Document:

Exhibit 10.11

Exhibit 10.11

AMENDMENT TO LOAN AGREEMENT

AMENDMENT TO LOAN AGREEMENT dated January 14, 2008 (“Amendment Agreement”) between MOD-PAC
CORP., a New York corporation (“Borrower”) and KEYBANK NATIONAL ASSOCIATION (“Lender”).

BACKGROUND

1. Lender entered into a Loan Agreement dated March 8, 2007 (“Agreement”). All
capitalized terms not otherwise defined herein shall have the meanings set forth in the
Agreement.

2. Borrower has requested that Lender make certain changes to the Agreement.

3. In response to Borrower’s request, and subject to the terms and conditions
hereafter set forth, Lender is willing to so amend the Agreement.

NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby
acknowledged, upon satisfaction of the conditions set forth in Section 1, below, the Lender and
Borrower agree as follows:

AGREEMENTS

1. Conditions. This Amendment Agreement shall be effective upon satisfaction of
the following terms and conditions:

(A) Execution and delivery by Borrower to Lender of two (2) duplicate originals
of this Amendment Agreement fully executed by Borrower.

(B) Execution and delivery by Borrower to Lender of one (1) original
Replacement Promissory Note in the maximum principal amount of $5,000,000 (the “Replacement
Note”)

(C) Payment by Borrower to Lender of an Amendment Fee in the amount of
$5,000.00.

(D) All other matters incidental to the execution and delivery of this
Amendment
Agreement and the agreements and documents in connection herewith, and all action required on the
part of Borrower by this Amendment Agreement, shall be satisfactory to Lender and its counsel.

2. Representations and Warranties of Borrower. Borrower hereby represents and
warrants as follows:

(A) After giving effect to this Amendment Agreement, each of the
representations and warranties set forth in the Agreement is and will be true, correct and complete
on and as of the date hereof as though made on the date hereof, and the Agreement and each of the
other Loan Documents remains in full force and effect.

 

 

 

(B) As of the date hereof, after giving effect to this Amendment
Agreement,
there exists and will exist no Event of Default under the Agreement or any other Loan Document,
nor any event which with the giving of notice or passage of time, or both, would constitute an
Event of Default.

(C) This Amendment Agreement has been duly executed and delivered by Borrower, and
this Amendment Agreement is the legal, valid and binding obligation of Borrower
enforceable against Borrower in accordance with its terms.

(D) No authorization or approval or other action by, and no notice to or
filing
with, any governmental authority or regulatory body or any other third party is required for
(i) the due execution, delivery or performance by Borrower of this Amendment Agreement, or
(ii) the exercise by Lender of its rights under the Agreement, as amended by this Amendment
Agreement.

3. Amendments to the Agreement. Borrower and Lender hereby agree that the
Agreement is amended in the following respects:

(A) Section 2.2 (entitled “Revolving Credit Facility”) is amended by deleting
the phrase “Eight Million Dollars ($8,000,000)” and replacing it with the phrase “Five
Million Dollars
($5,000,000)”.

(B) Section 5.22 (entitled “Cash Flow Requirements”) is amended by deleting
the Fiscal Year End and Operating Cash Flow dates and amounts contained therein, and
replacing them
with the following:

	 	 	 	 	 
	Fiscal Year End	 	Operating Cash Flow	 
	 
	 	 	 	 
	December 31, 2008
	 	$	1,000,000	 
	December 31, 2009
	 	$	1,750,000	 

(C) Section 5.23 (entitled “Total Funded Debt to EBITDA Ratio”) is
amended by deleting the Fiscal Year End and Ratio dates and amounts contained therein and
replacing them with the following:

	 	 	 	 	 
	Fiscal Year End	 	Ratio	 
	 
	 	 	 	 
	December 31, 2008
	 	 	4.0 to 1.0	 
	December 31, 2009
	 	 	3.25 to 1.0	 

(D) The form of Borrowing Base Certificate attached to the Agreement as
Exhibit B is amended by deleting the phrase “(not in excess of $8,000,000)” in Section D(i)
thereof and replacing it with the phrase “(not in excess of $5,000,000)”.

4. Ratification. Except as such agreements are expressly consented to or
modified herein, Borrower ratifies and reaffirms Borrower’s agreements under the Loan
Documents and acknowledges and agrees that all of the obligations thereunder are owing without
defense or offset, and are not subject to any counterclaim.

 

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5. Miscellaneous.

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

(B) Entire Agreement. This Amendment Agreement and the Replacement
Note
constitute the entire contract between the parties hereto with respect to the subject matter
hereof and shall supersede and take the place of any other instrument purporting to be an
agreement of the parties hereto relating to the transactions contemplated hereby. This Amendment
Agreement may not be changed orally but only by an agreement in writing signed by duly authorized
officers of Lender and Borrower.

(C) Invalidity. If any provision or part of any provision contained
in this
Amendment Agreement shall be found for any reason to be illegal, invalid or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any other provisions or
the remaining part of any effective provisions of this Amendment Agreement and this Amendment
Agreement shall be construed as if such invalid, illegal, or unenforceable provisions or part
thereof had never been contained herein, but only to the extent of its invalidity, illegality, or
unenforceability. In addition, a comparable, enforceable provision or part thereof, as close as
possible to such invalid, illegal or unenforceable provision or part thereof, if any exists, shall
be deemed incorporated in this Amendment Agreement, as if part of this Amendment Agreement from its
inception.

IN WITNESS WHEREOF, the parties hereto have signed this Amendment Agreement as of the date set
forth above.

