Document:

Exhibit 10.1

 

FIFTH
AMENDMENT TO LEASE

 

This FIFTH
AMENDMENT TO LEASE ("Amendment")
is entered into as of June 19, 2017,
by and between KIMBERLY ALVIN PROPERTY, LLC ("Landlord"),
as successor in interest to EB 3 LLC (“EB
3”), with an address c/o F. Greek Development, 33 Cotters Lane, East Brunswick, New Jersey 08816, and COMNET
TELECOM SUPPLY INC. ("Tenant")
with an address of 1 Kimberly Road, Unit 101, East Brunswick, New Jersey 08816.

 

WITNESSETH

 

WHEREAS,
EB 3 and Tenant entered into a certain Agreement of Lease, dated as of April 20, 2005, as amended by (i) First Amendment to Lease,
dated July 6, 2006, (ii) Second Amendment to Lease, dated January 30, 2008, (iii) Third Amendment to Lease, dated March 22, 2011,
and (iv) Fourth Amendment to Lease, dated January 12. 2012(as so amended, the "Lease")
for the leasing of 15,000 square feet of space in the building located at 1 Kimberly Road, East Brunswick, New Jersey ("Demised
Premises"); and

 

WHEREAS,
Landlord is the successor in interest to EB 3; and

 

WHEREAS,
the Lease is scheduled to expire on September 30, 2017, and Landlord and Tenant now desire to extend the term of the Lease and
to amend certain other provisions in the Lease;

 

NOW
THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:

 

1.           
The Recitals of this Amendment are incorporated herein.

 

2.           
The "Term"
of the Lease is extended by this Amendment for a period of five (5) years (“Extension
Term”) which shall commence on October 1, 2017, and, unless sooner terminated or extended as provided elsewhere
in this Lease, shall end on September 30, 2022 (the "Expiration
Date").”

 

3.           
Base Rent during the Extension Term shall be as follows, payable as provided in the Lease:

 

	Period	Rate PSF	Annual Base Rent	Monthly Base Rent
	10/01/2017 to 09/30/2018	$6.83	$102,500.00	$8,541.67
	10/01/2018 to 09/30/2019	$5.75	$86,250.00	$7,187.50
	10/01/2019 to 09/30/2020	$6.00	$90,000.00	$7,500.00
	10/01/2020 to 09/30/2021	$6.25	$93,750.00	$7,812.50
	10/01/2021 to 09/30/2022	$6.50	$97,500.00	$8,125.00

  

4.           
Landlord’s name and address is hereby amended to be: “Kimberly Alvin Property, LLC, c/o F. Greek Development,
Inc., 33 Cotters Lane, East Brunswick, New Jersey

08816.”

 

5.           
Section 3.4(d) of the Lease is hereby amended to provide that management fees shall not exceed three percent (3%)
of gross collected rents.

 

6.           
Sections 4.1 and 4.2 of the Lease are hereby amended to reflect that Tenant has been in possession of the Demised
Premises and responsible for the same under the terms of the Lease since the Commencement Date of the Lease prior to its modification
by this Amendment.”

 

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7.           

Capital Improvements. Section 7.2 (h) of the Lease is hereby added with the following: “The cost of repairs
or replacements greater than $25,000.00 which are classified as capital improvements under generally accepted accounting principles
shall be included in Operating Expenses but only to the extent of amortization (with interest at eight percent (8%) per annum)
over the lesser of the useful life of the improvement under generally accepted accounting principles consistently applied or ten
(10) years”.

 

8.           

Roof Maintenance. Section 7.2 (i) of the Lease is hereby added with the following: “Landlord and Tenant hereby
mutually agree that commencing on June 1, 2017 and continuing through Extension Term, Tenant shall pay to the Landlord as Additional
Rent a fixed roof maintenance payment (the, “Roof
Maintenance”) in the amount of $250.00 per month ($0.20 PSF/annum) which shall be due and payable monthly on the
first day of each month along with Tenant’s payment of Rent and other Additional Rent all in accordance with terms of the
Lease”.

 

(a)           
Landlord and Tenant agree that Tenant's fixed Roof Maintenance payments are in lieu of Tenant’s obligations
to pay for any actual costs or expenses for the maintenance, repair or replacement of the roof necessitated by causes other than
the negligence or willful misconduct of Tenant or its employees, contractors, invitees or others for whose actions Tenant is responsible.
All other Operating Costs, excluding costs or expenses for the maintenance, repair or replacement of the roofs, shall continue
to paid on the Tenant’s Proportionate Share as part of the Year End Reconciliation in accordance with terms of the Lease.

 

(b)           
Landlord agrees to assume the responsibility to maintain the roof membrane of the Building. Such assumption is expressly
conditioned upon the continued timely payment by Tenant of the sum set forth above. The maintenance of the roof membrane shall
consist of a combination of inspections and repairs as Landlord deems necessary. Replacement of any roof membrane shall be undertaken
when necessary in the sole and unreviewable judgment of Landlord. Tenant shall immediately notify Landlord in writing of any leaks
or damage to any roof membrane and Landlord shall use commercially reasonable efforts within a commercially reasonable time to
correct same. However, Landlord assumes no responsibility for, and Tenant waives and releases Landlord from liability for, any
damage to Tenant's property or the property of any third party held by Tenant in the Premises, for any reason or causes whatsoever.

 

(c)           
The above monthly sum for the maintenance of the roof membrane may be increased each year by Landlord in its sole
discretion; however, any such increase shall be limited to five (5%) percent per year.

 

9.           
Section 7.2 (a) of the Lease is hereby deleted in and replaced with the following: “Landlord agrees, at its
cost and expense, to make all repairs to the Structural Portions of the Building. For the purposes of this Lease, “Structural
Portions” shall mean: load bearing walls (excluding windows and window frames, overhead and personnel doors and door frames
and glass); steel or concrete columns; perimeter foundation and footings; and roof structure (excluding roof membrane, vents and
skylights). Structural Portions shall not include the concrete floors of the Building.”

 

10.           
Section 8.2, Section 8.3 and Section 8.4 of the Lease are hereby deleted in their entirety and replaced with the
following Sections 8.2 through Section 8.7:

 

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Section
8.2 Definitions. As used herein, the following terms shall have the following meanings:

 

(a)           "Hazardous
Material" includes any pollutant, dangerous substance, toxic substances, any hazardous chemical, hazardous substance,
hazardous pollutant, hazardous waste or any similar term as defined in or pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq., ("CERCLA");
the Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq., ("ISRA");
the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq., ("Spill
Act"); the Solid Waste Management Act, N.J.S.A. 13:1E-1 et seq., ("SWMA");
the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., ("RCRA");
the New Jersey Underground Storage of Hazardous Substances Act, N.J.S.A. 58:10A-21 et seq.,
("USTA");
the Clean Air Act, 42 U.S.C. Paragraph 7401 et seq., ("CAA");
the Air Pollution Control Act, N.J.S.A. 26:2C-1 et seq., ("APCA");
the New Jersey Water Pollution Control Act, N.J.S.A. 58:10A-1 et seq., ("WPCA");
and any rules or regulations promulgated thereunder or in any other applicable federal, state or local law, rule or regulation
dealing with environmental protection. It is understood and agreed that the provisions contained in this lease shall be applicable
notwithstanding whether any substance shall not have been deemed to be a hazardous material at the time of its use or Release but
shall thereafter be deemed to be a Hazardous Material.

 

(b)           "Release"
means spilling, leaking, disposing, pumping, pouring, discharging, emitting, emptying, ejecting, depositing, injecting, leaching,
escaping, or dumping however defined, and whether intentional or unintentional, of any Hazardous Material.

 

(c)           "Notice"
means any summons, citation, directive, order, claim, litigation, investigation, proceeding, judgment, letter or other
communication, written or oral, actual or threatened, from the New Jersey Department of Environmental Protection ("NJDEP"),
the United States Environmental Protection Agency ("USEPA"),
the United States Occupational Safety and Health Administration ("OSHA")
or other federal, state or local agency or authority, or any other entity or any individual, concerning any act or omission
resulting or which may result in the Releasing of Hazardous Materials into the waters or onto the lands of the State of New
Jersey, or into waters outside the jurisdiction of the State of New Jersey, or into the environment.

