Document:

Exhibit 10.15

 

AGREEMENT
BETWEEN AMERICAN DEFENSE SYSTEMS, INC. (Prime Contractor/Purchaser) and ACTION
GROUP (Subcontractor/Seller) for the production of armor parts

 

1.                                      ACCEPTANCE
– ENTIRE AGREEMENT – MODIFICATION. This order is for the
purchase and sale of goods and services described with specificity in Schedule
1-VI of this Agreement (hereinafter “items”). Acceptance of this order shall be
limited to the terms and conditions contained herein and incorporated herein by
reference. This order shall be deemed accepted upon the return of the
acknowledgment copy of this order or the commencement of performance by Seller.
Purchaser rejects any additional or inconsistent terms and conditions offered
by Seller at any time, whether or not such terms or conditions materially alter
the order and irrespective of Purchaser’s acceptance of or payment of Seller’s
items or services. These terms and conditions constitute the entire agreement
between the parties and no change to or modification of this Agreement shall be
binding upon Purchaser or Seller unless in writing and signed by a duly
authorized officer of Purchaser and Seller. This Agreement shall be effective
when all attached Schedules have been approved in writing by Purchaser and
Seller.

 

2.                                      MATERIAL,
EQUIPMENT, TOOLS AND FACILITIES. Title to property furnished
to Seller by Purchaser or paid for by Purchaser under this order, as well as
any replacements thereof, (all hereinafter referred to as “Property”) shall be
vested in Purchaser with the right to demand possession at any time. Seller
will use said Property only in the performance of work for Purchaser. Seller
shall bear the risk of loss of all Property while in Seller’s custody or
control and while in the custody or control of Seller’s suppliers. Purchaser does
not warrant any aspect of the Property that it furnishes and all items
delivered by Seller must be in strict accordance with the requirements of this
order. Upon completion or termination of this order, Seller will retain all
Property at its expense until disposition directions are received from
Purchaser.

 

3.                                      DELIVERIES
AND SHIPMENTS. Delivery of the items and related data and/or
documentation and/or performance of required services shall be in accordance
with Schedule I-VI hereof and are a material requirement of this order. TIME IS
OF THE ESSENCE. Delivery is FOB Action Group in Columbus, Ohio. Purchaser will
at its expense, provide the means and methods of shipment. Seller agrees to
make reasonable efforts to cooperate with Purchaser to achieve an efficient and
timely shipment and delivery of the goods. Purchaser reserves the right to
reject all or any part of any delivery that varies from the quantity and/or
quality authorized by Purchaser for shipment. All items shall be packaged in
accordance with Purchaser’s instruction or, if none are specified, in
accordance with standard commercial practice in a manner sufficient to ensure
arrival in

 

4.                                      an undamaged
condition. Seller agrees to utilize E-Commerce and bar coding where required by
Purchaser. Seller shall give notice of shipment to Purchaser at the time of
delivery of any shipment of items to a carrier for transportation. Title and
risk of loss to items is on Seller and shall pass to Purchaser at F.O.B.
source. Acceptance of shipments shall occur at Purchaser’s headquarters located
at 230 Duffy Avenue, Unit C, Hicksville, 

 

 

NY
11801 or such other address as Purchaser may reasonably request. Pricing is
based on bulk packaging. Deviations will cause packaging price to be adjusted.

 

5.                                      PERFORMANCE
SCHEDULE. Seller shall perform production of the goods and
services ordered by Purchaser in accordance with the terms of Schedule 1-V The
parties agree that Seller shall not in any way be responsible for delays in
production related to design changes made by the end user or Purchaser after
the date the schedules have been approved and this Agreement is effective.

 

6.                                      INSPECTION.
Notwithstanding (i) payment, (ii) passage of title, or (iii) prior
inspection or test, all items are subject to final inspection and acceptance or
rejection by Purchaser at Purchaser’s facility. At all reasonable times,
including the period of manufacture, Purchaser, its customers, and/or
representatives of TACOM, or other cognizant regulatory bodies (such as DCMA)
may inspect and/or test the items to be furnished hereunder at the places where
the work is being performed, including those of the Seller’s suppliers, and
Seller shall provide, without additional charge, reasonable facilities and
assistance for safe and convenient inspection and test. Purchaser may inspect
100% or a sample of all items or any lot of items at Purchaser’s option, and
Purchaser shall have the right to reject all or any portion of the items or lot
of items if any such inspection reveals them to be, in Purchaser’s reasonable
opinion, defective or nonconforming, Seller shall provide and maintain a
Quality Assurance Plan and Quality Assurance Procedures including a test and
inspection system acceptable to Purchaser and its customers. Records of all
inspection work by Seller shall be kept complete and available to Purchaser and
its customers during the performance hereof and for four (4) years after
final payment by Purchaser or for such longer period as may be specified
elsewhere herein.

 

7.                                      WARRANTY.

 

A.           Seller warrants
to Purchaser, its successors and customers that for a period of twelve (12)
months after hand-off to Purchaser’s customer of items or completion of
services or for such longer period offered by Seller, that all items furnished
to Purchaser will be free from defects in material and workmanship, will
conform to applicable drawings, designs, specifications and samples, and, to
the extent this order calls for services to be performed, that such services
will be free from defects in workmanship and will meet all of the requirements
of this order (all of which are hereinafter collectively called “conforming
products and/or services”). Seller expressly disclaims any warranty of fitness
for a particular purpose or any implied warranty of merchantability. Further,
Seller expressly disclaims any warranty of design or performance of the
products as they may be affected by design.

 

B.             In the event
conforming products and/or services are not furnished, within a reasonable
period of time after the nonconforming product is returned to Seller or notice
to Seller of a nonconforming service is received, Seller shall repair or
replace such nonconforming products and/or correct such nonconforming services.
The failure of Seller to repair or replace and redeliver such nonconforming
products and/or to correct such nonconforming services within a reasonable
period of time shall entitle Purchaser, at its election and in addition to any
other rights or remedies it 

 

 

may
have a law or in equity, to have such nonconforming products repaired or
replaced or such nonconforming services corrected at Seller’s expense.

 

C.             The warranty
period shall be suspended upon notice that nonconforming items have been
furnished until they have been repaired or replaced and redelivered to
Purchaser postage or freight prepaid, or in the case of nonconforming services,
have been corrected. The unexpired portion of the warranty shall be applicable
to the repaired, replaced or corrected conforming products and/or services.

 

7.                                      CHANGES. Purchaser may,
at any time, by a written change order, without notice to any sureties, make
changes in any one or more of the following: (i) drawings, designs,
specifications, where the items to be furnished are to be specially
manufactured for the Purchaser in accordance therewith; (ii) method of
shipment or packing; (iii) place or time of inspection, delivery, or
acceptance; (iv) the quantity and/or type to services ordered, (v) the
work or service schedules, and (vi) the amount of any Purchaser furnished
property. If any such change causes an increase or decrease in the cost of or
time required for performance of this order, whether or not changed by the
order, an equitable adjustment shall be made in the price or delivery schedule
or both and this order shall be modified accordingly. No change shall be final
until approved in writing by Seller and Purchaser. In the event that a Change
is required by the end user or Purchaser pertaining to the products to be
manufactured by Seller pursuant to this Subcontract and Schedules I-VI hereof,
then Purchaser and Seller shall reasonably cooperate to obtain written approval
of a Change Order which shall encompass consideration of additional costs
incurred by Seller and Purchaser, adjustment of the production schedules and
excusable delays that may be incurred thereby.

 

8.                                      STOP
WORK ORDERS. Purchaser may at any time, by written order,
require Seller to stop all or any part of the work under this order for a
period of up to ninety (90) days after delivery of such stop work order, and
for any further period as the parties may agree. However, the sole reason for
which Purchaser may issue a stop work order shall be the issuance of a stop
work order to purchaser by the end user. Immediately upon receipt of such stop
work order, Seller shall comply with its terms and take all reasonable steps to
minimize the incurrence of costs allocable to the work stoppage. At any time
during such period, Purchaser if required by the end user may, in whole or in
part, either cancel the stop work order or terminate the work in accordance
with subparagraph A or B of the “Termination” article of this order (see Article 9,
below). To the extent the stop work order is canceled or expires, Seller shall
resume work. If a stop work order is a material cause of a change in cost or
delivery, an adjustment shall be made in the price (including fee) or the
delivery schedule, or both and this order modified accordingly. No claim for
adjustment shall be allowed unless submitted to Purchaser in writing in a
specified amount within one hundred twenty (120) days after the work is
terminated or the stop work order expires or is canceled whichever first
occurs.

 

9.                                      TERMINATION
BY CHANGE ORDER

 

A.           This Order may
be terminated by Purchaser in whole or in part at any time by a change order
directing termination. Purchaser may terminate the Order in whole or in 

 

 

part
only if a corresponding change order has been issued by the end user. With
respect to Material that is normally stocked by Seller, Purchaser shall have no
liability for any termination fees. With respect to specially produced
Material, Seller shall immediately cease all work on terminated Material,
cancel all orders for components and supplies relating to terminated Material
on the best terms available and return to its stock or the stock of its
suppliers any reusable components and supplies. Purchaser shall pay Seller a
termination fee equal to actual costs Purchaser shall pay Seller the
proportional share of funds obtained from the end user for the percentage of
work performed prior to the termination including such reasonable costs which
can be demonstrated via the standard records maintained by the business which
indicate that the costs resulted from the termination which could not have been
reasonably avoided, less any amounts previously paid with respect to the
terminated Material and credits for components and supplies returned to the
stock of Seller and its suppliers. After payment therefore, all work-in process
and other supplies identified to the terminated specially produced Material and
not returned to the stock of Seller or its suppliers shall be the property of
Purchaser and disposed of according to its instructions. Except as expressly
set forth in this section, Purchaser shall not be liable for the following damages
as a result of any termination: anticipated or lost profits, or special,
incidental or consequential damages. Seller shall continue performance of the
Order to the extent it is not terminated. Purchaser shall have the right to
audit all elements of any termination claim and Seller shall make available to
Purchaser or Purchaser’s representative on request all book records, and papers
relating thereto as Purchaser may reasonable request.

 

B.             Purchaser
reserves the right to terminate this order in whole or, from time to time, in
part for Seller’s default (i) if Seller fails or refuses to perform in
accordance with any of the requirements of this order or to make progress so as
to endanger performance hereunder, or (ii) if Seller becomes insolvent or
suspends any of its operations or if any petition is filed or proceeding
commenced by or against Seller under any state or Federal law relating to
bankruptcy, arrangement, reorganization, receivership or assignment for the
benefit of creditors. Any such termination will be without liability to
Purchaser except for completed items delivered and accepted by Purchaser.
Purchaser shall have no right of set off. Purchaser may require Seller to
transfer title and deliver to Purchaser any or all property produced or procured
by Seller for performance of the work terminated and Seller shall be credited
with the reasonable value thereof not to exceed Seller’s cost or the contract
price, whichever is less. Seller will be liable for damages caused by or
resulting from its default including but not limited to excess costs of
re-procurement. If, after a default termination, it is determined that Seller
was not in default, the termination shall be considered to have been made
pursuant to subparagraph A of this article. Purchaser or its designee shall
have the right to audit all elements of any termination claim and Seller shall
make available to Purchaser or Purchaser’s designee on request all books,
records, and papers relating thereto. Termination of the order for default shall
be without prejudice to any other rights and remedies of the Purchaser or
Seller under statute or common law.

 

 

C.             To the extent
this order is not terminated pursuant to subparagraphs A or B above, Seller
shall continue performance.

 

D.            Seller reserves
the right to terminate this contract in the event Purchaser fails to pay Seller
in accordance with the agreed upon payment terms. Seller shall give Purchaser a
written five (5) day notice of its intent to terminate. Purchaser shall
have a five (5) day period after notice to cure any such default.

