Borrower.  Once an advance is made under the Equipment Line of Credit, the amount of the advance cannot be reborrowed after it is repaid.

2.  Security.  The security for repayment of the Loan shall include but not be limited to the collateral, guaranties and other documents heretofore, contemporaneously or hereafter executed and delivered to the Bank (the “Security Documents”), which shall secure repayment of the Loan, the Note and all other loans, advances, debts, liabilities, obligations, covenants and duties owing by the Borrower to the Bank or to any other direct or indirect subsidiary of The PNC Financial Services Group, Inc., of any kind or nature, present or future (including any interest accruing thereon after maturity, or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect (including those acquired by assignment or participation), absolute or contingent, joint or several, due or to become due, now existing or hereafter arising, whether or not (i) evidenced by any note, guaranty or other instrument, (ii) arising under any agreement, instrument or document, (iii) for the payment of money, (iv) arising by reason of an extension of credit, opening of a letter of credit, loan, equipment lease or guarantee, (v) under any interest or currency swap, future, option or other interest rate protection or similar agreement, (vi) under or by reason of any foreign currency transaction, forward, option or other similar transaction providing for the purchase of one currency in exchange for the sale of another currency, or in any other manner, or (vii) arising out of overdrafts on deposit or other accounts or out of electronic funds transfers (whether by wire transfer or through automated clearing houses or otherwise) or out of the return unpaid of, or other failure of the Bank to receive final payment for, any check, item, instrument, payment order or other deposit or credit to a deposit or other account, or out of the Bank’s non-receipt of or inability to collect funds or otherwise not being made whole in connection with depository or other similar arrangements; and any amendments, extensions, renewals and increases of or to any of the foregoing, and all costs and expenses of the Bank incurred in the documentation, negotiation, modification, enforcement, collection and otherwise in connection with any of the foregoing, including reasonable attorneys’ fees and expenses (hereinafter referred to collectively as the “Obligations”).  Unless expressly provided to the contrary in documentation for any other loan or loans, it is the express intent of the Bank and the Borrower that all Obligations including those included in the Loan be cross-collateralized and cross-defaulted, such that collateral securing any of the Obligations shall secure repayment of all Obligations and a default under any Obligation shall be a default under all Obligations.

This Agreement, the Note, the Security Documents and all other agreements and documents executed and/or delivered pursuant hereto, as each may be amended, modified, extended or renewed from time to time, are collectively referred to as the “Loan Documents.”  Capitalized terms not defined herein shall have the meanings ascribed to them in the Loan Documents.

3.  Representations and Warranties.  The Borrower hereby makes the following representations and warranties, which shall be continuing in nature and remain in full force and effect until the Obligations are paid in full, and which shall be true and correct except as otherwise set forth on the Addendum attached hereto and incorporated herein by reference (the “Addendum”):

3.1.  Existence, Power and Authority.  If not a natural person, the Borrower is duly organized, validly existing and in good standing under the laws of the State of its incorporation or organization and has the power and authority to own and operate its assets and to conduct its business as now or proposed to be carried on, and is duly qualified, licensed and in good standing to do business in all jurisdictions where its ownership of property or the nature of its business requires such qualification or licensing.  The Borrower is duly authorized to execute and deliver the Loan Documents, all necessary action to authorize the execution and delivery of the Loan Documents has been properly taken, and the Borrower is and will continue to be duly authorized to borrow under this Agreement and to perform all of the other terms and provisions of the Loan Documents.

3.2.  Financial Statements.  If the Borrower is not a natural person, it has delivered or caused to be delivered to the Bank its most recent balance sheet, income statement and statement of cash flows, or if the Borrower is a natural person, its personal financial statement and tax returns (as applicable, the “Historical Financial Statements”).  The Historical Financial Statements are true, complete and accurate in all material respects and fairly present the financial condition, assets and liabilities, whether accrued, absolute, contingent or otherwise and the results of the Borrower’s operations for the period specified therein.  The Historical Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) consistently applied from period to period, subject in the case of interim statements to normal year-end adjustments and to any comments and notes acceptable to the Bank in its sole discretion.