 

(d)           "Environmental
Laws" means any and all present or future laws, statutes, ordinances, regulations and executive orders,
federal and state and local in any way related to the protection of human health or the environment including but not limited
to (i) CERCLA; (ii) RCRA; (iii) ISRA; (iv) Spill Act; (v) USTA; (vi) WPCA; (vii) APCA; (viii) SWMA; (ix) CAA; and (x) USTA.
For purposes of Environmental Laws, to the extent authorized or permitted by law, Tenant is and shall be deemed to be the
responsible party, including without limitation, the “owner” and “operator” of Tenant’s
“facility” and the “owner” of all Hazardous Materials brought on the Complex and/or Demised Premises
by Tenant, its agents, employees, contractors or invitees, and the wastes, by-products, or residues generated, resulting, or
produced therefrom.

 

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Section
8.3 Hazardous Materials.

 

(a)           Except for Hazardous Material contained in products used by Tenant in de minimis quantities for ordinary cleaning
and office purposes, and except for Hazardous Material contained in products used by Tenant in the ordinary course of its business
as disclosed to Landlord in writing prior to the commencement of such use, Tenant shall not permit or cause any party to bring
any Hazardous Material upon the Complex and/or Demised Premises, or transport, store, use, generate, manufacture, dispose, or Release
any Hazardous Material on or from the Complex and/or Demised Premises, without Landlord’s prior written consent. Tenant,
at its sole cost and expense, shall operate its business in the Building and/or in the Demised Premises in strict compliance with
all Environmental Laws and all requirements of this Lease. Tenant shall complete and certify to disclosure statements as requested
by Landlord from time to time relating to Tenant’s transportation, storage, use, generation, manufacture, or Release of Hazardous
Materials on the Complex and/or in the Demised Premises, and Tenant shall promptly deliver to Landlord a copy of any notice of
violation relating to the Complex and/or Demised Premises of any Environmental Laws.

 

(b)           Tenant
agrees and acknowledges in the event that Tenant stores chemicals or any other products or materials, whether for its own use
or for other parties, which chemicals or other products or materials become Hazardous Materials or hazardous
waste (including, without limitation, outdated inventory, damaged containers or packaging, off spec determination) Tenant is
and in all instances shall be the party with primary responsibility for fulfilling all “generator
responsibilities” for regulatory compliance on behalf of all parties (i.e., Tenant, the owner of such chemicals,
products or other materials and Landlord). Such “generator responsibilities” shall include, but not be limited
to, the requirement to provide warehouse personnel with Hazardous Material/hazardous waste training, ensure waste labeling
and storage requirements are met and comply with contingency plan rules.

 

(c)           Tenant, at its own cost and expense, agrees to comply with all applicable Environmental Laws which are applicable
to the Complex, Building and/or Demised Premises and/or the conduct of Tenant’s business thereon, including but not limited
to ISRA. Further Tenant agrees to make submissions to and provide any information required by all governmental authorities requesting
same pursuant to Tenant’s obligations under this Section.

 

(d)           Tenant, at its sole cost and expense, shall remove all Hazardous Materials stored, disposed of or otherwise released
by Tenant, its assignees, subtenants, agents, employees, contractors or invitees onto or from the Complex and/or Demised Premises,
in a manner and to a level in compliance with law, but in no event to a level and in a manner less than that which complies with
all Environmental Laws and does not limit any future uses of the Building and/or Demised Premises or require the recording of any
deed restriction or notice regarding the Complex and/or Demised Premises. Tenant shall perform such work at any time during the
period of the Lease upon written request by Landlord or, in the absence of a specific request by Landlord, before Tenant’s
right to possession of the Demised Premises terminates or expires. If Tenant fails to perform such work within the time period
specified by Landlord or before Tenant’s right to possession terminates or expires (whichever is earlier), Landlord may at
its discretion, and without waiving any other remedy available under this Lease or at law or equity (including without limitation
an action to compel Tenant to perform such work), perform such work at Tenant’s cost. Tenant shall pay all costs incurred
by Landlord in performing such work within ten (10) days after Landlord’s request therefor. Such work performed by Landlord
is on behalf of Tenant and Tenant remains the owner, generator, operator, transporter, and/or arranger of the Hazardous Materials
for purposes of Environmental Laws. Tenant agrees not to enter into any agreement with any person, including without limitation
any governmental authority, regarding the removal of Hazardous Materials that have been disposed of or otherwise released onto
or from the Complex, Building and/or Demised Premises without the written approval of Landlord.

 

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Section
8.4 ISRA.

 

(a)           If
Tenants operations in the Demised Premises now or hereafter constitute an "Industrial Establishment" as that term
is defined in ISRA then (i) not later than three (3) months prior to closing operations (including by reason of
the expiration or sooner termination of the lease) or transferring ownership or operations of Tenant at the Demised Premises
(as defined under ISRA), (ii) prior to any assignment of the lease or any subletting of any portion of the Demised Premises,
or (iii) any other event caused by Tenant occurs which may trigger ISRA, Tenant shall at its own cost and expense, provide to
Landlord evidence that Tenant has engaged a Licensed Site Remediation Professional (“LSRP”)
and caused the LSRP to initiate the process of ISRA compliance and the performance of all remediation and other requirements
of ISRA, including without limitation all requirements of N.J.S.A. 13:1K-9(b) through and including (l). Tenant shall
promptly provide to Landlord copies of the filing with the NJDEP of an initial notice under N.J.S.A. 13:1K-9(a) and the
report of the Preliminary Site Assessment and Site Investigation conducted by the LSRP. Should the NJDEP or LSRP determine
that a clean-up plan be prepared and that clean-up be undertaken because of any spills or discharges of Hazardous Materials
or wastes at the Complex and/or Demised Premises, which occur during the term of this lease, Tenant shall, at Tenant’s
own expense, prepare and submit the required plans and financial assurances, and carry out the approved plans. Tenant’s
obligation to pay Rent shall continue until such time as Tenant obtains and delivers to Landlord a Deminimis Exemption,
Negative Declaration or Response Action Outcome as defined by ISRA (or the equivalent under then applicable Environmental
Law), or such other proof, reasonably satisfactory to Landlord, that the Complex and/or Demised Premises may be sold by
Landlord without violation of ISRA.

 

(b)           The parties acknowledge and agree that pursuant to the provisions of ISRA, after the commencement date of the lease,
Tenant shall be, and is hereby, designated the party responsible to comply with the requirements of ISRA. In addition, any failure
of Tenant to provide any information and submission as required under ISRA shall constitute a default under this Lease. Any assignee
or subtenant of Tenant shall be deemed to have acknowledged, and by entering into such assignment or sublease, and/or by entering
into possession of the Demised Premises, does hereby acknowledge, that such assignee or subtenant is the party responsible, jointly
and severally with Tenant, under the provisions of this lease.

 

(c)           In the event that Tenant is not obligated to comply with the requirements of ISRA then prior to the expiration or
sooner termination of the lease or any subletting of any portion of the Demised Premises, Tenant shall, at Tenant's expense, and
at Landlord's option:

 

(i)                
Provide to Landlord an ISRA Affidavit in a form satisfactory to Landlord, or, if Landlord has, in its sole judgment,
reasonable basis to believe that a violation of Environmental Law may have occurred,

 

(ii)          (1)           engage an LSRP to undertake an
Environmental Site Assessment and Site Investigation, as those terms are defined in ISRA, and if there is indication that a Release
of any Hazardous Materials has occurred at, on, or from the Complex and/or Demised Premises, an appropriate report shall be filed
with the applicable governmental agencies and Tenant shall remediate the Release in accordance with applicable Environmental Laws.

 

(2)           submit the results of the foregoing activity to Landlord; and

 

(3)           After Landlord's review of the results of the foregoing activity comply with Landlord's reasonable requirements for
additional testing and/or cleanup and site detoxification of any and all Hazardous Materials identified by reason of the site investigation
or additional testing including Landlord's requirements corresponding to those which the NJDEP or LSRP could require under ISRA
if applied to Tenant and/or the Demised Premises. All costs associated with Tenant's compliance with these requirements, including
without limitation Landlord's reasonable costs in reviewing the sampling plan and test results and developing a plan for and monitoring
the cleanup and site detoxification, and Landlord’s actual legal fees and disbursements, shall be paid by Tenant upon demand.

 

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(d)           In the event of Tenant's failure to comply in full with the foregoing provisions, Landlord may, at its option perform
any and all of Tenant's obligations as aforesaid and all reasonable costs and expenses incurred by Landlord in the exercise of
this right shall be deemed to be Additional Rent payable on demand and with interest until payment. Such costs and expenses include
but are not limited to state agency fees, engineering fees, cleanup costs, filing fees and suretyship expenses.