 

10.                               EXCUSABLE
DELAYS. Neither party shall be in default for any delay or failure to perform
hereunder due to causes beyond its control and without its fault or negligence;
provided, that any delay or failure to perform caused by the default of a
supplier of the Seller at any lower-tier shall be excused only if it is beyond
the control of both Seller and such supplier and without the fault or
negligence of either and the items to be furnished are not obtainable from
other sources in sufficient time to permit Seller to meet the delivery
schedule; and provide further that Seiler furnishes prompt written notice to
Purchaser of the occurrence of any such cause that will or may delay Seller’s
performance. If delivery of any item is delayed by any excusable delay for more
than three (3) months, Purchaser may, without any additional extension,
cancel all or part of any order with respect to the delayed product, and
exercise any of its remedies in accordance with Article 10, provided,
however, that the Purchaser shall not be entitled to monetary damages or
specific performance where Seller’s breach is the result of an Excusable Delay.

 

11.                               PRICES,
TAXES AND NEW MATERIAL. Seller warrants that the items furnished
under this order are new Unless otherwise provided on the face of this order,
the prices appearing herein include all packaging, crating and federal, state
and local taxes, if applicable, and are firm for the delivery period shown In
Schedules I-VI or as may be subsequently amended in writing executed by each
party hereto. Pricing shall be as set forth in the attached Schedule I-VI .

 

12.                               PAYMENT
TERMS. Payment periods and cash discount periods will be computed from either
the date of shipment of the items ordered. Seller shall prepare and submit to
Purchaser invoices prepared in accordance with the terms of the order which
shall correspond to each shipment. The payment date will be delayed on a
day-for-day basis for any item that is delivered later than called for by the
schedule on the face of this order. Payment shall be due 45 days after the date
of shipment.

 

13.                               DESIGNS,
DRAWINGS AND DATA.

 

A.           With respect to
items for which any technical information, written, or otherwise, (i) has
been supplied to Seller by or on behalf of Purchaser; or (ii) Seller has
designed at Purchaser’s expense; or (iii) Seller has designed specifically
to meet Purchaser-furnished technical requirements (hereinafter designated “Information”),
Seller, in consideration of Purchaser’s furnishing of such information and/or
design funding, agrees funding or tooling to develop or sell such items (or
similar interchangeable or substitute items, or parts thereof) to anyone other
than Purchaser, either as 

 

 

production,
spare or repaired items, without Purchaser’s prior written consent. Seller
shall not use or disclose such information except in the performance of orders
for Purchaser, and, upon Purchaser’s request, such information and all copies
thereof shall be returned to Purchaser. If Seller seeks to sell the items
hereunder, or assists other in doing so, (or similar interchangeable or
substitute items, or parts thereof) to anyone other than Purchaser, the burden
shall be on Seller to establish that Purchaser’s information, funding, or
tooling was not used.

 

B.             Information
prepared by Seller specifically in connection with performance of this order,
including original works of authorship created by Seller, is considered “work
made for hire” under U.S. Copyright Law. Purchaser shall be deemed the author
of such works. If any such work is determined by a court of competent
jurisdiction not to be work made for hire, this agreement shall operate as an
irrevocable assignment by the author of such work to Purchaser, of the
copyright in the work, including all right, title and interest worldwide.

 

C.             Where such
information is furnished to Seller’s suppliers for use in performance of
Purchaser’s orders. Seller shall insert the substance of this Article 15
in all such orders to seller’s suppliers and subcontractors.

 

14.                               PATENT,
TRADEMARK AND COPYRIGHT RIGHTS AND INDEMNITY.  The parities shall, during the term of the
agreement, disclose promptly to the other in writing all ideas, inventions and
discoveries related to the joint efforts of and resulting from knowledge of
proprietary information, whether or not developed during the performance of
obligations relating to this agreement. Such ideas, inventions and discoveries
shall be the sole property of American Defense Systems, Inc. who shall
have the right to any patents, which may be issued with respect to the same.
Seller shall assign to American Defense Systems, Inc., its successors or
nominees, all rights, title and interest in any patent application or patents
that may be issued thereon. The parties agree to sign all applications,
assignments and other papers, and do such things as may require for
establishing and protecting rights of ownership and to effectuate the
foregoing, both during term of this agreement and thereafter. All inventions,
patented or unpatented, made or conceived by and relating to work performed by
the parties shall be the sole property of American Defense Systems, Inc.
Nothing contained in this Agreement shall be construed as a grant by American
Defense Systems, Inc. expressly or impliedly, of any rights, by license or
otherwise, on or with respect to any patent, other intellectual property,
rights in software or other invention, discovery or improvement relating to the
Information, which is developed, made, conceived, or acquired prior to or after
the date of this Agreement.

 

Seller
shall indemnify and hold harmless Purchaser from any and all damages, costs,
including legal fees, losses, and liabilities resulting from a suit or
proceeding from infringement of any patent, trademark or copyright by reason of
the sale or use of any item sold to Purchaser hereunder, and from reasonable
expenses incurred by Purchaser in defense of such suit or proceeding if Seller
does not undertake the defense thereof; provided, that Seller is promptly notified
of any such suit and, except for suits against the U.S. Government, Purchaser
offers Seller full and exclusive control of the defense of 

 

 

such
suit or proceeding when products of Seller only are involved therein or the
right to participate in the defense of such suit or proceeding when products
other than those of Seller are also involved therein; except that, this
indemnity shall not extend to infringement resulting solely from Seller’s
compliance with Purchaser’s specific designs, processes or formulas. In the
event of an injunction or restraining order, Seller shall, at its own expense,
either procure for Purchaser the right to continue to sell and use the item, or
replace or modify the item so that it becomes non-infringing. Seller shall also
indemnify Purchaser’s customers and agents for such infringement if and to the
extent that Purchaser has agreed to indemnify them, but to no greater extent
than Seller has indemnified Purchaser herein and under the same conditions as
set forth herein.

 

15                                  INSURANCE. Seller shall
provide certificates of requisite worker’s compensation and commercial general
liability. Seller shall name Purchaser as additional insured for the duration
of the Agreement and shall maintain the insurance in full force and effect for
the duration of the Agreement.

 

16.                               STANDARDS
OF CONDUCT, INTEGRITY, AND COMPLIANCE. Seller agrees that Seller
will, at all times, fully comply and take all necessary steps to assist
Purchaser in complying with any customary standards of business conduct prescribed
by law or regulation. Seller shall, at all times, carefully comply with all
rules, laws and regulations pertaining to entertainment or providing
gratuities.

 

17.                               NOTICE
TO AMERICAN DEFENSE SYSTEMS, INC. OF LABOR DISPUTES. Whenever Seller
has knowledge that any actual or potential labor dispute is delaying or
threatens to delay the timely performance of this order, Seller shall
immediately give notice thereof, including all relevant information with
respect thereto, to Purchaser. Seller shall include this paragraph in each
lower-tier Subcontract under this order.

 

18.                               SELLER’S
STATUS. It is understood and agreed that Seller and/or its employees engaged
in the performance of this order by the Seller, are not employees of American
Defense Systems, Inc. and are not entitled to American Defense Systems, Inc.
employee benefits or privileges or any payment from American Defense Systems, Inc.
(other than as expressly provided for in this order) and the Seller shall pay
the salaries or expenses, applicable taxes, including Social Security and
unemployment of said employees. Seller shall also pay any expenses normally
paid by an employer in connection with its employees assigned to American
Defense Systems, Inc. The Seller is and shall be deemed to be an Independent
Contractor at all times during its performance of the work specified in this
order.

 

19.                               COMPLIANCE
WITH LAWS AND REGULATIONS.

 

A.           Seller shall
comply with all applicable federal, state and local laws, Executive Orders, rules and
regulations during performance of this order, including but not limited to, the
Occupational Safety and Health Act of 1970 as amended (“OSHA”); Toxic
Substances Control Act as amended (“TSCA”); the Fair Labor Standards Act of
1938 as amended (“FLSA”); the Clean Air Act as amended; the International
Traffic in 

 

 

Arms
Regulations as amended; and the Anti-Kickback Act of 1986 as amended, the Arms
Export Control Act (22 U.S.C. § 2762).

 

B.             Seller warrants
that all representations and certifications furnished by Seller as required by
law or regulation in connection with this order are accurate, current and
complete as of the effective date of this order, and that to Seller’s knowledge
no person has been paid a kickback or illegal gratuity in connection with this
order. Seller agrees to indemnify and hold Purchaser and its customers harmless
for any loss, damage or expenses sustained because any certification or
representation herein or required by law or regulation made by Seller was
inaccurate or incomplete or due to Seller’s non-compliance with any applicable
law or regulation.

 

C.             The following
FAR Sections are incorporated by reference to the extent applicable herein:
52.202-1; 52.212-1; 52.212-3; 52.212-4; 52.212-5; 52.219-16; 52.223-3;
52.228-4; 52.229-3; 52.232-16; 52.232-16; 52.232-33; 52.232-34; 52.233-1;
52.233-3; 52.233-4; 52.242-15 (Alternate I dated APR 94) ; 52.242-17; 52.246-2;
52.247-1; 52.247-34; 52.247-48; 52.247-54; 52.247-58; 52.247-59; 52.247-65;
252.209-7004; 252.225-7013; DFARS 252.225-7001;252.225-7014;252.225-7021.

 

D.            Purchaser and
Seller acknowledge that Seller has disclosed that a portion of the material to
be used in production of the goods to be sold under this Agreement will be
purchased from a Supplier from Mexico and Purchaser agrees that Seller shall be
excused from complying with any requirement of the prime contract to the
contrary.

 

20.                               USE OF
HAZARDOUS, TOXIC, AND ENVIRONMENTALLY UNSAFE CHEMICALS.  Unless written authorization is obtained
beforehand from ADSI, the supplier shall not use cadmium; hexavalent chromium; Class I
or Class II ozone-depleting chemicals (ODCs); or other highly toxic,
carcinogenic, or radioactive materials in the manufacture and assembly of
components in this Purchase Order. The supplier shall not use materials that
are identified in the Registry of Toxic Effects of Chemical Substances,
published by the National Institute for Occupational Safety and Health.
Additionally, hazardous materials targeted on the EPA-17 list should not be
used unless there are no economically feasible alternatives available to the
supplier.

 

21.                               RELEASE
OF INFORMATION.  The terms
of this Agreement and the goods and services produced thereunder are subject to
the terms of the Mutual Non-Disclosure Agreement between the parties hereto.

 

22.                               DISPUTES.  Except as otherwise specifically provided in
this order, any dispute concerning a question of fact and/or law arising under
this order that is not disposed of by agreement of the parties shall be decided
by final and binding arbitration The parties shall submit a dispute to
arbitration under the rules and procedures of the American Arbitration
Association. To the extent that the issue in dispute between Purchaser and
Seller is related to an issue in dispute between Purchaser and its customer,
Seller agrees to a stay in proceedings until Purchaser’s dispute with its
customer is finally resolved, either through settlement or judgment. Pending
settlement or final decision of any such dispute, except to the extent such
stay could prejudice Seller’s right to arbitrate; Seller shall 

 

 

proceed
diligently with the performance of this order in accordance with the directions
of the Purchaser. Any arbitration shall be conducted in Nassau County, New
York.

 

23.                               CHOICE
OF LAW.  The construction,
interpretation and performance hereof and all transactions hereunder shall be
governed by the laws of the State of New York.

 

24.                               RIGHTS
AND REMEDIES OF PURCHASER AND SELLER The rights and remedies of
the Purchaser and Seller set forth herein shall be in addition to any other rights
and remedies provided in law or equity, and the failure or delay by Purchaser
or Seller to exercise any rights or remedies under this order shall not operate
as a general waiver thereof.

 

25.                               ASSIGNMENT
AND SUBCONTRACTING.  Any
assignment or subcontract for a majority of the materials and/or labor offered
by Seller under this order shall be void unless authorized, in writing, in
advance, by Purchaser.

 

26.                               HEADINGS. Headings and
captions set forth in this order are for convenience of reference only and are
not intended to, nor do they alter the meaning, content or enforceability of
any provision hereof.