3.3.  No Material Adverse Change.  Since the date of the most recent Financial Statements (as hereinafter defined), the Borrower has not suffered any damage, destruction or loss, and no event or condition has occurred or exists, which has resulted or could result in a material adverse change in its business, assets, operations, condition (financial or otherwise) or results of operation.

  

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3.4.  Binding Obligations.  The Borrower has full power and authority to enter into the transactions provided for in this Agreement and has been duly authorized to do so by appropriate action of its Board of Directors if the Borrower is a corporation, all its general partners if the Borrower is a partnership or otherwise as may be required by law, charter, other organizational documents or agreements; and the Loan Documents, when executed and delivered by the Borrower, will constitute the legal, valid and binding obligations of the Borrower enforceable in accordance with their terms.

 

3.5.  No Defaults or Violations.  There does not exist any Event of Default under this Agreement or any default or violation by the Borrower of or under any of the terms, conditions or obligations of:  (i) its partnership agreement if the Borrower is a partnership, its articles or certificate of incorporation, regulations or bylaws if the Borrower is a corporation or its other organizational documents as applicable; (ii) any indenture, mortgage, deed of trust, franchise, permit, contract, agreement, or other instrument to which it is a party or by which it is bound; or (iii) any law, ordinance, regulation, ruling, order, injunction, decree, condition or other requirement applicable to or imposed upon it by any law, the action of any court or any governmental authority or agency; and the consummation of this Agreement and the transactions set forth herein will not result in any such default or violation or Event of Default.

3.6.  Title to Assets.  The Borrower has good and marketable title to the assets reflected on the most recent Financial Statements, free and clear of all liens and encumbrances, except for (i) current taxes and assessments not yet due and payable, (ii) assets disposed of by the Borrower in the ordinary course of business since the date of the most recent Financial Statements, and (iii) those liens or encumbrances, if any,  specified on the Addendum.

3.7.  Litigation.  There are no actions, suits, proceedings or governmental investigations pending or, to the knowledge of the Borrower, threatened against the Borrower, which could result in a material adverse change in its business, assets, operations, condition (financial or otherwise) or results of operations and there is no basis known to the Borrower for any action, suit, proceeding or investigation which could result in such a material adverse change.  All pending and threatened litigation against the Borrower is listed on the Addendum.

3.8.  Tax Returns.  The Borrower has filed all returns and reports that are required to be filed by it in connection with any federal, state or local tax, duty or charge levied, assessed or imposed upon it or its property or withheld by it, including income, unemployment, social security and similar taxes, and all of such taxes have been either paid or adequate reserve or other provision has been made therefor.

3.9.  Employee Benefit Plans.  Each employee benefit plan as to which the Borrower may have any liability complies in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974 (as amended from time to time, “ERISA”), including minimum funding requirements, and (i) no Prohibited Transaction (as defined under ERISA) has occurred with respect to any such plan, (ii) no Reportable Event (as defined under Section 4043 of ERISA) has occurred with respect to any such plan which would cause the Pension Benefit Guaranty Corporation to institute proceedings under Section 4042 of ERISA, (iii) the Borrower has not withdrawn from any such plan or initiated steps to do so, and (iv) no steps have been taken to terminate any such plan.