 

(e)           Tenant shall promptly provide Landlord with copies of all correspondence, reports, notices, orders, findings, declarations
and other materials pertinent to Tenant's compliance and the NJDEP's requirements under ISRA as they are issued by the LSRP or
received by Tenant.

 

Section
8.5 Indemnification.

 

(a)           Tenant shall indemnify, defend, and hold Landlord harmless from and against any and all losses (including, without
limitation, diminution in value of the Complex and/or Demised Premises or the Building and loss of rental income), claims, demands,
actions, suits, damages (including, without limitation, punitive damages), expenses (including, without limitation, remediation,
removal, repair, corrective action, or cleanup expenses), and costs (including, without limitation, actual attorneys’ fees,
consultant fees or expert fees and including, without limitation, removal or management of any asbestos brought onto or into the
Complex, Building and/or Demised Premises or disturbed in breach of the requirements of this Article 8, regardless of whether such
removal or management is required by law) which are brought or recoverable against, or suffered or incurred by Landlord as a result
of any Release of Hazardous Materials or any breach of the requirements under this Article 8 by Tenant, its agents, employees,
contractors, subtenants, assignees or invitees, regardless of whether Tenant had knowledge of such noncompliance.

 

Section
8.6 Environmental Disclosure Affidavit; Survey; Inspection.

 

(a)           Tenant has provided an Environmental Disclosure Affidavit attached to the Lease as Exhibit
E. The Amendment has been entered into by the Landlord on the basis of this Environmental Disclosure Affidavit. If any
information provided in the Affidavit is incorrect, such defect shall constitute an Event of Default under the Lease. Further,
Tenant shall immediately notify Landlord if any information provided in the Environmental Disclosure Affidavit has changed and
promptly provide to Landlord upon demand an affirmation of the information contained therein and any additional information related
thereto requested by Landlord. The provisions of this Article 8 shall survive the expiration or sooner termination of this Lease.

 

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(b)           Landlord may, at Tenant’s sole cost and expense, have an environmental consultant or LSRP appointed by Landlord
conduct an environmental survey and inspection annually (or more often, if required by Landlord) so that any environmental violations
may be discovered and corrected in the quickest time possible. Tenant shall have the right to designate an alternate consultant
to complete the annual (or more often, if required by Landlord) environmental survey, provided, however, that Landlord must in
writing approve said consultant, which approval shall not be unreasonably withheld. Access to the Demised Premises shall be granted
to Landlord upon Landlord’s prior notice to Tenant and at such times so as to minimize, so far as may be reasonable under
the circumstances, any disturbance to Tenant’s operations. Landlord’s receipt of or satisfaction with any environmental
assessment in no way waives any obligations of Tenant or rights that Landlord holds against Tenant. Tenant shall promptly notify
Landlord of any communication or report that Tenant makes to any governmental authority regarding any possible violation of Environmental
Laws or a Release or threatened Release of any Hazardous Materials onto or from the Complex and/or Demised Premises. Tenant shall,
within five (5) days of receipt thereof, provide Landlord with a copy of any documents or correspondence received from any governmental
agency or other party relating to a violation or a possible violation of Environmental Laws, or claim or liability associated with
the Release or threatened Release of any Hazardous Materials onto or from the Complex and/or Demised Premises, and shall promptly
take such actions as are required to comply with applicable Environmental Laws and rectify such violation , situation, claim or
liability with diligence and continuity of action.

 

Section
8.7 Other Environmental Obligations.

 

(a)           If
applicable, prior to termination of the lease of the Demised Premises it shall be the obligation of Tenant to deactivate any
identification number, permit, license, etc. issued by the USEPA, the NJDEP or any other federal, state or local entity
dealing with the generation, treatment, storage or disposal of regulated/hazardous or solid waste and comply with any
concomitant notification requirements pursuant to RCRA, the Spill Act, the SWMA and any rules or regulations promulgated
thereunder or in any other applicable federal, state or local law, rule or regulation dealing with hazardous waste, solid
waste and/or environmental protection.

 

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(b)           In the event there shall be filed a lien against the Complex and/or Demised Premises arising out of a claim(s) by
the NJDEP pursuant to the provisions of the Spill Act or by the USEPA pursuant to the provisions of CERCLA for which Tenant is
responsible as provide in the Lease, Tenant shall immediately either: (i) pay the claim and remove the lien from the Complex and/or
Demised Premises; or (ii) furnish a bond, cash receipt or other security satisfactory to Landlord sufficient to discharge the claim
out of which the lien arises.

 

(c)           In addition to all other rights and remedies available to Landlord under this Lease or otherwise, Landlord may, in
the event of a breach of the requirements of this Article 8 that is not cured within thirty (30) days following notice of such
breach by Landlord, require Tenant to provide financial assurance (such as insurance, escrow of funds or third party guarantee)
in an amount and form satisfactory to Landlord. The requirements of this Article 8 are in addition to and not in lieu of any other
provision in the Lease.

 

(d)           The obligations of Tenant under Section 8.2 through Section 8.7 of this Lease shall survive any termination of this
Lease.

 

11.             
Section 10.3 of the Lease is hereby deleted in its entirety and replaced with the following:

 

Section
10.3 Ownership.

 

(a)           Tenant may not make alterations, additions or improvements to the Demised Premises without the written consent of Landlord.
Such alterations, additions or improvements shall be in conformity with applicable governmental and insurance company
requirements, be insured by Tenant against loss or damage and at the end of the term of this Lease shall (at the sole option
of Landlord) either be removed by Tenant or remain as part of the Demised Premises. In the event Landlord requires that they
be removed Tenant shall place the Demised Premises in the same condition as it was prior to such alterations, additions or
improvements (reasonable wear and tear excepted). Prior to commencement of any alterations, additions or improvements, any
contractor shall provide evidence of commercial general liability and workers compensation insurance naming Tenant, Landlord
and Landlord’s property manager as additional insured parties, with the same limits, terms and requirements as required
for Tenant’s commercial liability insurance.

 

(b)           Nothing herein contained shall be construed as consent on the part of Landlord to subject the estate of Landlord
to any lien or liability under the Construction Lien Law of the State of New Jersey, it being expressly understood that Landlord's
estate shall not be subject to any such lien or liability. Tenant shall have no power or right to do any act or make any contract
that may create or be the basis for any lien, mortgage or other encumbrance upon the estate of Landlord.

 

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(c)           Upon completion of any alterations, additions or improvements installed or performed by or on behalf of Tenant, Tenant
shall provide to Landlord copies of waiver(s) from all contractors, subcontractors or suppliers of any rights to file a construction
lien and for other than strictly cosmetic alterations (such as, painting and replacement of floor coverings) Tenant shall, at no
cost to Landlord, provide to Landlord as-built plans for such alterations, additions or improvements in CADD format.

 

12.             
Article 11 of the Lease is hereby deleted in its entirety and replaced with the following ARTICLE 11, Sections 11.1
to 11.3:

 

ARTICLE
11 INSURANCE; INDEMNIFICATION;

 

WAIVER
OF SUBROGATION; RELEASE.

 

Section
11.1 Tenant Coverages.

 

(a)           Landlord shall maintain commercial property insurance, special form causes of loss (ISO Form CP 10 30 or form providing
substantially equivalent coverage in general use from time to time in the state where the Demised Premises is located) covering
the full insurable replacement value of the Building in which the Demised Premises is located (excluding foundations), less a commercially
reasonable deductible if Landlord so chooses. Landlord, as an operating expense, may, but is not obligated to, maintain such other
insurance and additional coverages as it may deem necessary, including, but not limited to, commercial general liability insurance,
flood insurance, and business expense with rent loss insurance, and such other insurance as may be required by any mortgage lender
holding a mortgage lien on the Complex. Landlord's insurance may be included in a blanket policy (in which case the cost of such
insurance allocable to the Complex, Demised Premises or Building will be allocated to the Demised Premises or Building, as applicable).
Tenant shall also reimburse Landlord for any increased premiums or additional insurance that Landlord reasonably deems necessary
as a result of Tenant's use of the Demised Premises.