	 	 	 	 	 
	 	KEYBANK NATIONAL ASSOCIATION

 	 
	 	/s/ Mark F. Wachowiak
 	 
	 	Mark F. Wachowiak, Vice President 	 
	 	 	 
	 	MOD-PAC CORP.

 	 
	 	                  /s/ David B. Lupp
 	 
	 	David B. Lupp, Chief Financial Officer 	 

 

- 3 -Exhibit 10.12

Exhibit 10.12

SECURITY AGREEMENT

This Security Agreement (as the same may be amended, restated or otherwise modified, this
“Agreement”) is made March 8, 2007, between MOD-PAC CORP. a New York corporation, with offices at
1801 Elmwood Avenue, Buffalo, New York 14207 (“Grantor”),
and KEYBANK NATIONAL ASSOCIATION, a
national banking association, with offices at 50 Fountain Plaza, Buffalo, New York 14202, and its
successors and assigns (“Lender”).

Grantor executed a Promissory Note, dated as of March 8, 2007 (the “Note”) in favor of
Lender, pursuant to which Lender agreed to provide financing to Grantor in the aggregate stated
amount of $8,000,000.00 (the “Loan”) as further provided in the Loan Agreement, of even date
between the Lender and Grantor (as amended from time to time, the “Loan Agreement”) (the Loan
Agreement, this Agreement and all other instruments, agreements and documents entered into from
time to time, evidencing or securing the Loan or any obligation of payment thereof or performance
of Grantor’s obligations in connection with the transaction contemplated hereunder, each as
amended, collectively referred to as “Loan Documents”). Grantor understands that Lender is willing
to grant the Loan to Grantor only upon certain conditions, one of which is that Grantor execute
and deliver this Agreement and this Agreement is being executed and delivered in consideration of
each of the Obligations (as defined in the Loan Agreement) granted to Grantor by Lender and for
other valuable considerations.

All capitalized terms not otherwise defined in this Agreement, have the meanings given to
them in the Loan Agreement.

Grant of Security Interest. Grantor hereby grants to the Lender, to secure the payment and
performance in full of the Obligations of the Grantor, a security interest in and pledges and
assigns to the Lender the following properties, assets and rights of the Grantor, consisting of
all corporate and business assets, properties and rights of the Grantor wherever located, whether
now owned or hereafter acquired or arising, and all proceeds, products, and accessions thereof
(all of the same being hereinafter called the “Collateral”): (a) Accounts (including health care
insurance receivables), (b) Chattel Paper (whether tangible or electronic), (c) Commercial Tort
Claims, (d) Deposit Accounts, (e) Documents, (f) Equipment, (g) Fixtures, (h) General Intangibles
(including payment intangibles), (i) Instruments (including promissory notes), (j) Investment
Property (including all securities), (k) Inventory, (l) Letter-of-Credit Rights (whether or not
the Letter-of-Credit is evidenced by a writing), (m) Money (including contract rights or rights to
the payment of money), (n) Supporting Obligations, (o) to the extent not listed above as original
collateral, proceeds and products of the foregoing.

GRANTOR AND LENDER AGREE AS FOLLOWS:

1. Authorization to File Financing Statements. Grantor hereby irrevocably authorizes the
Lender at any
time and from time to time to file in any filing office in any Uniform Commercial Code (“UCC”)
jurisdiction any financing statements and amendments thereto that (a) indicate the Collateral (i)
as all assets of the Grantor or words of similar effect, regardless of whether any particular
asset included in the Collateral falls within the scope of the UCC of the State (as defined
below) or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail,
and (b) provide any other information required by the UCC of the State or such jurisdiction for
the sufficiency or filing office acceptance of any financing statement or amendment, including
(i) whether the Grantor is an organization, the type of organization and any organization
identification number issued to the Grantor and, (ii) in the case of a financing statement filed
as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates. The Grantor agrees to
furnish any such information to the Lender promptly upon the Lender’s request. “State” means the
State of New York. All terms defined in the UCC of the State and used herein (whether or not
capitalized) shall have the same definitions herein as specified therein.

 

 

 

2. Other Actions. Further to insure the attachment, perfection and first priority of, and
the ability of the
Lender to enforce, the Lender’s security interest in the Collateral, the Grantor agrees, in each
case at the Grantor’s expense, to take the following actions with respect to the following
Collateral and without limitation on the Grantor’s other obligations contained in this Agreement:

(a) Promissory Notes and Tangible Chattel Paper. If the Grantor shall at any time hold
or acquire any promissory notes or tangible chattel paper (in an aggregate outstanding principal
amount of more than $500,000), the Grantor shall forthwith endorse, assign and deliver the same to
the Lender, accompanied by such instruments of transfer or assignment duly executed in blank as the
Lender may from time to time specify.

(b) Deposit Accounts. For each deposit account that the Grantor at any time opens or
maintains, the Grantor shall, at the Lender’s request and option, pursuant to an agreement in form
and substance satisfactory to the Lender, either (i) cause the depositary bank to agree to comply,
without further consent of the Grantor, at any time with instructions from the Lender to such
depositary bank directing the disposition of funds from time to time credited to such deposit
account, or (ii) arrange for the Lender to become the customer of the depositary bank with respect
to the deposit account, with the Grantor being permitted, only with the consent of the Lender, to
exercise rights to withdraw funds from such deposit account. The Lender agrees with the Grantor
that the Lender shall not give any such instructions or withhold any withdrawal rights from the
Grantor, unless an Event of Default (as defined below) has occurred and is continuing, or, if
effect were given to any withdrawal not otherwise permitted by the Loan Documents, would occur. The
provisions of this paragraph shall not apply to (x) any deposit account for which the Grantor, the
depositary bank and the Lender have entered into a cash collateral agreement specially negotiated
among the Grantor, the depositary bank and the Lender for the specific purpose set forth therein,
(y) a deposit account for which the Lender is the depositary bank and is in automatic control and
any other deposit accounts existing on the date hereof that Grantor is using reasonable commercial
efforts to transfer to the Lender, and (z) any deposit accounts specially and exclusively used for
payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of the
Grantor’s salaried employees.