3.10.  Environmental Matters.  The Borrower is in compliance, in all material respects, with all Environmental Laws (as hereinafter defined), including, without limitation, all Environmental Laws in jurisdictions in which the Borrower owns or operates, or has owned or operated, a facility or site, stores Collateral, arranges or has arranged for disposal or treatment of hazardous substances, solid waste or other waste, accepts or has accepted for transport any hazardous substances, solid waste or other wastes or holds or has held any interest in real property or otherwise.  Except as otherwise disclosed on the Addendum, no litigation or proceeding arising under, relating to or in connection with any Environmental Law is pending or, to the best of the Borrower’s knowledge, threatened against the Borrower, any real property which the Borrower holds or has held an interest or any past or present operation of the Borrower.  No release, threatened release or disposal of hazardous waste, solid waste or other wastes is occurring, or to the best of the Borrower’s knowledge has occurred, on, under or to any real property in which the Borrower holds or has held any interest or performs or has performed any of its operations, in violation of any Environmental Law.  As used in this Section, “litigation or proceeding” means any demand, claim notice, suit, suit in equity, action, administrative action, investigation or inquiry whether brought by a governmental authority or other person, and “Environmental Laws” means all provisions of laws, statutes, ordinances, rules, regulations, permits, licenses, judgments, writs, injunctions, decrees, orders, awards and standards promulgated by any governmental authority  concerning health, safety and protection of, or regulation of the discharge of substances into, the environment.

3.11.  Intellectual Property.  The Borrower owns or is licensed to use all patents, patent rights, trademarks, trade names, service marks, copyrights, intellectual property, technology, know-how and processes necessary for the conduct of its business as currently conducted that are material to the condition (financial or otherwise), business or operations of the Borrower.

3.12.  Regulatory Matters.  No part of the proceeds of the Loan will be used for “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time in effect or for any purpose which violates the provisions of the Regulations of such Board of Governors.

3.13.  Solvency.  As of the date hereof and after giving effect to the transactions contemplated by the Loan Documents, (i) the aggregate value of the Borrower’s assets will exceed its liabilities (including contingent, subordinated, unmatured and unliquidated liabilities), (ii) the Borrower will have sufficient cash flow to enable it to pay its debts as they become due, and (iii) the Borrower will not have unreasonably small capital for the business in which it is engaged.

3.14.  Disclosure.  None of the Loan Documents contains or will contain any untrue statement of material fact or omits or will omit to state a material fact necessary in order to make the statements contained in this Agreement or the Loan Documents not misleading.  There is no fact known to the Borrower which materially adversely affects or, so far as the Borrower can now foresee, might materially adversely affect the business, assets, operations,  condition (financial or otherwise) or results of operation of the Borrower and which has not otherwise been fully set forth in this Agreement or in the Loan Documents.

4.  Affirmative Covenants.  The Borrower agrees that from the date of execution of this Agreement until all Obligations have been paid in full and any commitments of the Bank to the Borrower have been terminated, the Borrower will:

4.1.  Books and Records.  Maintain books and records in accordance with GAAP and give representatives of the Bank access thereto at all reasonable times, including permission to examine, copy and make abstracts from any of such books and records and such other information as the Bank may from time to time reasonably request, and the Borrower will make available to the Bank for examination copies of any reports, statements and returns which the Borrower may make to or file with any federal, state or local governmental department, bureau or agency.

 

4.2.  Interim Financial Statements; Certificate of No Default.  Furnish the Bank within 45 days after the end of each quarter the Borrower’s Financial Statements for such period, in reasonable detail, certified by an authorized officer of the Borrower and prepared in accordance with GAAP consistently applied from period to period.  The Borrower shall also deliver a certificate as to its compliance with applicable financial covenants (containing detailed calculations of all financial covenants) for the period then ended and whether any Event of Default exists, and, if so, the nature thereof and the corrective measures the Borrower proposes to take.  As used in this Agreement, “Financial Statements” means the Borrower’s consolidated and, if required by the Bank in its sole discretion, consolidating balance sheets, income statements and statements of cash flows for the year, month or quarter together with year-to-date figures and comparative figures for the corresponding periods of the prior year.