 

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(b)           Effective
as of the Commencement Date, as is defined in the Amendment, and continuing during the Term, as is defined in the Amendment,
Tenant, at its expense, shall obtain and maintain in full force the following insurance coverage: (i) commercial property
insurance, special form causes of loss (or equivalent in effect from time to time in the state where the Premises is located)
covering the full replacement value of all property and improvements installed or placed in the Demised Premises by Tenant or
for Tenant's benefit, with Business Interruption insurance with Extra Expense coverage for a period of not less than
twelve (12) months and without a Protective Safeguards Endorsement; (ii) worker's compensation insurance with no less than
the minimum limits required by law; (iii) employer's liability insurance with such limits as required by law; and (iv)
commercial general liability insurance (ISO Form CG 00 01 or form providing substantially equivalent coverage in general use
from time to time in the state where the Premises is located). The limits of liability of any commercial general liability
policy which if applicable to more than one location shall expressly state a “per location” aggregate, shall be
no less than the amounts carried by Tenant under its then existing policy(ies) but in no event less than $3,000,000 combined
single limit per occurrence and $5,000,000 aggregate for property damage, bodily and personal injuries, or deaths of persons
occurring in or about the Complex and/or Demised Premises or arising out of Tenant operations. All liability insurance
policies shall be issued on an “occurrence” basis and not on a “claims made” basis. All liability
policies insuring Tenant, including those providing coverage in excess of the minimum coverage required by this Lease, shall
include or be endorsed to add additional insured status and coverage to (i) Landlord, (ii) the holder of any mortgage
encumbering the Complex or Building, and (iii) Landlord's property manager (currently F. Greek Development). Landlord and
Tenant agree that the limits of coverage provided in the Lease are minimum coverages and it is the intention of the parties
that the full limits of any and all policies maintained by Tenant be available to respond to claims against any party
required under the Lease to be covered as an additional insured party. All such policies are to be issued by insurance
companies which (y) are licensed and admitted in the state where the Demised Premises is located, have a rating of not less
than “A-, X” in Best’s Insurance Guide and be reasonably acceptable to Landlord, (z) not be
cancelable unless thirty (30) days prior written notice shall have been given to Landlord. If any such policy contains a
total pollution exclusion such policy shall be endorsed to include an exception for pollution due to building heating,
cooling and dehumidifying equipment and a hostile fire exception (CG 21 65 or equivalent). The Commercial General Liability
policy will include coverage for premises and operations, and completed operations, contractual liability specifically
insuring the performance by Tenant of its indemnity agreements contained in this Lease, and use of owned, non-owned, or hired
automobiles. Umbrella or excess policy(ies) shall be "following form." Evidence of such liability insurance (on
ACORD 25 or 25S, ACORD 27 and ACORD 28 forms, as applicable), or at Landlord's sole option, copies of any policy(ies)
providing coverage, shall be delivered to Landlord by Tenant at prior to the Commencement Date and at least fifteen (15) days
prior to each renewal of said insurance. If Tenant fails to comply with the foregoing insurance requirements or to deliver to
Landlord copies of such policies and evidence of the coverage required herein, in either case after 5 days from the date of
Tenant's receipt of written notice from Landlord, then Landlord, in addition to any remedy available pursuant to this Lease
or otherwise, may, but shall not be obligated to, obtain such insurance and Tenant shall pay to Landlord on demand the
premium costs thereof, plus an administrative fee of twenty percent (20%) of the cost. Tenant's coverage may be included in a
blanket policy (in which case the insurance coverage limits applicable to the Complex and Demised Premises will be expressly
specified and all limits or coverage shall be calculated and made applicable with regard to the Building and Demised Premises
only).

 

    	10	 	 

     

    

 

Section
11.2 Waiver of Subrogation; Release. All commercial property and commercial liability insurance obtained by Landlord
and Tenant shall permit waiver of claims or include a waiver of subrogation by the insurer(s) of all rights based upon an agreement
from its insured, against Landlord or Tenant, their officers, directors, shareholders, members, managers and employees, in connection
with any loss or damage thereby insured against. For purposes of the Lease, the term “insured against” includes the
assumption of risk by deductible, self-insurance, self-insured retention, underinsurance, failure to insure or otherwise and failure
to adequately or sufficiently insure against risks, whether known or unknown, or ordinary or extraordinary. Notwithstanding anything
to the contrary contained herein, Tenant hereby releases and waives any claims against Landlord, and its officers, directors,
shareholders, members, managers and employees, for any loss or damage insured against or required to be insured against hereunder,
regardless of whether the negligence or fault of Landlord (or its officers, directors, shareholders, members, managers and employees)
contributed to the cause of such loss. The failure of a party to insure or adequately or sufficiently insure its property shall
not void this release and waiver. Landlord hereby releases and waives any claims against Tenant, and its officers, directors,
shareholders, members, managers and employees for any loss or damage insured against or required to be insured against hereunder
to the extent insurance proceeds are received therefor, regardless of whether the negligence or fault of Tenant (or its officers,
directors, shareholders, members, managers and employees) caused such loss; however, Landlord's release and waiver shall not apply
to (i) any deductible amounts up to $25,000.00 maintained by Landlord under its insurance policy(ies) or (ii) any loss or portion
thereof as to which Landlord’s insurance is voided or not available due to any act or omission to Tenant or its officers,
directors, shareholders, members, managers, employees, agents, contractors or invitees.

 

Section
11.3 Indemnification.

 

(a)           Except in an instance
of determination of Landlord’s sole negligence as provided below, Tenant shall indemnify, hold harmless, and defend
Landlord against all claims, losses or liabilities for injury or death to any person or for damage to or loss of use of any
property, including the property of Landlord to the extent not covered by insurance carried or maintained by Landlord as
required hereunder (collectively, “Claims”)
arising out of any occurrence in, on or about the Complex, Building or Demised Premises (including the coming and going of
employees and/or invitees of Tenant and including if occurring in public or common areas of the Complex, Building or Demised
Premises), if caused or contributed to by Tenant or Landlord or the officers, directors, managers, employees, and invitees or
contractors of either, or if arising by reason of or relating to any condition respecting the use of the Complex, Building or
Demised Premises, or the breach of any of Tenant’s obligations under this Lease. It is the intent of the parties hereto
that the indemnity and defense obligations contained in this Paragraph shall not be limited or barred by reason of, and shall
include all Claims resulting from, the negligence (whether alleged to be sole or contributory) on the part of Landlord or
Landlord's officers, directors, managers, employees, and invitees or contractors, except as may be expressly provided herein
to the contrary. Such indemnification shall include and apply to reasonable attorneys' fees, investigation costs, and other
reasonable costs actually incurred by Landlord. Tenant shall further indemnify, defend and hold harmless Landlord from and
against any and all Claims arising from any breach or default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease. This Lease is made on the express condition that Landlord shall not be liable for,
or suffer loss by reason of, injury to person or property, from whatever cause, in any way connected with the condition, use,
occupational safety or occupancy of the Complex, Building or Demised Premises specifically including, without limitation, any
liability for injury to the person or property of Tenant or Tenant's agents, except as may be expressly provided in
subparagraph (b) below or unless determined by a final judgment or final arbitration order to be the result of
Landlord’s sole negligence. Nothing in this Section 11.3 shall be construed to invalidate or limit the waiver of
subrogation and release and waiver of Section 11.2 herein. The provisions of this Section 11.3 are subject to the obligation
of Landlord to insure against risk of property damage to the Building and loss of income and nothing herein shall
be construed to shift to Tenant liability for any risk required to be or actually insured against, other than to the extent
of all or part of the deductible portion of any claim as otherwise provided in this Lease. The provisions of this Section
shall survive the expiration or termination of the Lease with respect to any damage, injury, death, breach or default
occurring prior to such expiration or termination.

 

    	11	 	 

     

    

 

(b)           Landlord shall indemnify, hold harmless and defend Tenant from and against any and all claims, losses or liabilities
for injury or death to any person or for damage to or loss of use of use of any property incurred by reason of or arising out of
any occurrence in, on or about the Complex, Building or Demised Premises, to the extent that such injury or damage shall be caused
by or arise solely from the grossly negligent act or omission or solely from the willful misconduct of Landlord, its officers,
directors, managers, employees or contractors. Such indemnification shall include and apply to reasonable attorneys' fees, investigation
costs, and other reasonable costs actually incurred by Tenant. Notwithstanding the foregoing, Landlord shall not be required to
indemnify Tenant with regard to any condition or defect on the Complex, Demised Premises, or common area of the Building, including,
without limitation, the drives and parking areas, unless Tenant shall have given Landlord written notice of the defect or condition
and Landlord has had a reasonable opportunity after receipt of such notice to repair or otherwise attend to such defect or condition.
Nothing in this subparagraph shall be construed to invalidate or limit the waiver of subrogation and release and waiver of Section
11.2. The provisions of this Section 11.3 are subject to the obligation of Tenant to insure against risk of property damage and
nothing herein shall be construed to shift to Landlord liability for any risk required to be or actually insured against. The provisions
of this Section shall survive the expiration or termination of the Lease with respect to any damage, injury, death, breach or default
occurring prior to such expiration or termination.