(c) Investment Property. If the Grantor shall at any time hold or acquire any
certificated securities, the Grantor shall forthwith endorse, assign and deliver the same to the
Lender, accompanied by such instruments of transfer or assignment duly executed in blank as the
Lender may from time to time specify. If any securities now or hereafter acquired by the Grantor
are uncertificated and are issued to the Grantor or its nominee directly by the issuer thereof, the
Grantor shall immediately notify the Lender thereof and, at the Lender’s request and option,
pursuant to an agreement in form and substance satisfactory to the Lender, either (i) cause the
issuer to agree to comply, without further consent of the Grantor or such nominee, at any time with
instructions from the Lender as to such securities, or (ii) arrange for the Lender to become the
registered owner of the securities. If any securities, whether certificated or uncertificated, or
other investment property now or hereafter acquired by the Grantor are held by the Grantor or its
nominee through a securities intermediary or commodity intermediary, the Grantor shall immediately
notify the Lender thereof and, at the Lender’s request and option, pursuant to an agreement in form
and substance satisfactory to the Lender, either (y) cause such securities intermediary or (as the
case may be) commodity intermediary to agree to comply, in each case without further consent of the
Grantor or such nominee, at any time with entitlement orders or other instructions from the Lender
to such securities intermediary as to such securities or other investment property, or (as the case
may be) to apply any value distributed on account of any commodity contract as directed by the
Lender to such commodity intermediary, or (z) in the case of financial assets or other investment
property held through a securities intermediary, arrange for the Lender to become the entitlement
holder with respect to such investment property, with the Grantor being permitted, only with the
consent of the Lender, to exercise rights to withdraw or otherwise deal with such investment
property. The Lender agrees with the Grantor that the Lender shall not give any such entitlement
orders or instructions or directions to any such issuer, securities intermediary or commodity
intermediary, and shall not withhold its consent to the exercise of any withdrawal or dealing
rights by the Grantor, unless an Event of Default has occurred and is continuing, or, after giving
effect to any such investment and withdrawal rights not otherwise permitted by the Loan Documents,
would occur. The provisions of this paragraph shall not apply to any financial assets credited to a
securities account for which the Lender is the securities intermediary.

 

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(d) Collateral in the Possession of a Bailee. If any Collateral is at any time in the
possession of a bailee, the Grantor shall promptly notify the Lender thereof and, at the Lender’s
request and option, shall promptly obtain an acknowledgement from the bailee, in form and substance
satisfactory to the Lender, that the bailee holds such Collateral for the benefit of the Lender and
such bailee’s agreement to comply, without further consent of the Grantor, at any time with
instructions of the Lender as to such Collateral. The Lender agrees with the Grantor that the
Lender shall not give any such instructions unless an Event of Default has occurred and is
continuing or would occur after taking into account any action by the Grantor with respect to the
bailee.

(e) Electronic Chattel Paper. If the Grantor at any time holds or acquires an interest
in any electronic chattel paper, the Grantor shall promptly notify the Lender thereof and, at the
request and option of the Lender, shall take such action as the Lender may reasonably request to
vest in the Lender control, under the UCC, of such electronic chattel paper. The Lender agrees with
the Grantor that the Lender will arrange, pursuant to procedures satisfactory to the Lender amid so
long as such procedures will not result in the Lender’s loss of control, for the Grantor to make
alterations to the electronic chattel paper permitted under the UCC for a party in control to make
without loss of control, unless an Event of Default has occurred and is continuing or would occur
after taking into account any action by the Grantor with respect to such electronic chattel paper.

(f) Letter-of-Credit
Rights. If the Grantor is at any time a beneficiary under a letter of
credit now or hereafter, the Grantor shall promptly notify the Lender thereof and, at the request
and option of the Lender, the Grantor shall, pursuant to an agreement in form and substance
satisfactory to the Lender, either (i) arrange for the issuer and any confirmer or other nominated
person of such letter of credit to consent to an assignment to the Lender of the proceeds of the
letter of credit or (ii) arrange for the Lender to become the transferee beneficiary of the letter
of credit, with the Lender agreeing, in each case, that the proceeds of the letter to credit are to
be applied as provided in the Loan Agreement.; provided, however, the Lender shall not have such
option with respect to any Letter of Credit that is a Supporting Obligation, unless as an Event of
Default has occurred and is continuing.

(g) Commercial Tort Claims. If the Grantor shall at any time hold or acquire a
commercial tort claim, the Grantor shall immediately notify the Lender in a writing signed by the
Grantor of the particulars thereof and grant to the Lender in such writing a security interest
therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to the Lender.