 

4.3.  Annual Financial Statements.  Furnish the Borrower’s Financial Statements to the Bank within 90 days after the end of each fiscal year.   Those Financial Statements will be prepared on an audited basis in accordance with GAAP by an independent certified public accountant selected by the Borrower and satisfactory to the Bank.  Audited Financial Statements shall contain the unqualified opinion of an independent certified public accountant and all accountant examinations shall have been made in accordance with GAAP consistently applied from period to period.

4.4.  Accounts Receivable/Payable Agings.  Deliver, or cause to be delivered, to Bank not later than 45 days after the end of each quarter Borrower’s detailed schedule of accounts receivable and accounts payable aging analysis, in form and substance satisfactory to Bank.

  

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4.5.  Payment of Taxes and Other Charges.  Pay and discharge when due all indebtedness and all taxes, assessments, charges, levies and other liabilities imposed upon the Borrower, its income, profits, property or business, except those which currently are being contested in good faith by appropriate proceedings and for which the Borrower shall have set aside adequate reserves or made other adequate provision with respect thereto acceptable to the Bank in its sole discretion.

 

4.6.  Maintenance of Existence, Operation and Assets.  Do all things necessary to (i) maintain, renew and keep in full force and effect its organizational existence and all rights, permits and franchises necessary to enable it to continue its business as currently conducted; (ii) continue in operation in substantially the same manner as at present; (iii) keep its properties in good operating condition and repair; and (iv) make all necessary and proper repairs, renewals, replacements, additions and improvements thereto.

4.7.  Insurance.  Maintain, with financially sound and reputable insurers, insurance with respect to its property and business against such casualties and contingencies, of such types and in such amounts,  as is customary for established companies engaged in the same or similar business and similarly situated.  In the event of a conflict between the provisions of this Section and the terms of any Security Documents relating to insurance, the provisions in the Security Documents will control.

4.8.  Compliance with Laws.  Comply with all laws applicable to the Borrower and to the operation of its business (including without limitation any statute, ordinance, rule or regulation relating to employment practices, pension benefits or environmental, occupational and health standards and controls).

4.9.  Bank Accounts.  Establish and maintain at the Bank the Borrower’s primary depository accounts.

4.10.  Financial Covenants.  Comply with all of the financial and other covenants, if any, set forth on the Addendum.

 

4.11.  Additional Reports.  Provide prompt written notice to the Bank of the occurrence of any of the following (together with a description of the action which the Borrower proposes to take with respect thereto):  (i) any Event of Default or any event, act or condition which, with the passage of time or the giving of notice, or both, would constitute an Event of Default (a “Default”), (ii) any litigation filed by or against the Borrower, (iii) any Reportable Event or Prohibited Transaction with respect to any Employee Benefit Plan(s) (as defined in ERISA) or (iv) any event which might result in a material adverse change in the business, assets, operations, condition (financial or otherwise) or results of operation of the Borrower.

5.  Negative Covenants.  The Borrower covenants and agrees that from the date of this Agreement until all Obligations have been paid in full and any commitments of the Bank to the Borrower have been terminated, except as set forth in the Addendum, the Borrower will not, without the Bank’s prior written consent:

5.1.  Indebtedness.  Create, incur, assume or suffer to exist any indebtedness for borrowed money other than:  (i) the Loan and any subsequent indebtedness to the Bank; and (ii) open account trade debt incurred in the ordinary course of business and not past due; and (iii) indebtedness in respect of purchase money financings of personal property in an amount not to exceed $50,000.00.

5.2.  Liens and Encumbrances.  Except as provided in Section 3.6, create, assume, incur or permit to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property, now owned or hereafter acquired, or acquire or agree to acquire any kind of property subject to any conditional sales or other title retention agreement, except liens securing purchase money indebtedness permitted pursuant to Section 5.1 above.

5.3.  Guarantees.  Guarantee, endorse or become contingently liable for the obligations of any person, firm, corporation or other entity, except in connection with the endorsement and deposit of checks in the ordinary course of business for collection.