 

27.                               GENERAL
QUALITY REQUIREMENTS STATEMENT: Acceptance of any purchase
orders constitutes acceptance and commitment on behalf of the recipient to
comply with contractual requirements covered by procurement documents or
requirements of engineering drawings or specifications. Suppliers are
responsible for the development, documentation, implementation, and maintenance
of a quality system that complies with the ISO 9001:2000 and/or ISO/TS
16949:2002 Quality Systems Requirements. Suppliers shall be certified at a
minimum to ISO 9001:2000 unless otherwise specified by ADSI.

 

28.                               ENTIRE
AGREEMENT: This document sets forth the entire agreement and
understanding between the parties. Any changes or additions herein will be
attached to this document as a Schedule, an Amendment or Addendum.

 

	
  Date:

  	
   

  	
  Date:

  
	
   

  	
   

  	
   

  
	
  AMERICAN
  DEFENSE SYSTEMS, INC.

  	
   

  	
  ACTION
  GROUP INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /S/

  	
   

  	
  /S/

  
	
  Thomas
  F. Cusack

  	
   

  	
  Frank
  Denutte

  
	
  Vice
  President, Corporate Counsel, Secretary

  	
   

  	
  President

  

 

 

SCHEDULE I

 

D7G
DOZER

 

1.                                       Schedule I is
annexed to the subcontract between Action Group and American Defense Systems, Inc.
and made a part thereof In the event of a conflict between the terms of the contract
and the terms of Schedule I, the terms of Schedule I shall govern;

 

2.                                       Action Group
shall produce 92 kits (units) at the unit price prepared by Action Group and
previously accepted by American Defense Systems, Inc.;

 

3.                                       The scope of
work shall be for the production of kits in accordance with the specifications
of American Defense Systems Inc. and in accordance with the drawings and design
documentation as provided by American Defense Systems, Inc. to Action
Group and as may subsequently be amended in accordance with the terms of the
subcontract;

 

4.                                       ADSI has
provided the production documents to Action Group. ADSI shall support Action
Groups efforts in the implementation of the production and provide such
additional engineering and technical support as may be required due to
modifications which are mutually agreed upon and/or change orders as provided
for in the subcontract.

 

5.                                       Production of
the D7G Dozer kits shall be in accordance with the following production
schedule as may be modified in accordance with the terms of the subcontract:

 

10
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before March 27, 2006;

 

I
kit produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 3, 2006;

 

22
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 10, 2006;

 

24
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 17, 2006;

 

18
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 24, 2006;

 

13
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 1, 2006;

 

4
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 8, 2006.

 

 

SCHEDULE II

 

Grader

 

1.                                       Schedule II is
annexed to the subcontract between Action Group and American Defense Systems, Inc.
and made a part thereof. In the event of a conflict between the terms of the
contract and the terms of Schedule II, the terms of Schedule II shall govern;

 

2.                                       Action Group
shall produce 57 kits (units) at the unit price prepared by Action Group and
previously accepted by American Defense Systems, Inc.;

 

3.                                       The scope of
work shall be for the production of kits in accordance with the specifications
of American Defense Systems Inc. and in accordance with the drawings and design
documentation as provided by American Defense Systems, Inc. to Action
Group and as may subsequently be amended in accordance with the terms of the
subcontract;

 

4.                                       ADSI anticipates
providing the production documents to Action Group on or about March 14,
2006. ADSI shall support Action Groups efforts in the implementation of the
production and provide such additional engineering and technical support as may
be required due to modifications which are mutually agreed upon and/or change
orders as provided for in the subcontract.

 

5.                                       Production of
the Grader kits shall be in accordance with the following production schedule
as may be modified in accordance with the terms of the subcontract:

 

1
kit produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before March 27, 2006;

 

15
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 3, 2006;

 

1
kit produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 10, 2006;

 

1
kit produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 17, 2006;

 

7
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 24, 2006;

 

6
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 1, 2006;

 

7
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 8, 2006;

 

5
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 15, 2006;

 

4
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 22, 2006;

 

5
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 29, 2006;

 

5
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before June 5, 2006;

 

 

SCHEDULE III

 

Loader

 

1.                                       Schedule III is
annexed to the subcontract between Action Group and American Defense Systems, Inc.
and made a part thereof. In the event of a conflict between the terms of the
contract and the terms of Schedule III, the terms of Schedule III shall govern;

 

2.                                       Action Group
shall produce 58 kits (units) at the unit price prepared by Action Group and
accepted by American Defense Systems, Inc.;

 

3.                                       The scope of
work shall be for the production of kits in accordance with the specifications
of American Defense Systems Inc. and in accordance with the drawings and design
documentation as provided by American Defense Systems, Inc. to Action
Group and as may subsequently be amended in accordance with the terms of the
subcontract;

 

4.                                       ADSI anticipates
providing the production documents to Action Group on or about March 22,
2006.ADSI shall support Action Groups efforts in the implementation of the
production and provide such additional engineering and technical support as may
be required due to modifications which are mutually agreed upon and/or change
orders as provided for in the subcontract.

 

5.                                       Production of
the Loader kits shall be in accordance with the following production schedule
as may be modified in accordance with the terms of the subcontract:

 

10
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 24, 2006;

 

15
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 1, 2006;

 

15
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 8, 2006;

 

8
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 15, 2006;

 

10
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 22, 2006.

 

 

SCHEDULE IV

 

Roller

 

1.                                       Schedule IV is
annexed to the subcontract between Action Group and American Defense Systems, Inc.
and made a part thereof. In the event of a conflict between the terms of the
contract and the terms of Schedule IV, the terms of Schedule W shall govern;

 

2.                                       Action Group
shall produce 30 kits (units) at the unit price prepared by Action Group and
accepted by American Defense Systems, Inc.;

 

3.                                       The scope of
work shall be for the production of kits in accordance with the specifications
of American Defense Systems Inc. and in accordance with the drawings and design
documentation as provided by American Defense Systems, Inc. to Action
Group and as may subsequently be amended in accordance with the terms of the
subcontract;

 

4.                                       ADSI
anticipates providing the production documents to Action Group on or about March 17,
2006.ADSI shall support Action Groups efforts in the implementation of the
production and provide such additional engineering and technical support as may
be required due to modifications which are mutually agreed upon and/or change
orders as provided for in the subcontract.

 

5.                                       Production of
the Roller kits shall be in accordance with the following production schedule
as may be modified in accordance with the terms of the subcontract:

 

5
kits produced and to American Defense Systems, Inc. in accordance with the
terms of the subcontract on or before May 15, 2006;

 

5
kits produced and to American Defense Systems, Inc. in accordance with the
terms of the subcontract on or before May 22, 2006;

 

10
kits produced and to American Defense Systems, Inc. in accordance with the
terms of the subcontract on or before May 29, 2006;

 

10
kits produced and to American Defense Systems, Inc. in accordance with the
terms of the subcontract on or before June 5, 2006.

 

 

SCHEDULE V

 

Scraper

 

1.                                       Schedule V is
annexed to the subcontract between Action Group and American Defense Systems, Inc.
and made a part thereof. In the event of a conflict between the terms of the
contract and the terms of Schedule V, the terms of Schedule V shall govern;

 

2.                                       Action Group
shall produce 71 kits (units) at the unit price prepared by Action Group and
accepted by American Defense Systems, Inc.;

 

3.                                       The scope of
work shall be for the production of kits in accordance with the specifications
of American Defense Systems Inc. and in accordance with the drawings and design
documentation as provided by American Defense Systems, Inc. to Action
Group and as may subsequently be amended in accordance with the terms of the
subcontract;

 

4.                                       ADSI
anticipates providing the production documents to Action Group on or about March 15,
2006.ADSI shall support Action Groups efforts in the implementation of the
production and provide such additional engineering and technical support as may
be required due to modifications which are mutually agreed upon and/or change
orders as provided for in the subcontract.

 

5.                                       Production of
the Scraper kits shall be in accordance with the following production schedule
as may be modified in accordance with the terms of the subcontract:

 

2
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 3, 2006;

 

5
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 10, 2006;

 

5
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 17, 2006;

 

5
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before April 24, 2006;

 

11
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 1, 2006;

 

11
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 8, 2006;

 

6
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 15, 2006;

 

7
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 22, 2006;

 

8
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before May 29, 2006;

 

11
kits produced and shipped to American Defense Systems, Inc. in accordance
with the terms of the subcontract on or before June 5, 2006.

 

 

SCHEDULE VI

 

Compactor

 

1.                                       Schedule VI is
annexed to the subcontract between Action Group and American Defense Systems, Inc.
and made a part thereof. In the event of a conflict between the terms of the
contract and the terms of Schedule VI, the terms of Schedule VI shall govern;

 

2.                                       Action Group
shall produce 19 kits (units) at the unit price prepared by Action Group and
accepted by American Defense Systems, Inc.;

 

3.                                       The scope of
work shall be for the production of kits in accordance with the specifications
of American Defense Systems Inc. and in accordance with the drawings and design
documentation as provided by American Defense Systems, Inc. to Action
Group and as may subsequently be amended in accordance with the terms of the
subcontract;

 

4.                                       ADSI
anticipates providing the production documents to Action Group on or about March 17,
2006. ADSI shall support Action Groups efforts in the implementation of the
production and provide such additional engineering and technical support as may
be required due to modifications which are mutually agreed upon and/or change
orders as provided for in the subcontract.

 

5.                                       Production of
the Compactor kits shall be in accordance with the following production
schedule as may be modified in accordance with the terms of the subcontract:

 

4
kits produced and shipped to American Defense Systems, Inc. via shipping
in accordance with the terms of the subcontract on or before May 15, 2006;

 

4
kits produced and shipped to American Defense Systems, Inc. via shipping
in accordance with the terms of the subcontract on or before May 22, 2006;

 

4
kits produced and shipped to American Defense Systems, Inc. via shipping
in accordance with the terms of the subcontract on or before May 29, 2006;

 

7
kits produced and shipped to American Defense Systems, Inc. via shipping
in accordance with the terms of the subcontract on or before June 5, 2006;

 

TCO 357,172,972v1EXHIBIT 10.17

 

LOAN AGREEMENT

 

THIS LOAN AGREEMENT (this
“Agreement”) dated as of May 2, 2007, is made by and among AMERICAN
DEFENSE SYSTEMS, INC., a Delaware corporation (the “Company”), A. J. PISCITELLI &
ASSOCIATES, INC., a New York corporation (“AJP”), and each other Subsidiary
(as defined below) that becomes a party to this Agreement in accordance with
the provisions set forth below (together with the Company and AJP collectively,
the “Borrowers”, and individually, a “Borrower”), and COMMERCE BANK, N.A., a national banking association (the
“Lender”).

 

RECITALS

 

The Bank has agreed to
extend credit to the Borrowers subject to the terms and conditions hereof.  Accordingly, for good and valuable
consideration, the receipt and sufficiency of which are acknowledged the Lender
and the Borrowers agree as follows:

 

AGREEMENT

 

1.             Definitions.  As used in this Agreement, the following
terms shall have the meanings assigned to them on the attached Schedule of
Defined Terms, which meanings shall be equally applicable to the singular and
plural forms of terms defined.

 

2.             Revolving Line of Credit.

 

(a)           Amount.  Subject to the terms and conditions of this
Agreement, the Lender agrees to establish a revolving line of credit in favor
of the Borrowers (the “Revolving Credit”). 
The aggregate principal amount of Advances under the Revolving Credit
outstanding at any time shall not exceed the lesser of the Borrowing Base or
$12,000,000 (the “Revolving Credit Amount”). 
Within this limit, the Borrowers may borrow, repay and reborrow until
the Termination Date.  Each Borrower
authorizes the Lender to make Advances from time to time in amounts sufficient
to pay checks drawn on the operating accounts of such Borrower with the Lender,
subject to the terms and conditions set forth in this Agreement.  Each Borrower appoints the Company as its
agent to request and receive the proceeds of the Advances on behalf of all
Borrowers.  The Company agrees to distribute
the proceeds of the Advances among the Borrowers when and as needed by the
Borrowers for working capital.  Advances
may be requested by those individuals designated by the Company from time to
time in written instruments delivered to the Lender; provided, however, that
the Borrowers shall remain liable with respect to any Advance disbursed by the
Lender in good faith hereunder, even if such Advance is requested by an
individual who has not been so designated. 
The proceeds of each Loan will be credited to a deposit account
maintained with the Lender by the Company.