(h) Other Actions as to any and all Collateral. The Grantor further agrees, upon
request of the Lender and at the Lender’s option, to take any and all other actions as the Lender
may reasonably determine to be necessary for the attachment, perfection and first priority of, and
the ability of the Lender to enforce, the Lender’s security interest in any and all of the
Collateral, including, without limitation, (i) executing, delivering and, where appropriate,
filing financing statements and amendments relating thereto under the UCC, to the extent, if any,
that the Grantor’s signature thereon is required therefor, (ii) causing the Lender’s name to be
noted as secured party on any certificate of title for a titled good if such notation is a
condition to attachment, perfection or priority of, or ability of the Lender to enforce, the
Lender’s security interest in such Collateral, (iii) complying with any provision of any statute,
regulation or treaty of the United States as to any Collateral if compliance with such provision is
a condition to attachment, perfection or priority of, or ability of the Lender to enforce, the
Lender’s security interest in such Collateral, (iv) obtaining governmental and other third party
waivers, consents and approvals in form and substance reasonably satisfactory to Lender, including,
without limitation, any consent of any licensor, lessor or other person obligated on Collateral,
(v) obtaining governmental and other third-party waivers, consents, and approvals in form and
substance reasonably satisfactory to Lender, including without limitation, consent of any licensor,
lessor or other person obligated on Collateral, and (vi) obtaining waivers from mortgagees and
landlords in form and substance satisfactory to the Lender and (vi) taking all actions under any
earlier versions of the UCC or under any other law, as reasonably determined by the Lender to be
applicable in any relevant UCC or other jurisdiction, including any foreign jurisdiction.

3. Relation to Other Loan Documents. The provisions of this Agreement supplement the
provisions of any real estate mortgage or deed of trust granted by the Grantor to the Lender and
which secures the payment or performance of any of the Obligations. Nothing contained in any such
real estate mortgage or deed of trust shall derogate from any of the rights or remedies of the
Lender hereunder. In addition to the provisions of this Agreement being so read and construed with
any such mortgage or deed of trust, the provisions of this Agreement shall be read and construed
with the other Loan Documents.

 

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4. Representations and Warranties Concerning Grantor’s Legal Status. The Grantor represents
and warrants to the Lender as follows: (a) it is a corporation which is duly organized, validly
existing and in good standing under the laws of the State of New York and is validly existing and
in good standing in all states in which the Grantor is doing business; (b) it is also duly
qualified as a foreign corporation and is in good standing in all states in which the failure to so
qualify would have a Material Adverse Effect; (c) it has full power and authority to own its
properties and to transact the businesses in which it is presently engaged or presently proposes to
engage; (d) the execution, delivery and performance of this Agreement have been duly authorized by
all necessary action of the Grantor; and (e) this Agreement constitutes, and any instrument or
agreement required hereunder to be given by the Grantor to the Lender when delivered will
constitute, the legal, valid and binding obligation of the Grantor, enforceable against the Grantor
in accordance with their respective terms.

5. Covenants Concerning Grantor’s Legal Status. Except as set forth in the Loan Agreement,
the Grantor covenants to and with the
Lender as follows: (a) there is no pending or threatened litigation, claim for infringement,
proceeding or investigation by any governmental authority or any other person known to the Grantor
against or otherwise affecting the Grantor or any of its assets or its officers, directors or
agents in their capacities as such, nor does the Grantor know of any ground for any such
litigation, infringement claims, proceedings or investigations; (b) no contract or organizational
document prohibits any term or condition of this Agreement; (c) the execution and delivery of this
Agreement will not violate any law or agreement governing the Grantor or to which the Grantor is a
party; and (d) all information and statements furnished in connection with the Loan Documents, and
any other documents related to this secured transaction, are true and correct, and contain no false
or misleading statement.

6. Representations and Warranties Concerning Collateral. The Grantor further represents and
warrants to the Lender as follows: (a) the Grantor is the owner of the Collateral, free from any
right or claim of any person or any adverse lien, security interest or other encumbrance, except
for the security interest created by this Agreement and other liens permitted by Lender and
Permitted Encumbrances (collectively, the “Permitted Liens”), (b) none of the Collateral
constitutes, or is the proceeds of, “farm products” as defined in the UCC of the State, (c) none of
the account debtors or other persons obligated on any of the Collateral is a governmental authority
covered by the Federal Assignment of Claims Act or like federal, state or local statute or rule in
respect of such Collateral (except as the same may be disclosed from time to time), (d) the Grantor
holds no commercial tort claim, and (e) the Grantor has at all times operated its business in
compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended, and
with all applicable provisions of federal, state and local statutes and ordinances dealing with the
control, shipment, storage or disposal of hazardous materials or substances, except to the extent
that failure to so comply would not have a Material Adverse Effect, (f) all other information set
forth in this Agreement pertaining to the Collateral is accurate and complete in all material
respects, and (g) there has been no change in any of such information since the date on which the
Note or this Agreement was signed by the Grantor.