5.4.  Loans or Advances.  Purchase or hold beneficially any stock, other securities or evidences of indebtedness of, or make or have outstanding, any loans or advances to, or otherwise extend credit to, or make any investment or acquire any interest whatsoever in, any other person, firm, corporation or other entity, except investments disclosed on the Borrower’s Historical Financial Statements or acceptable to the Bank in its sole discretion.

5.5.  Merger or Transfer of Assets.  Liquidate or dissolve, or merge or consolidate with or into any person, firm, corporation or other entity, or sell, lease, transfer or otherwise dispose of all or any substantial part of its property, assets, operations or business, whether now owned or hereafter acquired.

5.6.  Change in Business, Management or Ownership.  Make or permit any change in its form of organization, the nature of its business as carried on as of the date hereof, in the composition of its current executive management, or in its equity ownership.

5.7.  Dividends.  Declare or pay any dividends on or make any distribution with respect to any class of its equity or ownership interest, or purchase, redeem, retire or otherwise acquire any of its equity.

5.8.   Acquisitions.  Make acquisitions of all or substantially all of the property or assets of any person, firm, corporation or other entity.

 

 

6.  Events of Default.  The occurrence of any of the following will be deemed to be an Event of Default:

6.1.  Covenant Default.  The Borrower shall default in the performance of any of the covenants or agreements contained in this Agreement.

6.2.  Breach of Warranty.  Any Financial Statement, representation, warranty or certificate made or furnished by the Borrower to the Bank in connection with this Agreement shall be false, incorrect or incomplete when made.

6.3.  Other Default.  The occurrence of an Event of Default as defined in the Note or any of the Loan Documents.

Upon the occurrence of an Event of Default, the Bank will have all rights and remedies specified in the Note and the Loan Documents and all rights and remedies (which are cumulative and not exclusive) available under applicable law or in equity.

 

7.  Conditions.  The Bank’s obligation to make any advance under the Loan is subject to the conditions that as of the date of the advance:

7.1.  No Event of Default.  No Event of Default or event which with the passage of time, the giving of notice or both would constitute an Event of Default shall have occurred and be continuing;

7.2.  Authorization Documents.  The Bank shall have received certified copies of resolutions of the board of directors, the general partners or the members or managers of any partnership, corporation or limited liability company that executes this Agreement, the Note or any of the other Loan Documents; or other proof of authorization satisfactory to the Bank; and

7.3.  Receipt of Loan Documents.  The Bank shall have received the Loan Documents and such other instruments and documents which the Bank may reasonably request in connection with the transactions provided for in this Agreement, which may include an opinion of counsel in form and substance satisfactory to the Bank for any party executing any of the Loan Documents.

  

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8.  Expenses.  The Borrower agrees to pay the Bank, upon the execution of this Agreement, and otherwise on demand, all costs and expenses incurred by the Bank in connection with the preparation, negotiation and delivery of this Agreement and the other Loan Documents, and any modifications thereto, and the collection of all of the Obligations, including but not limited to enforcement actions, relating to the Loan, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions or proceedings arising out of or relating to this Agreement, including reasonable fees and expenses of counsel (which may include costs of in-house counsel), expenses for auditors, appraisers and environmental consultants, lien searches, recording and filing fees and taxes.

9.  Increased Costs.  On written demand, together with written evidence of the justification therefor, the Borrower agrees to pay the Bank all direct costs incurred and any losses suffered or payments made by the Bank as a consequence of making the Loan by reason of any change in law or regulation, or the interpretation thereof, imposing any reserve, deposit, allocation of capital or similar requirement (including without limitation, Regulation D of the Board of Governors of the Federal Reserve System) on the Bank, its holding company or any of their respective assets.