 

(b)           Interest.  Advances shall bear interest at a per annum
rate equal to the Applicable Margin plus LIBOR. 
Accrued interest shall be payable monthly, in arrears, on the first day
of each month, and on the Termination Date. 
The interest rate shall be adjusted daily to reflect LIBOR then in
effect.

 

 

 

 

 

(c)           Use of Proceeds.  The proceeds of Advances shall be used to pay
current operating expenses, carry accounts receivable and for other short-term
working capital needs of the Borrowers and for other general corporate
purposes.

 

(d)           Letter of Credit Facility.  The Company may request that the Lender issue
letters of credit for the account of one or more of the Borrowers from time to
time prior to the Termination Date.  The
purpose, form and substance of each letter of credit must be acceptable to the
Lender.  Unless otherwise approved by the
Lender, no letter of credit shall have a term of more than one year, and in no
event shall a letter of credit expire later than the Termination Date.  At least five Business Days prior to the
issuance of a letter of credit, the Borrowers shall execute and deliver an
Application and Agreement for Irrevocable Standby Letter of Credit on the
Lender’s standard form.  The Lender shall
be reimbursed on demand by the Borrowers for any draws paid by the Lender under
a letter of credit, together with interest from the date of such demand at the
Base Rate.  The Borrowers shall pay a
nonrefundable commission to the Lender for each letter of credit equal to the
Applicable Margin per annum, as of the date of issuance or renewal, of the face
amount, payable in advance on the date of issuance and each renewal for the
number of days the letter of credit is to be outstanding (calculated on the
basis of a year of 360 days) and an opening fee of $500.  At no time shall the aggregate amount of
outstanding letters of credit exceed $250,000 and the Lender shall not be
required to issue any letter of credit that would cause the outstanding
Advances to exceed the Borrowing Base. 
If the Lender issues a letter of credit for the account of any one or
more of the Borrowers at any time, the amount available to be drawn under the
Revolving Credit shall be reduced by the amount of such letter of credit.

 

(e)           Payments.  The unpaid principal balance of the Advances
and all accrued and unpaid interest thereon shall be repaid on the Termination
Date.  The Borrowers agree that if the
sum of the outstanding Advances and letters of credit exceeds the Borrowing
Base at any time the Borrowers shall prepay the Advances immediately in an
amount equal to the excess.

 

(f)            Annual Fee.  The Borrowers agree to pay to the Lender on
the date of this Agreement and on each anniversary thereof an annual loan fee
equal to 0.125% of the Revolving Credit Amount.

 

(g)           Unused Fee.  The Borrowers agree to pay to the Lender a
fee on the Unused Revolving Credit Balance outstanding from time to time
calculated at the rate of 0.25% per annum, which fee shall accrue on a daily
basis, beginning on the date of this Agreement, and shall be payable in arrears,
on the first Business Day of each January, April, July and October,
beginning on July 1, 2007, and on the Termination Date.

 

3.             Term Loan.

 

(a)           Amount.  Subject to the terms and conditions of this
Agreement, the Lender agrees to make a term loan to the Borrowers (the “Term
Loan”) in an amount not greater than $3,000,000.

 

 

 

 

 

 

 

 

2

 

(b)           Interest.  The Term Loan shall bear interest at a per
annum rate equal to 3.00% plus LIBOR. 
Accrued interest shall be payable monthly, in arrears, on the first day
of each month.  The interest rate shall
be adjusted daily to reflect LIBOR then in effect.

 

(c)           Use of Proceeds.  Disbursements of the Term Loan shall be made
from time to time until October 30, 2007 (the “Conversion Date”).  The proceeds of the Term Loan shall be used
to finance costs incurred by the Borrowers for accounting software upgrades for
the Borrowers, the purchase of equipment and fixed assets to be used by the
Borrowers in the ordinary course of business and improvements to office space
occupied by the Borrowers (the “Fixed Asset Costs”).  Each request for a Term Loan disbursement
shall be made in writing to the Lender not less than three Business Days prior
to the date of such disbursement and shall be accompanied by the applicable
purchase orders, invoices, receipts or other documentation acceptable to the
Lender setting for the amount of the Fixed Asset Costs to be financed with such
disbursement.  No Term Loan disbursement
shall exceed 100% of the Fixed Asset Costs incurred by the Borrowers, and the
Lender shall not be required to make any Term Loan disbursement that would
cause the sum of the outstanding Advances to exceed the Borrowing Base.

 

(d)           Payments.  The principal amount of the Term Loan outstanding
on the Conversion Date shall be repaid in equal consecutive installments, due
on the first day of each month, beginning on November 1, 2007, to and
including July 1, 2010, when the unpaid principal balance of the Term Loan
and all accrued and unpaid interest thereon shall be due and payable in
full.  The amount of each such principal
installment shall be equal to the principal balance of the Term Loan
outstanding on the Conversion Date divided by 33.

 

(e)           Term Loan Fee.  The Borrowers agree to pay to the Lender on
the date of this Agreement a fee of $18,000.

 

(f)            Prepayment.  The Term Loan may be prepaid by the Borrowers
in whole or in part at any time, without premium or penalty.  Partial prepayments shall be applied to
installments due with respect to the Term Loan in the inverse order of
maturity.  Prepayments of the Term Loan
may not be reborrowed.

 

4.             Payment Terms.

 

(a)           Computations.  All computations of interest and fees shall
be made by the Lender on the basis of a year of 360 days, in each case for the
actual number of days (including the first day, but excluding the last day)
occurring in the period for which such interest or other fees are payable.

 

(b)           Charge to Account.  Each Borrower agrees that the Lender may
debit account number 3980076875 or any other operating account maintained by
such Borrower with the Lender for payments due to the Lender under the Loan
Documents.

 

 

 

 

 

 

 

 

3

 

(c)           Default.  If an Event of Default occurs under the applicable
Loan Documents, and while such Event of Default is continuing the interest rate
on the Obligations and the fee charged for any letter of credit may be
increased to 3.00% above the rate otherwise in effect.

 

(d)           Late Charge.  The Lender may assess a late charge of 5% for
any payment due under the Loan Documents that is fifteen days or more past due.

 

(e)           Capital Adequacy.  If any present or future law, governmental
rule, regulation, policy, guideline, directive or similar requirement (whether
or not having the force of law) imposes, modifies, or deems applicable any
capital adequacy, capital maintenance or similar requirement which affects the
manner in which the Lender allocates capital resources to its commitments
(including any commitments hereunder), and as a result thereof, in the opinion
of the Lender, the rate of return on the Lender’s capital with regard to the
Obligations is reduced to a level below that which the Lender would have
achieved but for such circumstances, then in such case and upon notice from the
Lender to the Borrowers, from time to time, the Borrowers shall pay the Lender
such additional amount or amounts (which shall include a detailed description
of the calculations thereof) as shall compensate the Lender for such reduction in
the Lender’s rate of return.  Such notice
shall contain the statement of the Lender with regard to any such amount or
amounts which shall, in the absence of manifest error, be binding upon the
Borrowers.  In determining such amount,
the Lender may use any reasonable method of averaging and attribution that it
deems applicable.

 

5.             Security Agreement.  The Obligations shall be secured by a
security interest in all assets of each Borrower, including, without
limitation, all accounts, chattel paper, equipment, fixtures, general
intangibles, instruments, inventory and investment property of each Borrower as
described in each Security Agreement.

 

6.             Conditions.

 

(a)           Conditions to Closing.  The following are conditions precedent to the
initial Advance and the initial disbursement of the Term Loan:

 

(i)            Loan Documents.  Receipt by the Lender of all Loan Documents,
duly executed by all applicable parties;

 

(ii)           Organizational Documents.  Receipt by the Lender of certified copies of
resolutions and organizational documents of each Borrower, a certificate as to
the incumbency and signatures of the authorized officers or representatives of
each Borrower, and current good standing certificates issued by the appropriate
public officials in the state of formation of each Borrower and each
jurisdiction in which such Borrower does business;

 

(iii)          Perfection.  Financing statements perfecting the Lender’s
security interest in the Collateral shall be filed, all conflicting financing
statements shall be terminated and all other actions required by the Lender to
perfect its Liens in the Collateral shall be completed to the Lender’s
satisfaction;

 

 

 

 

4

 

(iv)          Insurance.  Receipt by the Lender of certificates or
policies of insurance confirming that all insurance required by the Loan
Documents has been obtained;

 

(v)           Collateral/Systems Report.  Completion by the Lender of a satisfactory
examination report of the Collateral and each Borrower’s systems;

 

(vi)          Landlord Waivers.  Receipt by the Lender of such landlord and
mortgagee waivers as it deems to be necessary to protect its security interest
in the Collateral, provided, however, that if the Lender elects to close
without all of such waivers, the Borrowers agree to provide such waivers to the
Lender not later than 30 days after the date on which the Term Loan is
disbursed;

 

(vii)         Borrowing Availability.  Receipt and review by the Lender of initial
Borrowing Base availability supported by the Borrowers’ accounts receivable
aging report and Borrowing Base Certificate as of March 31 2007;

 

(viii)        Financial Statements.  Receipt and approval by the Lender of the
Company’s audited consolidated financial statements for its fiscal year ended
on December 31, 2006;

 

(ix)           References.  Receipt by the Lender of satisfactory
references from the contracting officers and the contract managers for
contracts with Customers;

 

(x)            Opinion of Counsel.  Receipt by the Lender of an opinion of
counsel to the Borrowers;

 

(xi)           Structure and Management.  The corporate capital and ownership structure
and management of the Borrowers shall be satisfactory to the Lender;

 

(xii)          No Material Adverse Change.  There shall not have occurred a material
adverse change since December 31, 2006 in the business, assets, liabilities
(actual or contingent), operations, condition (financial or otherwise) or
prospects of the Borrowers taken as a whole or in the facts and information
regarding the Borrowers as represented to the Lender;

 

(xiii)         No Litigation.  Except as set forth on Schedule 6 (a)(xiii),
attached hereto, no action,
suit, investigation or proceeding shall be pending or threatened in any court
or before any arbitrator or governmental authority that purports (1) to
materially and adversely affect the Borrowers, or (2) to affect any
transaction contemplated hereby or the ability of the Borrowers to perform
their respective obligations under the Loan Documents; and

 

(xiv)        Satisfactory Documents.  All documents, certificates and opinions
delivered under this Agreement must be in form and substance satisfactory to
the Lender and its counsel;

 

 

 

 

 

5

 

(b)           Conditions to each Disbursement.  The following are conditions precedent
to  each disbursement of an Advance or
the Term Loan:

 

(i)            No Defaults.  No Default shall be continuing; and

 

(ii)           Representations.  All representations and warranties of each
Borrower contained in this Agreement or any Loan Document shall be true and
correct.

 

7.             Representations and Warranties.  In order to induce the Lender to extend
credit to the Borrowers, each Borrower represents and warrants as follows, as
of the date of this Agreement and as of the date of the disbursement of each
Advance and issuance of each letter of credit hereunder:

 

(a)           Execution of Documents.  Each Borrower is an entity duly formed,
validly existing and in good standing, and has the power and has taken all of
the necessary actions to execute, deliver and perform the terms of the Loan
Documents.  When executed and delivered,
the Loan Documents will be binding obligations of each Borrower, enforceable in
accordance with their terms and will not violate any provisions of law or
conflict with, result in a breach of or constitute a default under the
organizational documents of any Borrower under any other agreement to which any
Borrower is a party.

 

(b)           Financial Statements.  The Company has furnished to the Lender (1) the
audited consolidated balance sheet of the Company as of December 31, 2006,
and the related consolidated statements of income, shareholders’ equity and
cash flows for the fiscal year of the Company then ended prepared by Jewett,
Schwartz, Wolfe & Associates (the “Current Auditors”), and (2) the
unaudited consolidated balance sheet of the Company as of February 28,
2007, and the related unaudited consolidated statements of income and cash
flows of the Company for the two months then ended, certified by the chief
financial officer of the Company.  Such
financial statements fairly present in all material respects the consolidated
financial condition of the Company as of such dates and the consolidated
results of operations for such periods in conformity with GAAP consistently
applied, subject to year end audit adjustments and the absence of footnotes in
the case of the statements referred to in clause (2).  Since December 31, 2006, there have been
no changes with respect to the Company which have had or could reasonably be
expected to have, singly or in the aggregate, a Material Adverse Effect.