 

    	12	 	 

     

    

 

(c)           As
to any matter for which Tenant is requiredtodefendand/or indemnify Landlord and as to any party required herein
to be named as an additional insured, any insurance maintained or provided by Tenant (i) shall be primary and
non-contributory to vertical exhaustion of primary and excess policies in relation to any other insurance maintained by or
available to Landlord or any additional insured party, which other insurance shall provide excess coverage as to Landlord or
such other additional insured party, and (ii) shall not require Landlord or the additional insured party to tender any claim
to its own insurance or to any other insurance available to Landlord or the additional insured. As to any matter for which
Landlord is required to defend and/or indemnify Tenant, Landlord's insurance shall be primary and non-contributory in
relation to any insurance maintained by Tenant which shall provide excess coverage.

 

(d)           Under no circumstances shall the parties be liable for any indirect, incidental, special, consequential or punitive
damages. In no event shall Landlord be liable for any damage or injury to person or property caused by or resulting from any cause
whatsoever in any way related to or arising out of any alleged breach of Landlord’s obligations under the Lease, including
but not limited to Landlord’s obligations of repair and maintenance, unless Tenant has given Landlord written notice of such
breach and unless and until Landlord has failed to cure same within a reasonable time or the time provided in the Lease.

 

13.             
Section 12.3 (c) of the Lease is hereby amended to add the following language after the last sentence: “However,
provided Tenant received Landlord’s consent and approval for the installation of such trade fixtures, equipment or leasehold
improvements, Landlord will replace same for Tenant on the condition that Tenant pays for all costs associated with such repairs
or restoration and Tenant insures such trade fixtures, equipment or leasehold improvements.”

 

14.             
Section 12.4 of the Lease is hereby deleted in its entirety and replaced with the following:

 

Section
12.4 Restoration by Tenant. In the event the whole of, or any portion of, the Demised Premises shall, during the
Term, be damaged or destroyed by fire or other casualty, and this Lease is not terminated pursuant to the provisions of Section
12.2 hereof, Tenant shall, promptly upon substantial completion of the restoration work to be performed by Landlord pursuant to
Section 12.3(a), either: (i) promptly repair, restore, redecorate and refixture the Demised Premises in a manner and to at least
a condition equal to that existing immediately prior to such damage or destruction; or (ii) provided Tenant received Landlord’s
consent and approval for such repairs, restoration, redecoration and refixturing of the Demised Premises, request that Landlord
perform such work in which case Landlord will perform such work as if under Section 12.3(a), on the condition that Tenant pays
for all costs associated with such work and Tenant insures any such trade fixtures, equipment or leasehold improvements.

 

15.             
Section 15.4(a) of the Lease is hereby amended deleting the following sentence (which begins in line 13): “Landlord
shall reimburse Tenant for the amounts reasonably and properly incurred by Tenant as aforesaid within thirty (30) days of Tenant's
written demand therefor.”

 

    	13	 	 

     

    

 

16.             
Section 20.1 of the Lease is hereby deleted in its entirety and replaced with the following:

 

Section
20.1 Surrender.

 

(a)           Upon
the expiration or earlier termination of the Term, Tenant shall quit and surrender to Landlord the Building and/or Demised
Premises in compliance with all governmental regulations as mentioned herein, broom clean and in good order, in the same
condition as of the Commencement Date excepting ordinary wear and tear to painted surfaces and floor coverings, and damage by
insured casualty. For purposes of clarification, and not limitation, Tenant’s deferral of routine maintenance or
failure to make repairs and any condition to of the Demised Premises which was affected by Tenant’s ordinary business
operations, such as, but not limited to, accumulations of grease or dust on walls, ceilings, floors or HVAC equipment,
discoloration, staining, pitting or spalling of concrete floor surfaces, damage to walls, columns, bollards or doors or door
frames/rails from materials moving equipment such as fork lifts, failure to remove cabling or controls such as, but not
limited to, alarm panels, and damage to asphalt parking areas from excessive weight of vehicle or improper use of trailer
dollies, shall not constitute ordinary wear and tear. In addition, notwithstanding an exception for reasonable wear and tear,
Tenant agrees upon termination of the Lease, the air-conditioning, cooling systems, heating equipment and plumbing and
electrical systems shall be in good, operable condition, all light fixtures and bulbs shall be operable, cleaned and in good
working order, and the condition of the Building and/or Demised Premises shall be in such a condition upon surrender as
though the Tenant made all repairs and replacements as were necessary during the Term and was continuing the operation of its
business at the Demised Premises. If requested by Tenant, Landlord shall advise Tenant as to the repairs and restoration to
be undertaken by Tenant prior to the expiration of the Term. Tenant shall remove all personal property of Tenant, and repair
any damage done by the installation or removal of same, as directed by Landlord.

 

Further, Tenant shall remove (i) all its
signage from the walls and doors of the Building and/or Demised Premises and shall restore such walls or doors to the
condition they were in prior to the installation of Tenant’s signage (ii) all cable and/or wiring abandoned or to be
abandoned by Tenant within the Demised Premises as necessary to comply with current code, rule or regulation, (iii)
all debris from the Building and Demised Premises including the cleaning up of the dumpster area(s) and loading dock areas,
and (iv) all dumpsters or garbage containers. If the Building and/or Demised Premises is not surrendered in the condition
required under this Section, Tenant shall be deemed to be a holdover, without regard to whether or not Tenant is in physical
possession or occupancy of all or part of the Demised Premises, and in addition Tenant shall indemnify and defend Landlord
against loss or liability resulting from the delay by Tenant in so surrendering the Demised Premises, including, without
limitation, any claims made by any succeeding occupant founded on such delay.

 

(b)           Unless sooner terminated, during the last six (6) months of the Term Landlord will inspect the Building and/or Demised
Premises and advise Tenant of the work required to place the Building and/or Demised Premises in condition for surrender pursuant
to the terms of this Section. Landlord’s advice shall be subject to circumstances or events occurring between the date of
the inspection and the date of surrender, as to which Landlord reserves all rights.

 

    	14	 	 

     

    

 

(c)           If Tenant fails to surrender the Building and/or Demised Premises as required by this Section, Landlord may, at its
option, make any repairs or take other actions so as to perform the obligations of Tenant and the costs and expenses shall be reimbursed
to Landlord by Tenant upon demand. Additionally, if as a result of the fact that Tenant does not surrender the Building and/or
Demised Premises in the condition required by this Section, work is required to be performed, whether by Tenant or Landlord, following
the expiration or earlier termination of the Term, Tenant shall be deemed to be a holdover tenant and shall be liable to Landlord
for payment of holdover rent as provided in this Lease.

 

(d)           All such remedies of Landlord, and the remedies provided for in Section 15.2, shall be cumulative, and in addition,
Landlord may pursue any other remedies that may be permitted by law or in equity. Forbearance or an election by Landlord to enforce
one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute an election
of remedies, a waiver of any other remedy which may be available or a waiver of such default. Tenant's obligations under this Section
shall survive the expiration or earlier termination of the Lease.

 

17.           Except as modified herein, all of the terms, covenants and conditions contained in the Lease shall remain in full
force and effect.

 

18.           This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original and
all of which shall be deemed to be one and the same instrument. This Amendment may be signed by the respective parties on separate
pages, and may be delivered on separate signature pages intended to be attached to the Amendment, and when the signatures of all
parties are attached the Amendment will be deemed fully executed. Signatures may be delivered by facsimile or other electronic
transmission. Any party delivering a signature by facsimile or other electronic transmission (i) agrees that any signature so delivered
shall be deemed an original signature for all purposes, (ii) acknowledges awareness of the fact that other parties to this Amendment,
and third parties who may examine this Amendment, including, without limitation, a court or arbitrator, will rely on such signature
will rely on such signature and (iii) hereby waives any defenses to the enforcement of the terms of this Amendment based the form
or delivery of such signature.

 

IN
WITNESS WHEREOF, the parties have signed and delivered this First Amendment to Lease Agreement as of the day and year
first above written.