7. Covenants Concerning Collateral. The Grantor further covenants with the Lender as
follows: (a) the Collateral, to the extent not delivered to the Lender pursuant to Section 2 above,
will be kept at those locations listed on Schedule I attached hereto and the Grantor will not
remove the Collateral from such locations, without providing at least thirty (30) days prior
written notice to the Lender, (b) except for the security interest herein granted and the Permitted
Liens, the Grantor shall be the owner of the Collateral free from any right or claim of any other
person or any lien, security interest or other encumbrance, and the Grantor shall defend the same
against all claims and demands of all persons at any time claiming the same or any interests
therein adverse to the Lender, (c) the Grantor shall not pledge, mortgage or create, or suffer to
exist any right of any person in or claim by any person to the Collateral, or any security
interest, lien or other encumbrance in the Collateral in favor of any person, other than the Lender
except for the Permitted Liens, (d) the Grantor will keep the Collateral in good order and repair,
ordinary wear and tear excepted, and will not use the same in violation of law or any policy of
insurance thereon, except any such violation that would not reasonably be expected to have a
Material Adverse Effect, (e) the Grantor will permit the Lender, or its designee, to inspect the
Collateral at any reasonable time, on reasonable advance notice wherever located, (f) the Grantor
will pay promptly when due all taxes, assessments, governmental charges and levies upon the
Collateral or incurred in connection with the use or operation of such Collateral or incurred in
connection with this Agreement except for such taxes, assessments, governmental charges and levies
that are being contested in good faith by proceedings diligently prosecuted, and with respect to
which the Grantor maintains on its books adequate reserves in accordance with general accepted
accounting principles, (g) the Grantor will continue to operate its business in compliance with all
applicable provisions of the federal Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing with the control, shipment,
storage or disposal of hazardous materials or substances, except if non-compliance would not be
reasonably be expected to have a Material Adverse Effect, and (h) the Grantor will not sell or
otherwise dispose, or offer to sell or otherwise dispose, of the Collateral or any interest therein
except for (i) sales of inventory in the ordinary course of business, (ii) so long as no Event of
Default (as defined below) has occurred and is continuing, sales or other dispositions of obsolete
items of equipment consistent with past practices and (iii) any other sale that would not be
prohibited by the terms of the Loan Agreement.

 

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8. Insurance. Grantor shall maintain the insurance as may be required by Section 5.3 of
the Loan Agreement and provide evidence of such insurance to the Lender in accordance therewith.
The proceeds of any casualty insurance in respect of any casualty loss of any of the Collateral
shall, subject to the rights, if any, of other parties with an interest having priority in the
property covered thereby, (i) so long as no Event of Default has occurred and is continuing, and
with the written consent of Lender, be disbursed to the Grantor for direct application by the
Grantor solely to the repair or replacement of the Grantor’s property so damaged or destroyed and
(ii) in all other circumstances, be held by the Lender as cash collateral for the Obligations. The
Lender may, at its sole option, disburse from time to time all or any part of such proceeds so held
as cash collateral, upon such terms and conditions as the Lender may reasonably prescribe, for
direct application by the Grantor solely to the repair or replacement of the Grantor’s property so
damaged or destroyed, or the Lender may apply all or any part of such proceeds to the Obligations.

9. Collateral Protection Expenses; Preservation of Collateral.

(a) Expenses Incurred by Lender. In the Lender’s discretion, if the Grantor fails to
do so (after notice to the Grantor), the Lender may discharge taxes and other encumbrances at any
time levied or placed on any of the Collateral, make repairs thereto and pay any necessary filing
fees or insurance premiums. The Grantor agrees to reimburse the Lender on demand for all
expenditures so made. The Lender shall have no obligation to the Grantor to make any such
expenditures, nor shall the making thereof be construed as a waiver or cure any Event of Default.

(b) Lender’s Obligations and Duties. Anything herein to the contrary notwithstanding,
the Grantor shall remain obligated and liable under each contract or agreement included in the
Collateral to be observed or performed by the Grantor thereunder. The Lender shall not have any
obligation or liability under any such contract or agreement by reason of or arising out of this
Agreement or the receipt by the Lender of any payment relating to any of the Collateral, nor shall
the Lender be obligated in any manner to perform any of the obligations of the Grantor under or
pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any
payment received by the Lender in respect of the Collateral or as to the sufficiency of any
performance by any party under any such contract or agreement, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any amounts which may have
been assigned to the Lender or to which the Lender may be entitled at any time or times. The
Lender’s sole duty with respect to the custody, safe keeping and physical preservation of the
Collateral in its possession, under the UCC of the State or otherwise, shall be to deal with such
Collateral in the same manner as the Lender deals with similar property for its own account.

10. Securities and Deposits. The Lender may at any time following and during the
continuance of an Event of Default, at its option, transfer to itself or any nominee any securities
constituting Collateral, receive any income thereon and hold such income as additional Collateral
or apply it to the Obligations. Whether or not any Obligations are due, the Lender may following
and during the continuance of an Event of Default demand, sue for, collect, or make any settlement
or compromise which it deems desirable with respect to the Collateral. Regardless of the adequacy
of Collateral or any other security for the Obligations, any deposits or other sums at any time
credited by or due from the Lender to the Grantor may at any time be applied to or set off against
any of the Obligations then due and owing.

11. Notification to Account Debtors and Other Persons Obligated on Collateral. If an Event
of Default shall have occurred and be continuing, the Grantor shall, at the request and option of
the Lender, notify account debtors and other persons obligated on any of the Collateral of the
security interest of the Lender in any account, chattel paper, general intangible, instalment or
other Collateral and that payment thereof is to be made directly to the Lender or to any financial
institution designated by the Lender as the Lender’s agent therefor, and the Lender may itself, if
an Event of Default shall have occurred and be continuing, without notice to or demand upon the
Grantor, so notify account debtors and other persons obligated on Collateral. After the making of
such a request or the giving of any such notification, the Grantor shall hold any proceeds of
collection of accounts, chattel paper, general intangibles, instruments and other Collateral
received by the Grantor as trustee for the Lender without commingling the same with other funds of
the Grantor and shall turn the same over to the Lender in the identical form received, together
with any necessary endorsements or assignments. The Lender shall apply the proceeds of collection
of accounts, chattel paper, general intangibles, instruments and other Collateral received by the
Lender to the Obligations, such proceeds to be immediately credited after final payment in cash or
other immediately available funds of the items giving rise to them.