 

(c)           No Litigation.  Except as set forth on Schedule 6 (a)(xiii),
attached hereto, there is no
action, suit, investigation or proceeding pending or, to the knowledge of any
Borrower, threatened against or affecting any Borrower that may, either in any
case or in the aggregate, result in any material adverse change in the
business, properties or assets or in the condition, financial or otherwise, of
any Borrower, or that may result in any material liability on the part of any
Borrower.

 

 

 

 

 

 

 

 

6

 

(d)           Debarment.  No event has occurred and no condition exists
that may result in the debarment or suspension of any Borrower from any
Government Contracts, and no Borrower nor any Affiliate of a Borrower been
subject to any such debarment or suspension.

 

(e)           Title to Assets.  Each Borrower has good and marketable title
to all of its assets, subject only to the Liens and security interests
permitted by this Agreement.

 

(f)            Use of Proceeds.  The Advances, the letters of credit  and the Term Loan shall be used only for the
purposes described in this Agreement. 
None of the proceeds of any of the Advances, the Term Loan or the
letters of credit will be used, directly or indirectly, for “purchasing” or
“carrying” any “margin stock” with the respective meanings of each of such
terms under Regulation U of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect or for any purpose that
violates the provisions of the Regulation U. 
No Borrower is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying “margin stock.”

 

(g)           Compliance with Laws.  Each Borrower is in compliance in all
material respects with all federal, state and local laws, regulations and
ordinances.

 

(h)           Debt.  No Borrower is in default with respect to any
debt.

 

(i)            Anti-Terrorism Laws.

 

(i)            General.  No Borrower nor any Affiliate of any Borrower
is in violation of any Anti-Terrorism Law or engages in or conspires to engage
in any transaction that evades or avoids, or has the purpose of evading or
avoiding, or attempts to violate, any of the prohibitions set forth in any
Anti-Terrorism Law.

 

(ii)           Executive Order No. 13224.   No Borrower nor any Affiliate of any
Borrower, or to any Borrower’s knowledge, any of its respective agents acting
or benefiting in any capacity in connection with the loans, letters of credit
or other transactions hereunder, is any of the following (each a “Blocked
Person”):

 

(A)          a
Person that is listed in the annex to, or is otherwise subject to the
provisions of, the Executive Order No. 13224;

 

(B)           a
Person owned or controlled by, or acting for or on behalf of, any Person that
is listed in the annex to, or is otherwise subject to the provisions of, the
Executive Order No. 13224;

 

(C)           a
Person with which, to the best of the knowledge of the Borrowers, Lender is
prohibited from dealing or otherwise engaging in any transaction by any
Anti-Terrorism Law;

 

 

 

 

7

 

(D)          a
Person that commits, threatens or conspires to commit or supports “terrorism”
as defined in Anti-Terrorism Laws:

 

(E)           a
Person that is named as a “specially designated national” on the most current
list published by the U.S. Treasury Department Office of Foreign Asset Control
at its official website or any replacement website or other replacement
official publication of such list; or

 

(F)           a
Person who is affiliated with a Person listed above.

 

(j)            Subsidiaries.  As of the date of this Agreement, the Company
does not have any direct or indirect Subsidiaries other than AJP, and AJP is a
wholly-owned Subsidiary of the Company.

 

(k)           Integrated Business.  The Borrowers are and will be engaged as an
integrated group in providing services and goods to their respective
Customers.  The integrated operation will
require financing on such a basis that credit supplied to the Borrowers be made
available from time to time to all Borrowers and Subsidiaries of the Borrowers,
as required for the successful operation of the Borrowers and the Subsidiaries
separately, and the integrated operation as a whole.  In that connection, the Borrowers and the
Subsidiaries will request that the Lender extend credit under this Agreement to
the Borrowers to finance such operation. 
Each Borrower will derive benefit, directly and indirectly, from the
credit so extended to the Borrowers, both in its separate capacity and as a
member of the integrated group.

 

(l)            ERISA.  No Borrower has incurred any material
“accumulated funding deficiency” within the meaning of § 302 of ERISA or § 412
of the Code, nor has any Borrower incurred any material liability to the PBGC
in connection with any “employee pension benefit plan” (as defined in § 3(2) of
ERISA) established or maintained by a Borrower. 
None of the employee pension benefit plans (as defined above) of a
Borrower, nor any trusts created thereunder, nor any trustee or administrator
thereof, has engaged in a “prohibited transaction,” as such term is defined in
§ 406 of ERISA or § 4975 of the Code, that could subject such plans or any of
them, any such trust, or any trustee or administrator thereof, or any party
dealing with such plans or any such trust to any material liability or tax or
penalty on prohibited transactions imposed by such §§ 406 or 4975.  None of the Borrowers are now, or at any time
in the past three (3) years have been, obligated to make contributions to
a “multiemployer plan,” as such term is defined in § 4001(a)(3) of ERISA.

 

8.             Affirmative and Negative
Covenants.  In consideration of
credit extended or to be extended by the Lender, each Borrower covenants and
agrees that, unless the Lender otherwise consents in writing:

 

(a)           Financial Reporting Requirements.  The Company shall deliver to the Lender:

 

(i)            within 120 days after the close
of each of its fiscal years after the date hereof, audited consolidated, and
unaudited consolidating, financial statements of the Company 

 

 

 

 

8

 

and its Subsidiaries, prepared
in accordance with GAAP, comprised of consolidated and consolidating balance
sheets, income statements, statements of equity and of cash flows, for the
fiscal year then ended, accompanied, in the case of the audited financial
statements, by an opinion of the Current Auditors or other independent
certified public accounting firm reasonably satisfactory to the Lender, that
does not contain any “going concern” or like qualifications or exception or
qualifications arising out of the scope of the audit;

 

(ii)           within 45 days after the end of
each quarter of each of its fiscal years, unaudited consolidated and
consolidating financial statements of the Company and its Subsidiaries,
comprised of consolidated and consolidating balance sheets and income
statements, for the period then ended, prepared in accordance with GAAP;

 

(iii)          within 45 days after the end of each
quarter of each of its fiscal years a Covenant Compliance Certificate of the
Company’s chief financial officer for the period then ended;

 

(iv)          within 15 days after the end of each
fiscal month of the Company (i) an appropriately completed Borrowing Base
Certificate setting forth a calculation of the Borrowing Base as of the end of
such fiscal month, and (ii) agings of accounts receivable of the Company
and its Subsidiaries as of the end of such fiscal month;

 

(v)           within 45 days after the end of each
fiscal quarter of the Company and its Subsidiaries, a contract backlog report
relating to the contracts of the Company and its Subsidiaries as of the end of
such fiscal quarter;

 

(vi)          within 120 days after the beginning of
each fiscal year, consolidated and consolidating balance sheets, income
statements and cash flows of the Company and its Subsidiaries setting forth
projections for the next succeeding fiscal year, and setting forth in
reasonable detail the assumptions underlying such projections;

 

(vii)         promptly after filing, copies of the
annual federal income tax returns of the Company and its Subsidiaries;

 

(viii)        promptly after receipt, copies of any
reports from auditors of Government Contracts;

 

(ix)           promptly upon receipt, copies of any
reports submitted to any Borrower by independent certified public accountants
in connection with examination of the financial statements of any Borrower made
by such accountants; and

 

(x)            such other information concerning
the Collateral or the financial condition of any Borrower as the Lender from
time to time may reasonably request.

 

 

 

 

 

 

 

 

9

 

All financial statements and
reports shall be in form and detail reasonably acceptable to the Lender and
shall be certified to be accurate by a duly authorized officer of the Company.

 

(b)           Notices.  Each Borrower shall furnish to the Lender
prompt written notice of (1) the occurrence of each Default or an Event of
Default, (2) the institution of any litigation concerning any Borrower, (3) the
institution by the Government of any investigation of or claim against any
Borrower, (4) any final decision of a contracting officer disallowing
costs aggregating more than $100,000 with respect to a Government Contract, (5) the
results of any audit of its Government Contracts, and (6) any material
modifications to, or any termination of, any material contract or agreement
relating to any Eligible Receivables.

 

(c)           Collateral/Systems Examinations.  The Lender shall have the right to perform
Collateral and systems examinations from time to time in accordance with its
standard procedures.  The Borrowers agree
to pay the Lender all costs incurred by it in connection with each such
examination; provided that, if no Default has occurred, the Borrowers shall not
be required to pay such costs or fee more frequently than twice during the one
year period following the date of this Agreement or more frequently than once
during any succeeding one-year period. 
The Lender shall have the right to contact the contracting officers and
the contract manager under contracts with Customers to discuss the status of
such contracts; provided any such contact is coordinated in advance with the
Company.

 

(d)           Compliance with Laws.  Each Borrower shall comply with all
applicable laws and regulations, including, without limitation, ERISA, and
shall pay all taxes, assessments or governmental charges lawfully levied or
imposed on or against it or any of its properties.  No Borrower shall take any action that would
result in the debarment or suspension of any Borrower from contracting with the
Government.

 

(e)           Liens.  No Borrower shall permit any Lien to attach
to any of its assets other than Permitted Liens.

 

(f)            Guaranties.  Neither a Borrower nor any Subsidiary shall
guarantee, endorse, become contingently liable upon or assume the obligations
of any Person, except by the endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business.

 

(g)           Debt.  No Borrower shall permit to exist any debt
other than Permitted Debt.

 

(h)           Sale or Transfer of Assets.  No Borrower shall sell, lease, assign or
otherwise dispose of any of its assets except for (1) sales in the
ordinary course of business of any product or service marketed by any Borrower,
and (2) the sale or other disposition, in each case for fair market value,
of obsolete or worn out property or other property not necessary for operations
disposed of in the ordinary course of business.

 

 

 

 

 

 

10

 

(i)            Dividends and Distributions.  Except as set forth in the next sentence, the
Company shall not (1) declare or pay any dividends or make any other
payments or distributions to its equity owners (other than reasonable
compensation to owners who are employees) or (2) redeem, repurchase or
retire any of its equity interests or pay any of its Subordinated Debt
(collectively, a “Restricted Payment”). 
If no Default has occurred or would occur after giving effect to such
Restricted Payment or if, assuming that such Restricted Payment had been made
on the last day of the immediately preceding fiscal quarter, the Borrowers
would have been in compliance with the financial covenants set forth in Section 9
of this Agreement, then the Company may make any Restricted Payments.

 

(j)            Loans and Investments.  Except for the Permitted Investments, no
Borrower shall make or permit to exist any loans to, or debt or equity
investments in, acquire all or substantially all of the assets of, or merge or
consolidate with any Person, other than accounts receivable that arise in the
ordinary course of business.  Without
limiting the generality of the foregoing, no Borrower shall acquire or form any
Subsidiary, enter into any joint venture agreement, or become a partner in any
partnership; provided that with the consent of the Lender, a Borrower may enter
into joint venture or teaming agreements with other Persons to perform
contracts.