 

 

	 	Kimberly Alvin Property, LLC	 
	 	 	 
	 	 	 
	 	By:  /s/ Elliot M. Kosoffsky	 
	 	Name: Elliot M. Kosoffsky	 
	 	Title: C.O.O.	 
	 	 	 
	 	 	 
	 	Comnet Telecom Supply, Inc.	 
	 	 	 
	 	 	 
	 	By: /s/ Robert Portera	 
	 	Name: Robert Portera	 
	 	Title: President	 

 

 

 

 

 

    	15Exhibit 10.1

 

LOAN AND SECURITY AGREEMENT

 

Dated as of June 15, 2017

 

 

NORTECH SYSTEMS INCORPORATED,

 

as Borrower

 

 

BANK OF AMERICA, N.A.,

 

as Lender

 

 

Table of Contents

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
SECTION 1.
    	
DEFINITIONS; RULES OF   CONSTRUCTION
    	
1
    
	
1.1
    	
Definitions
    	
1
    
	
1.2
    	
Accounting Terms
    	
15
    
	
1.3
    	
Uniform Commercial Code
    	
16
    
	
1.4
    	
Certain Matters of   Construction
    	
16
    
	
 
    	
 
    	
 
    
	
SECTION 2.
    	
CREDIT FACILITIES
    	
16
    
	
2.1
    	
Revolver Commitment
    	
16
    
	
2.2
    	
Term Loan Commitment
    	
17
    
	
2.3
    	
Letter of Credit   Facility
    	
17
    
	
 
    	
 
    	
 
    
	
SECTION 3.
    	
INTEREST, FEES AND   CHARGES
    	
18
    
	
3.1
    	
Interest
    	
18
    
	
3.2
    	
Fees
    	
19
    
	
3.3
    	
Computation of   Interest, Fees, Yield Protection
    	
19
    
	
3.4
    	
Reimbursement   Obligations
    	
19
    
	
3.5
    	
Illegality
    	
20
    
	
3.6
    	
Inability to Determine   Rates
    	
20
    
	
3.7
    	
Increased Costs;   Capital Adequacy
    	
20
    
	
3.8
    	
Mitigation
    	
21
    
	
3.9
    	
Funding Losses
    	
21
    
	
3.10
    	
Maximum Interest
    	
21
    
	
 
    	
 
    	
 
    
	
SECTION 4.
    	
LOAN ADMINISTRATION
    	
21
    
	
4.1
    	
Manner of Borrowing and   Funding Revolver Loans
    	
21
    
	
4.2
    	
Number and Amount of   LIBOR Loans; Determination of Rate
    	
22
    
	
4.3
    	
[Intentionally Omitted]
    	
22
    
	
4.4
    	
[Intentionally Omitted]
    	
22
    
	
4.5
    	
Effect of Termination
    	
22
    
	
 
    	
 
    	
 
    
	
SECTION 5.
    	
PAYMENTS
    	
22
    
	
5.1
    	
General Payment   Provisions
    	
22
    
	
5.2
    	
Repayment of Revolver   Loans
    	
22
    
	
5.3
    	
Repayment of Term Loan
    	
23
    
	
5.4
    	
Payment of Other   Obligations
    	
23
    
	
5.5
    	
Dominion Account
    	
23
    
	
5.6
    	
Marshaling; Payments   Set Aside
    	
24
    
	
5.7
    	
Application of Payments
    	
24
    
	
5.8
    	
Account Stated
    	
24
    
	
5.9
    	
Taxes
    	
24
    
	
 
    	
 
    	
 
    
	
SECTION 6.
    	
CONDITIONS PRECEDENT
    	
26
    
	
6.1
    	
Conditions Precedent to   Initial Loans
    	
26
    
	
6.2
    	
Conditions Precedent to   All Credit Extensions
    	
26
    
	
 
    	
 
    	
 
    
	
SECTION 7.
    	
COLLATERAL
    	
26
    
	
7.1
    	
Grant of Security   Interest
    	
26
    
	
7.2
    	
Lien on Deposit   Accounts; Cash Collateral
    	
27
    
	
7.3
    	
Real Estate Collateral
    	
27
    
	
7.4
    	
Other Collateral
    	
27
    
	
7.5
    	
Limitations
    	
27
    
	
7.6
    	
Further Assurances;   Extent of Liens
    	
27
    
	
 
    	
 
    	
 
    
	
SECTION 8.
    	
REPRESENTATIONS AND   WARRANTIES
    	
28
    
	
8.1
    	
General Representations   and Warranties
    	
28
    
	
8.2
    	
Complete Disclosure
    	
31
    

 

i

 

Table of Contents

(continued)

 

	
 
    	
 
    	
Page
    
	
SECTION 9.
    	
COVENANTS AND   CONTINUING AGREEMENTS
    	
31
    
	
9.1
    	
Affirmative Covenants
    	
31
    
	
9.2
    	
Negative Covenants
    	
33
    
	
9.3
    	
Financial Covenants
    	
36
    
	
 
    	
 
    	
 
    
	
SECTION 10.
    	
EVENTS OF DEFAULT;   REMEDIES ON DEFAULT
    	
36
    
	
10.1
    	
Events of Default
    	
36
    
	
10.2
    	
Remedies upon Default
    	
37
    
	
10.3
    	
License
    	
38
    
	
10.4
    	
Setoff
    	
38
    
	
10.5
    	
Remedies Cumulative; No   Waiver
    	
38
    
	
 
    	
 
    	
 
    
	
SECTION 11.
    	
MISCELLANEOUS
    	
39
    
	
11.1
    	
Amendments and Waivers
    	
39
    
	
11.2
    	
Power of Attorney
    	
39
    
	
11.3
    	
Indemnity
    	
39
    
	
11.4
    	
Notices and Communications
    	
39
    
	
11.5
    	
Performance of   Borrower’s Obligations
    	
40
    
	
11.6
    	
Credit Inquiries
    	
41
    
	
11.7
    	
Severability
    	
41
    
	
11.8
    	
Cumulative Effect;   Conflict of Terms
    	
41
    
	
11.9
    	
Counterparts; Execution
    	
41
    
	
11.10
    	
Entire Agreement
    	
41
    
	
11.11
    	
No Control; No Advisory   or Fiduciary Responsibility
    	
41
    
	
11.12
    	
Confidentiality
    	
41
    
	
11.13
    	
[Intentionally Omitted]
    	
42
    
	
11.14
    	
GOVERNING LAW
    	
42
    
	
11.15
    	
Consent to Forum
    	
42
    
	
11.16
    	
Waivers by Borrower
    	
42
    
	
11.17
    	
PATRIOT Act Notice
    	
42
    
	
11.18
    	
NO ORAL AGREEMENT
    	
43
    

 

ii

 

LIST OF SCHEDULES

 

	
Schedule 8.1.4
    	
Names and Capital Structure
    
	
Schedule 8.1.11
    	
Patents, Trademarks, Copyrights   and Licenses
    
	
Schedule 8.1.13
    	
Environmental Matters
    
	
Schedule 8.1.14
    	
Restrictive Agreements
    
	
Schedule 8.1.15
    	
Litigation
    
	
Schedule 8.1.17
    	
Pension Plans
    
	
Schedule 9.1.9
    	
Deposit Accounts
    
	
Schedule 9.1.10
    	
Business Locations
    
	
Schedule 9.2.2
    	
Existing Liens
    
	
Schedule 9.2.17
    	
Existing Affiliate Transactions
    

 

EXHIBITS

 

	
Exhibit A
    	
Form of   Borrowing Base Certificate
    
	
Exhibit B
    	
Form of   Compliance Certificate
    
	
Exhibit C
    	
Conditions   Precedent
    
	
Exhibit D
    	
Fees
    
	
Exhibit E
    	
Financial   Reporting
    
	
Exhibit F
    	
Collateral   Reporting
    

 

 

LOAN AND SECURITY AGREEMENT

 

THIS LOAN AND SECURITY AGREEMENT is dated as of June 15, 2017, by and between NORTECH SYSTEMS INCORPORATED, a Minnesota corporation (“Borrower”) and BANK OF AMERICA, N.A., a national banking association (“Lender”).

 

R E C I T A L S:

 

Borrower has requested that Lender provide a credit facility to Borrower to finance its business enterprise.  Lender is willing to provide the credit facility on the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties agree as follows:

 

SECTION 1.        DEFINITIONS; RULES OF CONSTRUCTION

 

1.1          Definitions.  As used herein, the following terms have the meanings set forth below:

 

Affiliate: with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.  “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled” have correlative meanings.