10.  Miscellaneous.

 

10.1.  Notices: All notices, demands, requests, consents, approvals and other communications required or permitted hereunder (“Notices”) must be in writing and will be effective upon receipt.  Notices may be given in any manner to which the parties may separately agree, including electronic mail.  Without limiting the foregoing, first-class mail, facsimile transmission and commercial courier service are hereby agreed to as acceptable methods for giving Notices.  Regardless of the manner in which provided, Notices may be sent to a party’s address as set forth above or to such other address as any party may give to the other for such purpose in accordance with this section.

10.2.  Preservation of Rights.  No delay or omission on the Bank’s part to exercise any right or power arising hereunder will impair any such right or power or be considered a waiver of any such right or power, nor will the Bank s action or inaction impair any such right or power.  The Bank’s rights and remedies hereunder are cumulative and not exclusive of any other rights or remedies which the Bank may have under other agreements, at law or in equity.

10.3.  Illegality. If any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, it shall not affect or impair the validity, legality and enforceability of the remaining provisions of this Agreement.

10.4.  Changes in Writing.  No modification, amendment or waiver of, or consent to any departure by the Borrower from, any provision of this Agreement will be effective unless made in a writing signed by the party to be charged, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice to or demand on the Borrower will entitle the Borrower to any other or further notice or demand in the same, similar or other circumstance.

10.5.  Entire Agreement.  This Agreement (including the documents and instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof.

10.6.  Counterparts.  This Agreement may be signed in any number of counterpart copies and by the parties hereto on separate counterparts, but all such copies shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by facsimile transmission shall be effective as delivery of a manually executed counterpart.  Any party so executing this Agreement by facsimile transmission shall promptly deliver a manually executed counterpart, provided that any failure to do so shall not affect the validity of the counterpart executed by facsimile transmission.

10.7.  Successors and Assigns.  This Agreement will be binding upon and inure to the benefit of the Borrower and the Bank and their respective heirs, executors, administrators, successors and assigns; provided, however, that the Borrower may not assign this Agreement in whole or in part without the Bank’s prior written consent and the Bank at any time may assign this Agreement in whole or in part.

10.8.  Interpretation.  In this Agreement, unless the Bank and the Borrower otherwise agree in writing, the singular includes the plural and the plural the singular; words importing any gender include the other genders; references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute referred to; the word “or” shall be deemed to include “and/or”, the words “including”, “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to articles, sections (or subdivisions of sections) or exhibits are to those of this Agreement; and references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications to such instruments, but only to the extent such amendments and other modifications are not prohibited by the terms of this Agreement.  Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.  Unless otherwise specified in this Agreement, all accounting terms shall be interpreted and all accounting determinations shall be made in accordance with GAAP.  If this Agreement is executed by more than one party as Borrower, the obligations of such persons or entities will be joint and several.

10.9.  No Consequential Damages, Etc.  The Bank will not be responsible for any damages, consequential, incidental, special, punitive or otherwise, that may be incurred or alleged by any person or entity, including the Borrower and any Guarantor, as a result of this Agreement, the other Loan Documents, the transactions contemplated hereby or thereby, or the use of the proceeds of the Loan.

10.10.  Assignments and Participations.  At any time, without any notice to the Borrower, the Bank may sell, assign, transfer, negotiate, grant participations in, or otherwise dispose of all or any part of the Bank’s interest in the Loan.  The Borrower hereby authorizes the Bank to provide, without any notice to the Borrower, any information concerning the Borrower, including information pertaining to the Borrower’s financial condition, business operations or general creditworthiness, to any person or entity which may succeed to or participate in all or any part of the Bank’s interest in the Loan.

 

10.11.  Governing Law and Jurisdiction.  This Agreement has been delivered to and accepted by the Bank and will be deemed to be made in the State where the Bank’s office indicated above is located.  This Agreement will be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State where the Bank’s office indicated above is located, excluding its conflict of laws rules.  The Borrower hereby irrevocably consents to the exclusive jurisdiction of any state or federal court in the county or judicial district where the Bank’s office indicated above is located; provided that nothing contained in this Agreement will prevent the Bank from bringing any action, enforcing any award or judgment or exercising any rights against the Borrower individually, against any security or against any property of the Borrower within any other county, state or other foreign or domestic jurisdiction.  The Bank and the Borrower agree that the venue provided above is the most convenient forum for both the Bank and the Borrower.  The Borrower waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Agreement.