 

(k)           Contract Assignments; Cash
Collateral.  If required by the
Lender, each Borrower shall execute and deliver to the Lender such assignments
and acknowledgments as it shall require with respect to the Borrower’s
contracts to provide for receivable payments to be made by Customers directly
to the Lender (including properly noticed assignments of payments due the
Borrowers under Government Contracts to the Lender in accordance with FACA),
and each Borrower shall direct all automated clearing house and other
electronic payments with respect to the accounts receivable to be made to the
Lender.  If required by the Lender, each
Borrower shall establish and maintain a lockbox account (“Lockbox”) with the
Lender (on terms and conditions satisfactory to the Lender) and a depository
account(s) (“Cash Collateral Account”). 
Each Borrower shall instruct all Customers to make all payments on
accounts receivable made by check through the Lockbox.  Each Borrower shall then cause (and the
Lender is hereby irrevocably authorized to cause) the transfer of such
collections from the Lockbox into the Cash Collateral Account.  Deposits into the Cash Collateral Account
shall be applied by the Lender daily, subject to the Lender’s standard clearing
procedures and clearing periods for deposited funds, to reduce the outstanding
principal amount under the Revolving Credit. 
All collections of accounts receivable to the extent received by any
Borrower shall be held in trust for the benefit of the Lender and remitted, in
the form received, to the Lender for deposit in the Cash Collateral Account
immediately upon receipt by such Borrower or such Subsidiary. The Borrowers
shall have no right of access to or withdrawal from the Cash Collateral
Account; provided that if there are no outstanding Advances and no Default has
occurred and is continuing, then all collections in the Cash Collateral Account
shall be, subject to the Lender’s standard clearing procedures and clearing
periods for deposited funds, transferred to the Company’s operating account
with the Lender.

 

 

 

11

 

(l)            Affiliates.  No Borrower shall engage in business with any
Affiliate of a Borrower except in the ordinary course of business and on terms
that are no less favorable to such Borrower than would apply in an arm’s length
transaction.

 

(m)          Banking Relationship.  Each Borrower shall maintain its commercial
banking relationship with the Lender as long as the Revolving Credit remains in
effect or any obligations relating thereto or to the Term Loan remains
outstanding.

 

(n)           Subsidiaries.  Each Subsidiary formed or acquired by any
Borrower, which acquisition or formation must be approved by the Lender as
provided in this Agreement, shall become a Borrower under this Agreement and
shall satisfy the following conditions upon the acquisition or formation of
such Subsidiary:

 

(i)            The Subsidiary shall execute and
deliver to the Lender an Assumptions Agreement and a Security Agreement.

 

(ii)           All legal matters incident to such
Subsidiary becoming a Borrower shall be satisfactory to counsel for the Lender,
and the Subsidiary shall execute and deliver to the Lender such additional
documents and certificates as the Lender may reasonably request with respect to
such Subsidiary becoming a Borrower.

 

(iii)          The Lender shall have received an
opinion of counsel to the Subsidiary, addressed to the Lender, covering such
matters as the Lender may reasonably request, in form and substance
satisfactory to the Lender.

 

(iv)          Financing statements in form and
substance satisfactory to the Lender shall have been properly filed in each
office where necessary to perfect the security interest of the Lender in the
Collateral of the Subsidiary, termination statements shall have been filed with
respect to any other financing statements covering all or any portion of such
Collateral (except with respect to Liens or security interests permitted by
this Agreement), all taxes and fees with respect to such recording and filing
shall have been paid by such Subsidiary and the Lender shall have received such
lien searches or reports as it shall require confirming that the foregoing
filings and recordings have been completed.

 

(v)           The Subsidiary shall have delivered
the following documents to the Lender, each of which shall be certified as of
the date on which it is to become a Borrower, by its secretary or
representative performing similar functions: 
(1) copies of evidence of all actions taken by the Subsidiary to
authorize the execution and delivery of the other Loan Documents; (2) copies
of the articles or certificate of incorporation and bylaws (or comparable
organizational documents) of the Subsidiary; and (3) a certificate as to
the incumbency and signatures of the officers executing the Loan Documents.

 

(vi)          The Lender shall have received a
certificate of good standing and qualification (or similar instrument) issued
by the appropriate state official of the state of incorporation of the
Subsidiary, dated within 30 days of the date of its acquisition or formation.

 

 

 

12

 

(vii)         The Lender shall have received a
listing and aging of accounts receivable, a listing of accounts payable of the
Subsidiary, a report setting forth the status of all contracts relating to its
Eligible Receivables and such other financial information of such Subsidiary as
may be requested by the Lender from time to time, all of which shall be of a
current date and shall be in form and substance satisfactory to the Lender.

 

(viii)        If required by the Lender, the Lender
shall have received a satisfactory field examination of the Collateral and
internal control systems of the Subsidiary performed by a consultant selected
by the Lender, and the Borrowers shall have reimbursed the Lender for the cost
of such consultant.

 

9.             Financial Covenants.  In consideration of credit extended or to be
extended by the Lender, each Borrower covenants and agrees that, unless the
Lender otherwise consents in writing:

 

(a)           Tangible Capital Funds.  The Company and its Subsidiaries on a
consolidated basis shall maintain at all times Tangible Capital Funds of not
less than the Minimum Compliance Level.

 

(b)           Fixed Charges Coverage Ratio.  For each period of four consecutive trailing
fiscal quarters ending on the last day of each current fiscal quarter of the
Company, the Company and its Subsidiaries on a consolidated basis shall maintain
a ratio of Fixed Charges Coverage Ratio for such period of not less than 2.00
to 1.

 

(c)           Working Capital. The Company
and its Subsidiaries on a consolidated basis shall maintain at all times
Working Capital of not less than $5,000,000.

 

(d)           Capital Expenditures.  The Company and its Subsidiaries shall not
permit consolidated capital expenditures to exceed $4,000,000  during
the fiscal year ending on December 31, 2007, or $1,000,000 during any
subsequent fiscal year.

 

10.           Events of Default. 
Each of the following shall constitute an “Event of Default”
under this Agreement:

 

(a)           Failure to Pay.  If a Borrower fails to make when due any
installment or other payment owing to the Lender under the terms of this
Agreement or any other Loan Document, and such failure shall continue uncured
for seven (7) or more days after Borrower’s receipt of written notice
thereof; provided that if more than two (2) such failures occur during any
calendar year, the Lender shall not be required to provide written notice of
any such additional failures to make payment on the due date during such year;

 

(b)           Failure to Observe Specific
Covenants.  If the Borrowers fail to
observe or perform any financial covenant contained in Section 9 of this
Agreement;

 

 

 

 

13

 

(c)           Failure to Observe Other Covenants.  If any Borrower fails to perform or observe
any other term, covenant, warranty or agreement contained in this Agreement and
such failure shall continue for a period of thirty (30) days;

 

(d)           Defaults under Loan Documents.  If an event of default shall occur under any
of the Notes or any other Loan Document and shall not be cured within any
applicable grace period;

 

(e)           Breach of Representation.  If any representation or warranty made or
deemed made by any Borrower in this Agreement or in any other Loan Document, or
any representation  or warranty made by
any Borrower in any certificate or report delivered pursuant to this Agreement
or other Loan Document or in connection with any borrowing under this Agreement
was materially untrue when made or deemed made, or is breached in any material
respect;

 

(f)            Voluntary Bankruptcy.  If any Borrower makes an assignment for the
benefit of creditors, files a petition in bankruptcy, petitions or applies to
any tribunal for any receiver or any trustee of such Borrower or any
substantial part of the property of such Borrower, or commences any proceeding
relating to such Borrower under any reorganization, arrangement, composition,
readjustment, liquidation or dissolution law or statute of any jurisdiction,
whether in effect now or after this Agreement is executed;

 

(g)           Involuntary Bankruptcy.  If, within 60 days after the filing of a
bankruptcy petition or the commencement of any proceeding against any Borrower
seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, the proceeding shall not have been dismissed, or, if within
60 days, after the appointment, without the consent or acquiescence of such
Borrower, of any trustee, receiver or liquidator of any Borrower or all or any
substantial part of the properties of such Borrower, the appointment shall not
have been vacated;

 

(h)           Cross Default.  If, as a result of default, any present or
future obligations in excess of $50,000 of any Borrower to the Lender or any
other creditor are declared to be due and payable prior to the expressed
maturity of such obligations, unless and to the extent that the declaration is
being contested in good faith in a court of appropriate jurisdiction or
pursuant to arbitration or mediation;

 

(i)            ERISA.  If any of the following events shall occur or
exists with respect to any Borrower or any employee benefit or other plan
established, maintained or to which contributions have been made by any
Borrower, any Affiliate of any Borrower or any other Person that, together with
the Borrowers, would be treated as a single employer under § 4001 of ERISA, and
that the same would have a Material Adverse Effect:  (1) any prohibited transaction (as
defined in § 406 of ERISA or § 4975 of the Code), (2) any reportable event
(as defined in § 4043 of ERISA and the regulations issued thereunder), (3) the
filing under § 4041 of ERISA of a notice of intent to terminate any such plan
or the termination of such plan, or (4) the institution of proceedings by
the PBGC under § 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any such plan;

 

 

 

 

14

 

(j)            Material Adverse Change.  A material adverse change occurs in the
financial or business condition of the Borrowers taken as a whole;

 

(k)           Judgment.  If a judgment, attachment, garnishment or
other process in excess of $50,000 is entered against any Borrower and is not
vacated or bonded within 30 days after entry;

 

(l)            Ownership.  If Anthony Piscitelli ceases to own at least
15% of the outstanding equity interests of the Company, or the Company ceases
to own all of the outstanding equity interests of each other Borrower, directly
or indirectly;

 

(m)          Dissolution.  The dissolution, liquidation or termination
of existence of any Borrower;

 

(n)           Termination of Third Party
Agreements.  If a Subordinated
Creditor gives written notice to the Lender purporting to terminate the
obligations of such Subordinated Creditor under the Subordination Agreement to
which such Subordinated Creditor is a party;

 

(o)           Debarment, etc.  If any Borrower shall be debarred or
suspended from any contracting with the Government; or if a notice of debarment
or notice of suspension shall have been issued to any Borrower; or if a notice
of termination for default or the actual termination for default of any
Government Contract, shall have been issued to or received by any Borrower; or

 

(p)           Management.  If any of Anthony Piscitelli, Gary Sidorsky,
Russ Scales, or John Rutledge ceases to be actively involved in the management
of the Borrowers.

 

Upon the occurrence of an Event of Default,
any obligation of the Lender to make Advances and the Term Loan and to issue
letters of credit shall terminate and the Lender, at its option, by written
notice to the Borrowers, may declare all obligations to the Lender under the
Revolving Credit and Term Loan to be immediately due and payable.  The Lender is hereby authorized at any time
or from time to time, without notice to the Borrowers (any such notice being
expressly waived by the Borrowers), to setoff and apply any deposit (general or
special, time or demand, provisional or final) or investment account at any
time held, including any certificate of deposit, and other indebtedness at any
time owed by the Lender or any of its affiliates, whether or not any such
deposit or indebtedness is then due, to or for the credit or account of any
Borrower against any and all of the obligation under the Revolving Credit and
Term Loan.

 

11.           Miscellaneous.

 

(a)           Accounting Terms.  Each accounting term used in this Agreement,
not otherwise defined, will have the meaning given to it under GAAP as in effect
on the date of this Agreement, applied on a consistent basis.

 

(b)           Notices.  All notices, requests, demands and other
communications provided for in this Agreement shall be in writing and shall be
delivered by hand, sent prepaid by Federal 

 

 

 

15

 

Express (or a
comparable overnight delivery service), sent by telecopy or facsimile or sent
by United States mail, certified, postage prepaid, return receipt requested, to
the parties at their respective addresses set forth on the signature pages of
this Agreement or at such other addresses as may be designated by such party
from time to time in a writing forwarded in a like manner.  Any notice, demand or other communication
delivered or sent in the manner aforesaid shall be deemed given or made (as the
case may be) upon the earliest of (1) the date it is actually received, (2) the
Business Day after the day on which it is delivered by hand or transmitted by
telecopy or facsimile, (3) the Business Day after the day on which it is
delivered to Federal Express (or a comparable overnight delivery service), or (4) the
third Business Day after the day on which it is deposited in the United States
mail.

 

(c)           Indemnity.