 

Anti-Terrorism Law: any law relating to terrorism or money laundering, including the PATRIOT Act.

 

Applicable Margin: the margin set forth below:

 

	
Base Rate
    	
 
    	
LIBOR
    	
 
    	
Base Rate
    	
 
    	
LIBOR
    	
 
    
	
Revolver Loans
    	
 
    	
Revolver Loans
    	
 
    	
Term Loans
    	
 
    	
Term Loans
    	
 
    
	
1.00
    	
%
    	
2.00
    	
%
    	
1.25
    	
%
    	
2.25
    	
%
    

 

Availability: the Borrowing Base minus Revolver Usage.

 

Availability Reserve: the sum (without duplication of any other Reserves or items that are otherwise addressed or excluded through eligibility criteria) of (a) the Inventory Reserve; (b) the Rent and Charges Reserve; (c) the Bank Product Reserve; (d) the aggregate amount of liabilities secured by Liens upon Collateral that are senior to Lender’s Liens (other than Permitted Liens described in clause (b) of the definition thereof) (but imposition of any such reserve shall not waive an Event of Default arising therefrom); (e) reserves for bad debt write-downs or write-offs, discounts, returns, promotions, credits, credit memos and other dilutive items with respect to Accounts and (f) such additional reserves, in such amounts and with respect to such matters, as Lender in its Permitted Discretion may elect to impose from time to time.

 

Bank Product: any of the following products, services or facilities extended to an Obligor or Affiliate of an Obligor by Lender or any of its Affiliates: (a) Cash Management Services; (b) products under Hedging Agreements; (c) commercial credit card and merchant card services and corporate purchasing cards; and (d) leases and other banking products or services, other than Letters of Credit.

 

Bank Product Debt: Debt, obligations and other liabilities of an Obligor or Affiliate of an Obligor with respect to Bank Products.

 

Bank Product Reserve: the aggregate amount of reserves established by Lender from time to time in its Permitted Discretion in respect of Bank Product Debt.

 

Bankruptcy Code: Title 11 of the United States Code.

 

1

 

Base Rate: for any day, a per annum rate equal to the greater of (a) the Prime Rate for such day; (b) the Federal Funds Rate for such day, plus 0.50%; or (c) LIBOR for a 30 day interest period as determined on such day, plus 1.00%.

 

Base Rate Loan: any Loan that bears interest based on the Base Rate.

 

Base Rate Revolver Loan: a Revolver Loan that bears interest based on the Base Rate.

 

Base Rate Term Loan: a Term Loan that bears interest based on the Base Rate.

 

Board of Governors: the Board of Governors of the Federal Reserve System.

 

Borrowed Money: with respect to any Obligor, without duplication, its (a) Debt that (i) arises from the lending of money by any Person to such Obligor; (ii) is evidenced by notes, drafts, bonds, debentures, credit documents or similar instruments; (iii) accrues interest or is a type upon which interest charges are customarily paid (excluding trade payables owing in the Ordinary Course of Business); or (iv) was issued or assumed as full or partial payment for Property; (b) Capital Leases; (c) reimbursement obligations with respect to letters of credit; and (d) guaranties of any Debt of the foregoing types owing by another Person.

 

Borrowing: a group of Loans that are made or converted together on the same day and have the same interest option and, if applicable, Interest Period.

 

Borrowing Base: on any date of determination, an amount equal to the lesser of: (a) the Revolver Commitment, minus the Availability Reserve; or (b) the sum of: (i) 85% of the Value of Eligible Accounts; plus (ii) 80% of the Value of Eligible Foreign Accounts; plus (ii) the lesser of (A) 70% of the Value of Eligible Inventory; or (B) 85% of the NOLV Percentage of the Value of Eligible Inventory minus (iii) the Availability Reserve.  Availability included in the Borrowing Base resulting from the proviso in clause (g) of the definition of “Eligible Accounts” shall not exceed $1,500,000 in the aggregate at any time.

 

Borrowing Base Certificate: a certificate substantially in the form of Exhibit A (or such other form acceptable to Lender) and satisfactory to Lender in all respects, by which Borrower certifies the Borrowing Base.

 

Borrowing Base Trigger Period: the period (a) commencing on any day that (i) an Event of Default occurs, or (ii) Availability is less than $4,000,000 for five consecutive days; and (b) continuing until, during each of the preceding 30 consecutive days, no Event of Default has existed and Availability has been more than $4,000,000.

 

Business Day: any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, North Carolina and Minnesota, and if such day relates to a LIBOR Loan, any such day on which dealings in Dollar deposits are conducted between banks in the London interbank Eurodollar market.

 

Capital Expenditures: all liabilities incurred or expenditures made by Borrower or any of its Subsidiaries for the acquisition of fixed assets, or any improvements, replacements, substitutions or additions thereto with a useful life of more than one year.

 

Capital Lease: any lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

 

Cash Collateral: cash, and any interest or other income earned thereon, that is delivered to Lender to Cash Collateralize any Obligations.

 

Cash Collateral Account: a demand deposit, money market or other account maintained with Lender and subject to Lender’s Liens.

 

Cash Collateralize: the delivery of cash to Lender, as security for the payment of Obligations, in an amount equal to (a) with respect to LC Obligations, 105% of the aggregate LC Obligations; and (b) with respect to any inchoate, contingent or other Obligations (including Obligations arising under Bank Products), Lender’s good faith

 

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estimate of the amount due or to become due, including fees, expenses and indemnification hereunder.  “Cash Collateralization” has a correlative meaning.

 

Cash Equivalents: (a) marketable obligations issued or unconditionally guaranteed by, and backed by the full faith and credit of, the United States government, maturing within 12 months of the date of acquisition; (b) certificates of deposit, time deposits and bankers’ acceptances maturing within 12 months of the date of acquisition, and overnight bank deposits, in each case which are issued by Lender or a commercial bank organized under the laws of the United States or any state or district thereof, rated A-1 (or better) by S&P or P-1 (or better) by Moody’s at the time of acquisition, and (unless issued by Lender) not subject to offset rights; (c) repurchase obligations with a term of not more than 30 days for underlying investments of the types described in clauses (a) and (b) entered into with any bank described in clause (b); (d) commercial paper issued by Lender or rated A-1 (or better) by S&P or P-1 (or better) by Moody’s, and maturing within nine months of the date of acquisition; and (e) shares of any money market fund that has substantially all of its assets invested continuously in the types of investments referred to above, has net assets of at least $500,000,000 and has the highest rating obtainable from either Moody’s or S&P.

 

Cash Management Services: services relating to operating, collections, payroll, trust, or other depository or disbursement accounts, including automated clearinghouse, e-payable, electronic funds transfer, wire transfer, controlled disbursement, overdraft, depository, information reporting, lockbox and stop payment services.

 

Change in Law: the occurrence, after the date hereof, of (a) the adoption, taking effect or phasing in of any law, rule, regulation or treaty; (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof; or (c) the making, issuance or application of any request, guideline, requirement or directive (whether or not having the force of law) by any Governmental Authority; provided, however, that “Change in Law” shall include, regardless of the date enacted, adopted or issued, all requests, rules, guidelines, requirements or directives (i) under or relating to the Dodd-Frank Wall Street Reform and Consumer Protection Act, or (ii) promulgated pursuant to Basel III by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any similar authority) or any other Governmental Authority.

 

Change of Control: (a) (1) any person or group other than the group consisting of Curtis Squire, Inc. and members of the Kunin family (together, the “Kunin Group”) is at any time the beneficial owner of thirty percent (30%) or more of the equity securities of Borrower entitled to vote for the election of directors (the “Voting Securities”), and (2) such other person or group then owns a greater percentage of the voting Securities than the Kunin Group; (b) a change in the majority of directors of Borrower during any 24 month period, unless approved by the majority of directors serving at the beginning of such period; or (c) the sale or transfer of all or substantially all assets of Borrower.