10.12.  WAIVER OF JURY TRIAL.  EACH OF THE BORROWER AND THE BANK IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS.  THE BORROWER AND THE BANK ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.

The Borrower acknowledges that it has read and understood all the provisions of this Agreement, including the waiver of jury trial, and has been advised by counsel as necessary or appropriate.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

 

 

  

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	WITNESS / ATTEST: 	 	BREKFORD CORP.
	 	 	 	 	 
	 	 	By: 	/s/ C.B. Brechin
	 	 	 	 	  (SEAL)
	 Print Name:	 	 	 	C.B. Brechin
	 	 	 	 	Chief Executive Officer
	Title:	 	 	 	 
	 	(Include title only if an officer of entity signing to the right)	 	 	 
	 	 	 	By: 	/s/ Scott Rutherford
	 	 	 	 	(SEAL)
	 	 	 	 	Scott Rutherford
	 	 	 	 	President
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	PNC BANK, NATIONAL ASSOCIATION
	 	 	 	 	 
	 	 	 	By:	/s/ Stephen D. Palmer 
	 	 	 	 	 (SEAL)
	 	 	 	 	Stephen D. Palmer 
	 	 	 	 	Senior Vice President 

                                                                       

ADDENDUM to that certain Loan Agreement dated June ____, 2012 between BREKFORD CORP. as the Borrower and PNC Bank, National Association, as the Bank.  Capitalized terms used in this Addendum and not otherwise defined shall have the meanings given them in the Agreement.  Section numbers below refer to the sections of the Agreement.

 

3.6  Title to Assets. Describe additional liens and encumbrances below:

Those certain existing capital lease obligations evidenced as follows:

	
1.  

	
Master Lease Agreement dated December 13, 2011 between Brekford Corp. and Bank of America (Leasing Division)

	
2.  

	
Lease dated April 17, 2012 between Brekford Corp. and Chesapeake Industrial Leasing Co., Inc.

3.7  Litigation. Describe pending and threatened litigation, investigations, proceedings, etc. below:

 

None

 

CONTINUATION OF ADDENDUM

FINANCIAL COVENANTS

 

(1)  The Borrower will maintain at all times a ratio of Total Funded Debt to EBITDA of not more than 3.00 to 1.00.

(2) The Borrower will maintain as of the end of each fiscal quarter, on a rolling four quarters basis, a Debt Service Coverage Ratio of at least 1.30 to 1.00.

As used herein:

“Current Maturities” means the scheduled payments of principal on all indebtedness for borrowed money having an original term of more than one year (including but not limited to amortization of capitalized lease obligations), as shown on the Borrower’s Financial Statements as of one year prior to the date of determination.

“EBITDA” means net income plus or minus any non-cash income or expenses plus interest expense plus income tax expense plus depreciation plus amortization.

“Debt Service Coverage Ratio” means (i) EBITDA minus Unfunded Capital Expenditures, divided by (ii) the sum of Current Maturities plus interest expense.

“Total Funded Debt” means all borrowed debt including capital lease obligations minus Subordinated Debt.

“Subordinated Debt” means indebtedness that has been subordinated to the Borrower’s indebtedness to the Bank pursuant to a subordination agreement in form and content satisfactory to the Bank.

“Unfunded Capital Expenditures” means capital expenditures made from the Borrower’s funds other than funds borrowed as term debt to finance such capital expenditures.

All of the above financial covenants shall be computed and determined in accordance with GAAP applied on a consistent basis (subject to normal year-end adjustments).

 

 

 

Form 7G - Multistate Rev. 1/02 

5

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