 

(i)            Each Borrower releases and shall
indemnify, defend and hold harmless the Lender and its respective officers,
employees and agents, of and from any claims, demands, liabilities,
obligations, judgments, injuries, losses, damages and costs and expenses
(including, without limitation, reasonable legal fees) resulting from (i) acts
or conduct of any Borrower under, pursuant or related to this Agreement and the
other Loan Documents, (ii) any Borrower’s breach or violation of any
representation, warranty, covenant or undertaking contained in this Agreement
or the other Loan Documents, (iii) any Borrower’s failure to comply with
any or all laws, statutes, ordinances, governmental rules, regulations or
standards, whether federal, state or local (including, without limitation,
Environmental Laws), or court or administrative orders or decrees, and (iv) any
claim by any other creditor of any Borrower against the Lender arising out of
any transaction whether hereunder or in any way related to  the Loan Documents and all costs, expenses,
fines, penalties or other damages resulting therefrom, unless resulting solely
from acts or conduct of the Lender constituting willful misconduct or gross
negligence.

 

(ii)           Promptly after receipt by an
indemnified party under subsection (a) above of notice of the commencement
of any action by a third party, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof.  The omission so to notify the
indemnifying party shall relieve the indemnifying party from liability which it
may have to any indemnified party under such subsection only to the extent that
the indemnifying party’s ability to defend such actions is materially
prejudiced by such failure to so notify. 
In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel reasonably satisfactory
to such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnified party), and, after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be liable to such
indemnified party under such subsection for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation.

 

 

 

16

 

(iii)          These indemnity obligations shall
survive the termination of this Agreement and payment of all obligations under
the Revolving Credit and the Term Loan for a period of 2 years.

 

(d)           Further Assurances.  Each Borrower hereby consents and agrees that
in the event any of the Loan Documents misstate or inaccurately reflect the
true and correct terms and provisions concerning the Revolving Credit, the
letters of credit or the Term Loan and said misstatement or inaccuracy is due
to the unilateral mistake on the part of the Lender, mutual mistake on the part
of the Lender and the Borrowers or clerical error, then in such event the
Borrowers shall, upon request of the Lender and in order to correct such
misstatement or inaccuracy, execute such new documents as the Lender may deem
necessary to remedy said inaccuracy or mistake. 
The Borrowers agree to execute all such other and further documents as
may or shall be necessary, as determined solely by the Lender, in order to give
effect to the Loan Documents executed and so as to confirm the transactions
described in this Agreement.  The
Borrowers agree to comply with the requirements of the Lender pursuant to this Section within
ten (10) days after written notice.

 

(e)           Advertisement.  The Lender, with the prior written consent of
the Company, shall have the right to announce and publicize the financing
established hereunder.

 

(f)            Successors and Assigns.  This Agreement will be binding upon and inure
to the benefit of the Lender and the Borrowers, and their respective successors
and assigns, provided that no Borrower may assign or transfer its rights under
this Agreement without the prior written consent of the Lender.

 

(g)           Sole Agreement.  This Agreement and the other Loan Documents
represent the entire agreement between the Lender and the Borrowers with
respect to the subject matter hereof and thereof, and supersede all prior
commitments with respect hereto and thereto and may be modified only by an
agreement in writing.  If there are any
conflicts between the terms of this Agreement or any other Loan Document, the
terms of this Agreement shall be controlling.

 

(h)           Survival of Agreement.  All terms contained in this Agreement shall
survive the delivery of this Agreement and the other Loan Documents and the
making of the Advances and the Term Loan and the issuance of the letters of
credit hereunder and shall remain in full force and effect until the
obligations under the Revolving Credit and Term Loan are fully discharged.

 

(i)            Waiver.  The rights of the Lender under this Agreement
and the other Loan Documents shall be in addition to all other rights provided
by law.  No waiver of any provision of
this Agreement, or any other Loan Document, shall be effective unless in
writing, and no waiver shall extend beyond the particular purpose
involved.  No waiver in any one case
shall require the Lender to give any subsequent waivers.

 

(j)            Governing Law.  This Agreement will be governed by the laws
of the Commonwealth of Virginia, without reference to conflict of laws
principles.

 

 

 

 

 

17

 

(k)           Expenses.  Whether or not credit is extended to the
Borrowers under this Agreement, the Borrowers shall pay all out-of-pocket
expenses (including reasonable attorneys’ fees) incurred by the Lender in
connection with the preparation of this Agreement and the other Loan Documents
and the transactions contemplated by this Agreement.

 

(l)            Waiver of Jury Trial.  TO THE FULLEST EXTENT PERMITTED BY LAW, EACH
OF THE LENDER AND THE BORROWERS KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY BASED ON, ARISING OUT OF OR
UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

 

(m)          Counterparts.  This Agreement may be executed in
counterparts, and all such counterparts together shall constitute one and the
same Agreement.

 

(n)           Joint and Several Liability.  The representations, warranties, covenants
and agreements contained in this Agreement and the other Loan Documents shall
be deemed to have been given and undertaken by the Borrowers jointly and
severally.

 

[Signatures on the following pages]

 

 

 

 

18

 

WITNESS the following signatures.

 

	
   

  	
   

  	
  LENDER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COMMERCE BANK, N.A.,

  
	
   

  	
   

  	
  a national banking association]

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Frank J. Merendino, Vice President

  
	
   

  	
   

  	
  Government Contractor Lending Group

  
	
   

  	
   

  	
  Commerce Bank

  
	
   

  	
   

  	
  2070 Chain Bridge Road, Suite 135

  
	
   

  	
   

  	
  Vienna, VA. 22182

  
	
   

  	
   

  	
  Telecopy Number: (703) 663-4367

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  AMERICAN DEFENSE SYSTEMS, INC.,

  
	
   

  	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  American Defense Systems, Inc.

  
	
   

  	
   

  	
  230 Duffy Avenue, Unit C

  
	
   

  	
   

  	
  Hicksville, New York 11801

  
	
   

  	
   

  	
  Telecopy Number: (516) 390-5308

  

 

 

[Signatures continue on the following page]

 

 

 

 

 

19

 

	
   

  	
   

  	
  BORROWER:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A. J.
  PISCITELLI & ASSOCIATES, INC.,

  	
   

  
	
   

  	
   

  	
  a New York corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address for Notices:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A.J. Piscitelli & Associates, Inc.

  	
   

  
	
   

  	
   

  	
  230 Duffy Avenue, Unit C

  	
   

  
	
   

  	
   

  	
  Hicksville, New York 11801

  	
   

  
	
   

  	
   

  	
  Telecopy Number: (516) 390-5308

  	
   

  
							

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

SCHEDULE OF DEFINED TERMS

 

“Advance” means any
advance of funds under the Revolving Credit.

 

“Affiliate” means,
with respect to any Person, (a) any Person which, directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under
common control with, such Person, or (b) any Person who is a director or
officer (i) of such Person, (ii) of any Subsidiary of such Person, or
(iii) any person described in clause (a) above.  For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (x) to vote 10% or more
of the equity interests having ordinary voting power for the election of
directors (or comparable equivalent) of such Person, or (y) to direct or
cause the direction of the management and policies of such Person whether by
contract or otherwise.  Control may be by
ownership, contract, or otherwise.

 

“Anti-Terrorism
Laws” means any statute, treaty, law (including common law), ordinance,
regulation, rule, order, opinion, release, injunction, writ, decree or award of
any governmental authority relating to terrorism or money laundering, including
Executive Order No. 13224 and the USA Patriot Act.

 

“Applicable Margin”
means as of the date of the Agreement, 1.75%. 
Based on the Leverage Ratio in effect on the last day of each fiscal
quarter of the Company, beginning on June 30, 2007 the Applicable Margin
shall be adjusted to the percentage corresponding to the applicable Leverage
Ratio :

 

	
  Leverage
  Ratio

  	
   

  	
  Applicable
  Margin

  
	
  Less than 1 to 1

  	
   

  	
  1.75%

  
	
  Greater than or equal to 1 to 1 and less than 2 to
  1

  	
   

  	
  2.10%

  
	
  Greater than or equal to 2 to 1

  	
   

  	
  2.45%

  

 

The Applicable
Margin shall be adjusted as of the first day of the calendar month following
receipt by the Lender of the Company’s quarterly financial statements and
Covenant Compliance Certificate; provided that any reduction in the Applicable
Margin shall not become effective so long as an Event of Default has occurred
and is continuing; provided, further, if 
such statements are not received within the required time limits, the
Applicable Margin shall be equal to the highest percentage until the next
adjustment date at the option of the Lender.

 

“Assumption
Agreement” means an assumption agreement, in form and substance acceptable to
the Lender, executed by a Subsidiary that becomes a Borrower in accordance with
the provisions of this Agreement, and providing for such Subsidiary to assume
and become jointly and severally liable for the Obligations.

 

“At-Risk Work”
means work performed under Government Contracts, or any other contract, (a) for
which funds have not been appropriated and allocated, (b) that have not
been 

 

 

 

 

 

21

 

awarded
or (c) for which all required contract documents, including any documents
required to modify or renew a contract previously awarded, have not been
executed.

 

“Base Rate”
means-the “Prime Rate” of interest as published in the “Money Rates” section of
The Wall Street Journal on the applicable date (or the highest “Prime
Rate” if more than one is published) as such rate may change from time to
time.  If The Wall Street Journal
ceases to be published or goes on strike or is otherwise not published, the
Lender may use a similar published prime or base rate.  The Base Rate is not necessarily the lowest
or best rate of interest offered by the Lender to any borrower or class of
borrowers.

 

“Bonded
Receivables” means any account receivable arising out of a contract under which
the performance of a Borrower is guaranteed by a surety bond.

 

“Borrowing Base”
means, at the time in question, (a) the sum of the following, without
duplication (1) 90% of amounts due with respect to Eligible Government
Receivables, plus (2) 80% of amounts due with respect to Eligible
Commercial Receivables, minus (b) any applicable Borrowing Base
Reductions.  At the Lender’s option, the
Borrowing Base shall be adjusted on a weekly basis to reflect all billings and
collections.

 

“Borrowing Base
Certificate” means a certificate of the Company containing a computation of the
Borrowing Base, substantially in the form attached hereto as Exhibit A.

 

“Borrowing Base
Reductions” means, at any time, the sum of the following (a) any
outstanding letters of credit issued by the Lender or any Affiliate of the
Lender for the account of any Borrower, (b) any Rate Variance Liability,
and (c) the Fixed Asset Costs Reserve.

 

“Business Day”
shall mean, each day on which the Lender is open for business, and with respect
to the determination of LIBOR, a day on which the Lender is open for business
and on which dealings in U.S. dollar deposits are carried on in the London
Inter-Bank Market.

 

“Cash Flow
Available for Fixed Charges” means, for any period, EBITDA for such period, less
(i) taxes and capital expenditures paid in cash by the Company and its
Subsidiaries during such period and (ii) cash dividends and distributions
paid by the Company to its shareholders during such period.

 

“Code” means the
Internal Revenue Code of 1986, as amended from time to time, and all
regulations issued pursuant thereto.

 

“Collateral” means
any real or personal property securing any Obligations at any time.

 

“Contras” means any
account receivable of Borrower that is due from a Customer to whom a Borrower
or a Subsidiary is indebted.

 

 

 

22

 

“Covenant
Compliance Certificate” means a certificate setting forth calculations and
otherwise reflecting compliance by the Company with the covenants in the Loan
Documents, substantially in the form attached hereto as Exhibit B.

 

“Cross-Aged
Receivables” means all account receivables of a Borrower (a) due from a
Customer other than the Government if more than 50% of the aggregate amount of
all accounts receivable due from such Customer are aged more than 90 days from
the date of the Initial Invoice for such account receivable, or (b) due
under any particular Government Contract if any account receivable under such
Government Contract is aged more than 90 days from the date of the Initial
Invoice for such account receivable.

 

“Customer” means
any Person obligated on an account receivable of any Borrower or a Subsidiary.

 

“Default” means any
Event of Default or any event that with the giving of notice, or lapse of time,
or both, would constitute an Event of Default.

 

“EBITDA” means, for
any period, consolidated Net Income of the Company and its Subsidiaries for
such period, plus, to the extent deducted in determining Net Income,
depreciation, amortization and interest expense, taxes and, with the Lender’s
prior approval thereof, non-recurring charges to Net Income, minus, to the
extent added in determining Net Income, non-cash gains.

 

“Eligible
Commercial Receivable” means an Eligible Receivable that is not an Eligible
Government Receivable.