 

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12. Power of Attorney.

(a) Appointment and Powers of Lender. The Grantor hereby irrevocably constitutes and
appoints the Lender and any officer or agent thereof, with full power of substitution, as its true
and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of
the Grantor or in the Lender’s own name, for the purpose of carrying out the terms of this
Agreement, hereby gives said attorneys the power and right, on behalf of the Grantor, without
notice to or assent by the Grantor, to do the following:

(i) upon the occurrence and during the continuance of an Event of Default, generally to sell,
transfer, pledge, make any agreement with respect to or otherwise dispose of or deal with any of
the Collateral in such manner as is consistent with the UCC of the State and as fully and
completely as though the Lender were the absolute owner thereof for all purposes, and to do, at the
Grantor’s expense, at any time, or from time to time, all acts and things which the Lender deems
necessary or useful to protect, preserve or realize upon the Collateral and the Lender’s security
interest therein, in order to effect the intent of this Agreement, all no less fully and
effectively as the Grantor might do, including, without limitation, (A) the filing and prosecuting
of registration and transfer applications with the appropriate federal, state or local agencies or
authorities with respect to trademarks, copyrights and patentable inventions and processes, (B)
upon written notice to the Grantor, the exercise of voting rights with respect to voting
securities, which rights may be exercised, if the Lender so elects, with a view to causing the
liquidation of assets of the issuer of any such securities (C) the execution, delivery and
recording, in connection with any sale or other disposition of any Collateral, of the endorsements,
assignments or other instruments of conveyance or transfer with respect to such Collateral and (D)
to take any and all appropriate action and to execute any and all documents and instruments that
may be necessary to accomplish the purposes of this Agreement; and

(ii) to the extent that the Grantor’s authorization given in Section 1 above is not
sufficient, to file financing statements with respect hereto, with or without the Grantor’s
signature, or a photocopy of this Agreement in substitution for a financing statement, as the
Lender may deem appropriate and to execute in the Grantor’s name such financing statements and
amendments thereto and continuation statements which may require the Grantor’s signature.

(b) Ratification by Grantor. To the extent permitted by law, the Grantor hereby
ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power
of attorney is a power coupled with an interest and is irrevocable.

(c) No Duty on Lender. The powers conferred on the Lender hereunder are solely to
protect its interests in the Collateral and shall not impose any duty upon it to exercise any such
powers. The Lender shall be accountable only for the amounts that it actually receives as a result
of the exercise of such powers, and neither it nor any of its officers, directors, employees or
agents shall be responsible to the Grantor for any act or failure to act, except for the Lender’s
own gross negligence or willful misconduct.

 

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13. Events of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default under this Agreement:

(a) Payments. The occurrence of an Event of Default under the Loan Agreement or any
other Loan Document.

(b) Covenants. If Grantor fails to perform or observe any covenant or agreement
(other than as referred to in Section 13 (a) above) contained in this Agreement or in any other of
the Loan Documents, and such failure remains unremedied for thirty (30) days after the Lender gives
notice thereof to such Grantor.

(c) Representations and Warranties. If any representation, warranty or statement made
in or pursuant to this Agreement or any Loan Document or any other material information furnished
by Grantor to Lender or any other holder of any Obligation, shall be false or erroneous in any
material respect.

(d) Validity Of Loan Documents. If (a) any material provision, in the reasonable
opinion of Lender, of any Loan Document shall at any time for any reason cease to be valid, binding
and enforceable against Grantor; (b) the validity, binding effect or enforceability of any Loan
Document against Grantor shall be contested by Grantor; (c) Grantor shall deny that it has any or
further liability or obligation thereunder; or (d) any Loan Document shall be terminated,
invalidated or set aside, or be declared ineffective or inoperative or in any way cease to give or
provide to Lender the benefits purported to be created thereby.

(e) Collateral Damage. If there shall occur any loss, damage, theft, destruction,
levy, seizure, or attachment to, of, or upon any material portion of the Collateral, including any
attempt to accomplish the foregoing, and (1) in the case of any such loss, damage, theft or
destruction, the same is not insured and (2) in the case of any such levy, seizure or attachment,
the failure to have such levy, seizure or attachment vacated or stayed within 30 days.;

(f) Sale of Collateral. If there shall occur any sale, lease, transfer, assignment,
encumbrance, or other disposition of any of the Collateral that is not permitted by this Agreement
or the Loan Agreement, without Lender’s prior written authorization therefor, including any attempt
to accomplish the foregoing except as herein provided to the contrary;

(g) Solvency. If Grantor shall (a) die or discontinue business, (b) generally not pay
its debts as such debts become due, (c) make a general assignment for the benefit of creditors, (d)
apply for or consent to the appointment of a receiver, a custodian, a trustee, an interim trustee
or liquidator of all or a substantial part of its assets, (e) be adjudicated a debtor or have
entered against it an order for relief under Title 11 of the United States Code, as the same may be
amended from time to time, (f) file a voluntary petition in bankruptcy or file a petition or an
answer seeking reorganization or an arrangement with creditors or seeking to take advantage of any
other law (whether federal or state) relating to relief of debtors, or admit (by answer, by default
or otherwise) the material allegations of a petition filed against it in any bankruptcy,
reorganization, insolvency or other proceeding (whether federal or state) relating to relief of
debtors, (g) suffer or permit to continue unstayed and in effect for 60 consecutive days any
judgment, decree or order entered by a court of competent jurisdiction, that approves a petition
seeking its reorganization or appoints a receiver, custodian, trustee, interim trustee or
liquidator of all or a substantial part of its assets, or (h) take any action in order thereby to
effect any of the foregoing, or omit to take, any action in order to prevent any of the foregoing.