 

“Eligible
Government Receivable” means an Eligible Receivable arising out of a Government
Contract on which a Borrower is the prime contractor.

 

“Eligible
Receivables” means such accounts receivable of a Borrower that are and at all
times continue to be reasonably acceptable to the Lender in all respects.  Criteria for eligibility shall be fixed and
revised by the Lender from time to time in its sole discretion.  In general, an account receivable shall not
be an Eligible Receivable unless (a) it represents a valid obligation of
the Customer to pay for goods sold or services rendered, (b) it has been
appropriately billed in accordance with the terms of the applicable contract
and no more than 90 days have elapsed from the Initial Invoice date, (c) the
goods or services have been finally accepted by the Customer, (d) all
payments, setoffs, bad debt reserves, discounts, allowances and credits have
been deducted, (e) the Lender has a perfected first priority security
interest in such account receivable and such account receivable conforms to the
representations and warranties contained in the Security Agreement, (f) the
Customer is not an Affiliate, a foreign Person or a creditor of any Borrower,
and (g) the Lender is satisfied with the credit standing of the
Customer.  Eligible Receivables shall not
include At-Risk Work, Bonded Receivables, Cross-Aged Receivables, Contras, cost
overruns, progress payments, costs incurred in excess of approved or allowed
billing rates, rebillings or retainages or any account receivable
pursuant to which payment of any 

 

 

 

 

 

 

 

 

23

 

portion thereof is assigned
to or for the benefit of a subcontractor, either directly or pursuant to an
escrow arrangement.

 

“Environmental
Laws” means any and all Federal, foreign, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decrees and any and
all common law requirements, rules and bases of liability regulating,
relating to or imposing liability or standards of conduct concerning pollution,
protection of the environment, or the impact of pollutants, contaminants or
toxic or hazardous substances on human health or the environment, as now or may
at any time hereafter be in effect.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974, as amended.

 

“Executive Order No. 13224”
means the Executive Order No. 13224 on Terrorist Financing, effective September 24,
2001, as the same has been, or shall hereafter be, renewed, extended, amended
or replaced.

 

“FACA” means,
collectively, the Federal Assignment of Claims Act of 1940, as amended, 31
U.S.C. § 3727, 41 U.S.C. § 15, any applicable rules, regulations and
interpretations issued pursuant thereto, and any amendments to any of the
foregoing.

 

“Fixed Assets Costs
Reserve” means the lesser of $2,000,000 or the aggregate amount of capital
expenditures funded with the Term Loan, other than for the costs incurred for
the purchase of accounting software, equipment and fixed assets which will be
located in the continental United States.

 

“Fixed Charges”
means, for any period, consolidated interest expense of the Company and its
Subsidiaries, including interest expense under capital leases, plus principal
repayments of long term debt scheduled to be repaid during such period,
including principal payments under capital leases.

 

“Fixed Charges
Coverage Ratio” means, at the end of each fiscal quarter of the Company, the
ratio of (a) Cash Flow Available for Fixed Charges for the 12-month period
then ended, to (b) Fixed Charges for the 12-month period then ended.

 

“GAAP” means United
States generally accepted accounting principles consistently applied.

 

“Government” means
the United States of America and any of its departments and agencies.

 

“Government
Contract” means any contract with the Government under which a Borrower is the
prime contractor or a subcontractor.

 

“Hedging
Agreements” shall mean interest rate swap, cap or collar agreements, interest
rate future or option contracts, currency swap agreements, currency future or
option contracts, 

 

 

 

 

 

 

24

 

commodity
agreements and other similar agreements or arrangements designed to protect
against fluctuations in interest rates, currency values or commodity values.

 

“Initial Invoice”
means, with respect to any account receivable, the first invoice relating to
the applicable goods shipped or services rendered, and not any subsequent
invoice or rebilling relating thereto.

 

“Leverage Ratio”
means, at any time, the ratio of consolidated total liabilities of the Company
and its Subsidiaries, as determined in accordance with GAAP, minus outstanding
Subordinated Debt, to Tangible Capital Funds.

 

“LIBOR” means the
London Interbank Offered Rate (LIBOR) for a one-month period as published in
the “Money Rates” Section of The Wall Street Journal on the
applicable date as such rate may change from time to time.  If The Wall Street Journal ceases to
be published or goes on strike or is otherwise not published, the Lender may
use a similar published one-month LIBOR.

 

“Lien” means any
mortgage, deed of trust, assignment, pledge, lien, security interest, charge,
escrow or encumbrance of any kind or nature, including the interest of a lessor
under a capitalized lease.

 

“Loan Documents”
means the Agreement, the Revolving Credit Note, the Term Note, each Security
Agreement, each Subordination Agreement, and any other document that evidences,
secures, governs or otherwise relates to any of the Revolving Credit or the
Term Loan, including, without limitation, any letter of credit application and
agreement, negative pledge agreement, deed of trust, mortgage, security
agreement, pledge agreement or assignment.

 

“Material Adverse
Effect” shall mean, with respect to any event, act, condition or occurrence of
whatever nature (including any adverse determination in any litigation,
arbitration, or governmental investigation or proceeding), whether singularly
or in conjunction with any other event or events, act or acts, condition or
conditions, occurrence or occurrences whether or not related, a material adverse
change in, or a material adverse effect on, (i) the business, results of
operations, financial condition, assets or liabilities of the Borrowers taken
as a whole, (ii) the ability of any Borrower to perform any of its
respective material obligations under the Loan Documents, (iii) the rights
and remedies of the Lender under any of the Loan Documents, or (iv) the
legality, validity or enforceability of any of the Loan Documents.

 

“Minimum Compliance
Level” means $7,000,000 as of the date of this Agreement, and adjusted upward,
effective as of December 31, 2007, and as of the end of each fiscal year
of the Company thereafter, by an amount equal to the sum of 50% of the
consolidated Net Income of the Company and its Subsidiaries for such fiscal
year, with each of the foregoing increases being fully cumulative, and with no
reduction being made on account of any negative consolidated Net Income of the
Company and its Subsidiaries for any fiscal year.  As an example, if Net Income for the fiscal
year ending December 31, 2007 was $500,000 and the Net Income for the
fiscal 

 

 

 

 

 

 

25

 

year
ending December 31, 2008 was $1,000,000, the Minimum Compliance Level
effective December 31, 2007 and 2008 would be $7,250,000 and $7,750,000,
respectively.

 

“Net Income” means,
for any period, the consolidated gross revenues of the Company and its
Subsidiaries for such period less all consolidated operating and non-operating
expenses (including taxes) of the Company and its Subsidiaries for such period,
all as determined in accordance with GAAP.

 

“Obligations” means
all indebtedness, liabilities and obligations of any Borrower to the Lender or
any Affiliate of the Lender, whether now existing or arising in the future,
direct or indirect, fixed or contingent, whether related or unrelated to the
Revolving Credit, and whether of a similar or different class, including,
without limitation, Hedging Agreements, overdrafts, guaranties and obligations
to reimburse the Lender for amounts paid by it under letters of credit issued
by the Lender for the account of any Borrower, and amounts due under any credit
card issued by the Lender or any Affiliate of the Lender to any Borrower.

 

“Permitted Debt”
means (a) the Obligations, (b) purchase money financing and
capitalized lease obligations for fixed assets not exceeding $100,000 in the
aggregate outstanding at any time, and (c) ordinary and customary trade
accounts payable.

 

“Permitted
Investments” means (a) travel advances made to employees of the Company
and its Subsidiaries in the ordinary course of business, and (b) loans to
employees, officers or directors of the Company and its Subsidiaries not
exceeding $50,000 in the aggregate at any time outstanding.

 

“Permitted Liens”
means (a) Liens securing the Obligations, and (b) Liens securing any
purchase money financing or capitalized lease obligations described in the
definition of Permitted Debt.

 

“Person” means any
individual, partnership, limited liability company, joint venture, corporation,
trust, governmental subdivision or agency or any other entity of any nature.

 

“Rate Variance
Liability” means, at any time, the amount, as estimated by the Lender in good
faith, by which the aggregate amount of indirect costs used by the Company and
its Subsidiaries for purposes of calculating the billing rates under Government
Contracts is in excess of the actual aggregate amount of indirect costs that
the Company and its Subsidiaries are entitled to include in such billing rates
under the terms of Government Contracts.

 

“Revolving Credit
Note” means a promissory note, substantially in the form attached hereto as Exhibit C,
in the principal amount of the Revolving Credit, made by the Borrowers, and
evidencing the joint and several obligations of the Borrowers to repay the
Advances, together with accrued interest, and any amendments to or replacements
of such promissory note.

 

“Security
Agreement” means a security agreement from each Borrower, substantially in the
form attached hereto as Exhibit D, creating a first priority security
interest in the Collateral.

 

 

 

 

26

 

“Subordinate
Creditor” means any Person that subordinates debt of any Borrower held by such
Person to the Obligations.

 

“Subordinated Debt”
means debt of any Borrower subordinated to the Obligations on terms acceptable
to the Lender.

 

“Subordination
Agreement” means, individually and collectively, each subordination agreement
from a Subordinate Creditor, on the Lender’s standard form, together with any amendments
to such subordination agreement.

 

“Subsidiary” means,
with respect to any Person at any time, (i) any corporation more than
fifty percent (50%) of whose voting stock is legally and beneficially owned by
such Person or owned by a corporation more than fifty percent (50%) of whose
voting stock is legally and beneficially owned by such Person; (ii) any
trust of which a majority of the beneficial interest is at such time owned
directly or indirectly, beneficially or of record, by such Person or one or
more Subsidiaries of such Person; and (iii) any partnership, joint
venture, limited liability company or other entity of which ownership interests
having ordinary voting power to elect a majority of the board of directors or
other Persons performing similar functions are at such time owned directly or
indirectly, beneficially or of record, by, or which is otherwise controlled
directly, indirectly or through one or more intermediaries by, such Person or
one or more Subsidiaries of such Person. 
Unless otherwise specified, the term “Subsidiary” when used in this
Agreement shall mean a Subsidiary of the Company.

 

“Tangible Capital
Funds” means, at any time, the sum of Tangible Net Worth plus outstanding
Subordinated Debt.

 

“Tangible Net
Worth” means, at any time, amounts that would be included under stockholders’
equity on the consolidated balance sheet of the Company and its Subsidiaries in
accordance with GAAP consistently applied, provided that, in any event, such
amounts are to be net of amounts carried on the books of the Company and its
Subsidiaries for (1) any write-up in the book value of any assets
resulting from a revaluation subsequent to the date of this Agreement, (2) treasury
stock, (3) unamortized debt discount expense, (4) any cost of
investments in excess of net assets acquired at any time of acquisition, (5) loans,
advances or other amounts owed to the Company or any Subsidiary by any officer,
director, shareholder or employee of the Company or any Subsidiary or any
Affiliate of the Company, other than travel advances to employees in the
ordinary course of business, (6) investments in any Affiliate of the
Company that is not a wholly owned Subsidiary of the Company, (7) unmarketable
securities, and (8) patents, patent applications, copyrights, trademarks,
trade names, goodwill, research and development costs, organizational expenses,
capitalized software development costs and other like intangibles.

 

“Termination Date”
means April 30, 2010, as the same may be extended from time to time by the
Lender in its sole discretion.

 

 

 

 

 

 

 

 

 

27

 

“Term Note” means a
promissory note, substantially in the form attached hereto as Exhibit E,
in the principal amount of the Term Loan, made by the Borrowers, and evidencing
the joint and several obligations of the Borrowers to repay the Term Loan,
together with accrued interest, and any amendments to or replacements of such
promissory note.

 

“Unused Revolving
Credit Balance” means, at any time, the amount by which the Revolving Credit
Amount exceeds the outstanding Advances.

 

“Working Capital”
means, at any time, (i) consolidated current assets, (ii) plus any
prepaid expenses not included in consolidated current assets, (iii) minus
consolidated current liabilities, and (iv) minus the aggregate amount of
outstanding Advances and letters of credit not included in consolidated current
liabilities, all as determined for the Company and its Subsidiaries on a
consolidated basis in accordance with GAAP.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28

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