14. Rights and Remedies. If any Event of Default shall occur, Lender may, at its
election, and without demand or notice of any kind, do any one or more of the following:

(a) Declare all of the Obligations to Lender to be immediately due and payable, whereupon all
unpaid principal, interest and fees in respect of such Obligations, together with all of Lender’s
costs, expenses and attorneys’ fees related thereto, payable under the terms of the Loan Documents,
shall be immediately due and payable;

(b) Terminate any commitment to make any additional advances under any Loan;

(c) Exercise any and all rights and remedies available to Lender under any applicable law;

(d) Exercise any and all rights and remedies granted to Lender under the terms of this
Agreement or any of the other Loan Documents;

 

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(e) Set off the unpaid balance of the Obligations against any debt owing to Borrower by the
Lender or by any Lender Affiliate, including, without limitation, any obligation under a repurchase
agreement or any funds held at any time by the Lender or any Lender Affiliate, whether collected
or in the process of collection, or in any time or demand deposit account maintained by Borrower
at, or evidenced by any certificate of deposit issued by, the Lender or any Lender Affiliate.
Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any
holder of a participation in the Notes may exercise rights of set-off or counterclaim and other
rights with respect to such participation as fully as if such holder of a participation were a
direct creditor of Borrower pursuant to this Agreement in the amount of such participation;

(f) In any jurisdiction in which enforcement hereof is sought, in addition to all other rights
and remedies, Lender shall have the rights and remedies of a secured party under the UCC of the
State and additional rights and remedies as may be provided to a secured party in the jurisdiction
in which Collateral is located, including, without limitation, the right to take possession of the
Collateral, and for that purpose the Lender may, so far as the Grantor can give authority therefor,
enter upon premises on which the Collateral may be situated and remove the therefrom. The Lender
may in its discretion require the Grantor to assemble all or any part of the Collateral at such
location or locations within the jurisdiction(s) of the Grantor’s principal office(s) or at such
other locations as the Lender may reasonably designate. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type custom sold on a recognized market, the
Lender shall give to the Grantor at least at ten (10) days prior written notice of the time and
place of any public sale of Collateral or of the time after which any private sale or any other
intended disposition is to be made. The Grantor hereby acknowledges that ten (10) days prior
written notice of such sale or sales shall be reasonable notice. In addition, the Grantor waives
any and all rights that it may have to a judicial hearing in advance of the enforcement of any of
the Lender’s rights and remedies hereunder, including, without limitation, its right following an
Event of Default to take immediate possession of Collateral and to exercise its rights and remedies
with respect thereto. The Lender may also have a receiver appointed to take charge of all or any
portion of the Collateral and to exercise all rights of Lender under this Agreement.

(g) The remedies in this Section are in addition to, not in limitation of, any other right,
power, privilege, or remedy, either in law, in equity, or otherwise, to which the Lender may be entitled.
No failure or delay on the part of the Lender in exercising any right, power, or remedy will
operate as a waiver thereof, nor will any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right hereunder. The remedies in this
Agreement are in addition to, not in limitation of, any other right, power, privilege, or remedy,
either in law, in equity, or otherwise, to which the Lender may be entitled. All Lender’s rights
and remedies, whether evidenced by this Agreement or by any other agreement, instrument or
document shall be cumulative and may be exercised singularly or concurrently.

15. Standards for Exercising Rights and Remedies. To the extent that applicable law
imposes duties on the Lender to exercise remedies in a commercially reasonable manner, the Grantor
acknowledges and agrees that it is not commercially unreasonable for the Lender (a) to fail to
incur expenses reasonably deemed significant by the Lender to prepare Collateral for disposition or
otherwise to fail to complete raw material or work in process into finished goods or other finished
products for disposition, (b) to fail to obtain third party consents for access to Collateral to be
disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third
party consents for the collection or disposition of Collateral to be collected or disposed of, (c)
to fail to exercise collection remedies against account debtors or other persons obligated on
Collateral or to fail to remove liens or encumbrances on or any adverse claims against Collateral,
(d) to exercise collection remedies against account debtors and other persons obligated on
Collateral directly or through the use of collection agencies and other collection specialists, (e)
to advertise dispositions of Collateral through publications or media of general circulation,
whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether or
not in the same business as the Grantor, for expressions of interest in acquiring all or any
portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the
disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose
of Collateral by utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capability of doing so, or that match buyers
and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to
disclaim disposition warranties, (k) to purchase insurance or credit enhancements to insure the
Lender against risks of loss, collection or disposition of Collateral or to provide to the Lender a
guaranteed return from the collection or disposition of Collateral, or (1) to the extent deemed
appropriate by the Lender, to obtain the services of other brokers, investment bankers, consultants
and other professionals to assist the Lender in the collection or disposition of any of the
Collateral. The Grantor acknowledges that the purpose of this Section is to provide non-exhaustive
indications of what actions or omissions by the Lender would fulfill the Lender’s duties under the
UCC of the State or any other relevant jurisdiction in the Lender’s exercise of remedies against
the Collateral and that other actions or omissions by the Lender shall not be deemed to fail to
fulfill such duties solely on account of not being indicated in this Section. Without limitation
upon the foregoing, nothing contained in this Section shall be construed to grant any rights to the
Grantor or to impose any duties on the Lender that would not have been granted or imposed by this
Agreement or by applicable law in the absence of this Section.

 

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16. No Waiver by Lender. The Lender shall not be deemed to have waived any of its rights
and remedies in respect of the Obligations or the Collateral unless such waiver shall be in writing and signed by
the Lender. No delay or omission on the part of the Lender in exercising any right or remedy shall
operate as a waiver of such right or remedy or any other right or remedy. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on any future
occasion. All rights and remedies of the Lender with respect to the Obligations or the Collateral,
whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be
exercised singularly, alternatively, successively or concurrently at such time or at such times as
the Lender deems expedient.

17. Suretyship Waivers by Grantor. The Grantor waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended, Collateral received or
delivered or other action taken in reliance hereon and all other demands and notices of any
description. With respect to both the Obligations and the Collateral, the Grantor assents to any
extension or postponement of the time of payment or any other indulgence, to any substitution,
exchange or release of or failure to perfect any security interest in any Collateral, to the
addition or release of any party or person primarily or secondarily liable, to the acceptance of
partial payment thereon and the settlement, compromising or adjusting of any thereof, all in such
manner and at such time or times as the Lender may deem advisable. The Lender shall have no duty
as to the collection or protection of the Collateral or any income therefrom, the preservation of
rights against prior parties, or the preservation of any rights pertaining thereto beyond the safe
custody thereof as set forth in Section 9 (b) above. The Grantor further waives any and all other
suretyship defenses.

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

19. Proceeds of Dispositions; Expenses. The Grantor shall pay to the Lender on demand any
and all
expenses, including reasonable attorneys’ fees and disbursements, incurred or paid by the Lender
in protecting, preserving or enforcing the Lender’s rights and remedies under or in respect of
any of the Obligations or any of the Collateral. After deducting all of said expenses, the
residue of any proceeds of collection or sale or other disposition of Collateral shall, to the
extent actually received in cash, be applied to the payment of the Obligations in such order or
preference as the Lender may determine, proper allowance and provision being made for any
Obligations not then due. Upon the final payment and satisfaction in full of all of the
Obligations and after making any payments required by the UCC of the State, any excess shall be
returned to the Grantor. In the absence of final payment and satisfaction in full of all of the
Obligations, the Grantor shall remain liable for any deficiency.

20. Overdue Amounts. Until paid, all amounts due and payable by the Grantor hereunder
shall be a debt secured by the Collateral and shall bear, whether before or after judgment,
interest at the Default Rate (as that term is defined in the Note).

 

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21. Governing Law; Consent to Jurisdiction. The provisions of this Agreement and the respective
rights and duties of Grantor and Lender hereunder shall be governed by and construed in accordance
with New York law. Grantor hereby irrevocably submits to the non-exclusive jurisdiction of any New
York state or federal court sitting in Erie County, over any action or proceeding arising out of or
relating to this Agreement, or any document related to the Obligations, and Grantor hereby
irrevocably agrees that all claims in respect of such action or proceeding may be heard and
determined in such New York state or federal court. The Grantor hereby waives any objection that it
may now or hereafter have to the venue of any such suit or any such court or that such suit is
brought in an inconvenient court.

22. Waiver of Jury Trial. GRANTOR AND LENDER EACH WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE,
BETWEEN LENDER AND GRANTOR ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.

23. Notices. All notices, requests, demands or other communications provided for hereunder
shall be in writing and, if to Grantor, mailed or delivered to it, addressed to it at the address
specified on the signature pages of this Agreement, or if to Lender, mailed or delivered to it,
addressed to the address of Lender specified on the signature pages of this Agreement. All
notices, statements, requests, demands and other communications provided for hereunder shall be
deemed to be given or made when delivered or forty-eight (48) hours after being deposited in the
mails with postage prepaid by registered or certified mail, addressed as aforesaid, or sent by
facsimile with telephonic confirmation of receipt, except that notices from Grantor to Lender
pursuant to any of the provisions hereof shall not be effective until received by Lender.

24. Miscellaneous. The headings of each section of this Agreement are for convenience only
and shall not define or limit the provisions thereof. This Agreement and all rights and
obligations hereunder shall be binding upon the Grantor and its successors and assigns, and shall
inure to the benefit of the Lender and its successors and assigns. If any term of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof
shall in no way be affected thereby, and this Agreement shall be construed and be enforceable as
if such invalid, illegal or unenforceable term had not been included herein. The Grantor
acknowledges receipt of a copy of this Agreement.

 

- 10 -

 

IN WITNESS WHEREOF, intending to be legally bound, the Grantor has caused this Agreement to be
duly executed as of the date first above written.

	 	 	 	 	 	 	 
	 	 	Grantor:
	Address:	 	MOD-PAC CORP.
	 
	 	 	 	 	 	 
	1801 Elmwood Avenue

	 	By:
	 	/s/ David B. Lupp	 	 
	Buffalo, New York 14207

	 	 	 	 

David B. Lupp
	 	 
	 

	 	 	 	Vice President — Finance and Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	Lender:
	 	 	KEYBANK NATIONAL ASSOCIATION
	 
	 	 	 	 	 	 
	50 Fountain Plaza

	 	By:
	 	/s/ Mark F. Wachowiak	 	 
	Buffalo, New York 14202

	 	 	 	 

Mark F. Wachowiak
	 	 
	 

	 	 	 	Vice President	 	 

 

- 11 -

 

SCHEDULE I

Location of Collateral

1801, 1803, 1807 Elmwood Avenue, Buffalo, NY 14207

4199 Bayview Road, Blasdell, New York 14219

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