 

Claims: all claims, liabilities, obligations, losses, damages, penalties, judgments, proceedings, interest, costs and expenses of any kind (including remedial response costs, reasonable attorneys’ fees and Extraordinary Expenses) at any time (including after Full Payment of the Obligations) incurred by any Indemnitee or asserted against any Indemnitee by any Obligor or other Person, in any way relating to (a) any Loans, Letters of Credit, Loan Documents, or the use thereof or transactions relating thereto; (b) any action taken or omitted in connection with any Loan Documents; (c) the existence or perfection of any Liens, or realization upon any Collateral; (d) exercise of any rights or remedies under any Loan Documents or applicable law; or (e) failure by any Obligor to perform or observe any terms of any Loan Document, in each case including all costs and expenses relating to any investigation, litigation, arbitration or other proceeding (including an Insolvency Proceeding or appellate proceedings), whether or not the applicable Indemnitee is a party thereto.

 

Closing Date: as defined in Section 6.1.

 

Code: the Internal Revenue Code of 1986.

 

Collateral: all Property described in Section 7.1, all Property described in any Security Documents as security for any Obligations, and all other Property that now or hereafter secures (or is intended to secure) any Obligations.

 

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Commitment Termination Date: the earliest to occur of (a) the Revolver Termination Date; (b) the date on which Borrower terminates the Revolver Commitment pursuant to Section 2.1.3; or (c) the date on which the Revolver Commitment is terminated pursuant to Section 10.2.

 

Commitments: the Revolver Commitment and the Term Loan Commitment.

 

Commodity Exchange Act:  the Commodity Exchange Act (7 U.S.C. § 1 et seq.).

 

Compliance Certificate: a certificate substantially in the form of Exhibit B, and satisfactory to Lender in all respects, by which Borrower certifies compliance with Sections 9.2.3 and 9.3.

 

Connection Income Taxes: Other Connection Taxes that are imposed on or measured by net income (however denominated), or are franchise or branch profits Taxes.

 

Contingent Obligation: any obligation of a Person arising from a guaranty, indemnity or other assurance of payment or performance of any Debt, lease, dividend or other obligation (“primary obligations”) of another obligor (“primary obligor”) in any manner, whether directly or indirectly, including any obligation of such Person under any (a) guaranty, endorsement, co-making or sale with recourse of an obligation of a primary obligor; (b) obligation to make take-or-pay or similar payments regardless of nonperformance by any other party to an agreement; and (c) arrangement (i) to purchase any primary obligation or security therefor, (ii) to supply funds for the purchase or payment of any primary obligation, (iii) to maintain or assure working capital, equity capital, net worth or solvency of the primary obligor, (iv) to purchase Property or services for the purpose of assuring the ability of the primary obligor to perform a primary obligation, or (v) otherwise to assure or hold harmless the holder of any primary obligation against loss in respect thereof.  The amount of any Contingent Obligation shall be deemed to be the stated or determinable amount of the primary obligation (or, if less, the maximum amount for which such Person may be liable under the instrument evidencing the Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability with respect thereto.

 

Debt: as applied to any Person, without duplication, (a) all items that would be included as liabilities on a balance sheet in accordance with GAAP, including Capital Leases, but excluding trade payables incurred and being paid in the Ordinary Course of Business; (b) all Contingent Obligations; (c) all reimbursement obligations in connection with letters of credit issued for the account of such Person; and (d) in the case of Borrower, the Obligations.  The Debt of a Person shall include any recourse Debt of any partnership in which such Person is a general partner or joint venturer.

 

Default: an event or condition that, with the lapse of time or giving of notice, would constitute an Event of Default.

 

Default Rate: for any Obligation (including, to the extent permitted by law, interest not paid when due), 2% plus the interest rate otherwise applicable thereto.

 

Deposit Account Control Agreement: a control agreement satisfactory to Lender executed by an institution maintaining a Deposit Account for an Obligor, to perfect Lender’s Lien on such account.

 

Designated Jurisdiction:  any country or territory to the extent that such country or territory itself is the subject of any Sanction.

 

Distribution: any declaration or payment of a distribution, interest or dividend on any Equity Interest (other than payment-in-kind); distribution, advance or repayment of Debt to a holder of Equity Interests; or purchase, redemption, or other acquisition or retirement for value of any Equity Interest.

 

Dollars: lawful money of the United States.

 

Dominion Account: a special account established by Borrower at Lender or a bank acceptable to Lender, over which Lender has exclusive control for withdrawal purposes.

 

EBITDA: determined on a consolidated basis for Borrower and its Subsidiaries, net income, calculated before interest expense, provision for income taxes, depreciation and amortization expense, gains or losses arising

 

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from the sale of capital assets, gains arising from the write-up of assets, any extraordinary gains (in each case, to the extent included in determining net income), non-cash expenses or losses and other non-cash charges, plus such other items added to EBITDA from time to time, as permitted by the Lender in its Permitted Discretion.

 

Eligible Account: an Account owing to Borrower that arises in the Ordinary Course of Business from the sale of goods or rendition of services, is payable in Dollars and is deemed by Lender, in its Permitted Discretion, to be an Eligible Account.  Without limiting the foregoing, no Account shall be an Eligible Account if:

 

(a) it is unpaid for (i) more than 90 days after the original invoice date if owed by an Account Debtor other than General Electric Company, Emerson Electric Co. or any of their respective wholly owned subsidiaries or (ii) more than 130 days after the original invoice date if owed by General Electric Company or Emerson Electric Co. or any wholly owned subsidiary thereof;

 

(b) 50% or more of the Accounts owing by the Account Debtor are not Eligible Accounts under the foregoing clause (a);

 

(c) when aggregated with other Accounts owing by the Account Debtor, it exceeds 15% of the aggregate Eligible Accounts (or such higher percentage as Lender may establish for the Account Debtor from time to time), provided, however, for each of General Electric Company and its wholly owned subsidiaries and Emerson Electric Co. and its wholly owned subsidiaries, the foregoing percentage shall be 25%;

 

(d) it does not conform with a covenant or representation herein;

 

(e) it is owing by a creditor or supplier, or is otherwise subject to a potential offset, counterclaim, dispute, deduction, discount, recoupment, reserve, defense, chargeback, credit or allowance (but ineligibility shall be limited to the amount thereof);

 

(f) an Insolvency Proceeding has been commenced by or against the Account Debtor; or the Account Debtor has failed, has suspended or ceased doing business, is liquidating, dissolving or winding up its affairs, is not Solvent, or is subject to Sanctions or any specially designated nationals list maintained by OFAC; or Borrower is not able to bring suit or enforce remedies against the Account Debtor through judicial process;

 

(g) the Account Debtor is organized or has its principal offices or assets outside the United States or Canada; provided, however, Accounts owing from General Electric Company, Emerson Electric Co., Cummins Corporation or any of their respective wholly owned subsidiaries, in each case, located in countries acceptable to the Lender in its Permitted Discretion shall not be deemed ineligible solely as a result of this clause (g).

 

(h) it is owing by a Governmental Authority, unless the Account Debtor is the United States or any department, agency or instrumentality thereof and the Account has been assigned to Lender in compliance with the federal Assignment of Claims Act;

 

(i) it is not subject to a duly perfected, first priority Lien in favor of Lender, or is subject to any other Lien;

 

(j) the goods giving rise to it have not been delivered to the Account Debtor, the services giving rise to it have not been accepted by the Account Debtor, or it otherwise does not represent a final sale;

 

(k) it is evidenced by Chattel Paper or an Instrument of any kind, or has been reduced to judgment;

 

(l) its payment has been extended or the Account Debtor has made a partial payment;

 

(m) it arises from a sale to an Affiliate, from a sale on a cash-on-delivery, bill-and-hold, sale-or-return, sale-on-approval, consignment, or other repurchase or return basis, or from a sale for personal, family or household purposes;

 

(n) it represents a progress billing or retainage, or relates to services for which a performance, surety or completion bond or similar assurance has been issued;

 

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(o) it includes a billing for interest, fees or late charges, but ineligibility shall be limited to the extent thereof.  In calculating delinquent portions of Accounts under clauses (a) and (b), credit balances more than 90 days old will be excluded.; or

 

(p) it is the subject of any factoring, supply chain finance facility or equivalent financing, regardless of when such Account is purchased by the Person providing such factoring, supply chain finance facility or equivalent financing.

 

Eligible Foreign Account: an Account that (a) but for clause (g) of the definition of “Eligible Accounts” would constitute an Eligible Account and (b) is supported by a letter of credit (delivered to and directly drawable by Lender and issued by a financial institution acceptable to Lender) or credit insurance satisfactory in all respects to Lender; provided, that, Accounts subject to the proviso in clause (g) of the definition of “Eligible Accounts” shall be disregarded for purposes of determining Eligible Foreign Accounts.

 

Eligible Inventory: Inventory owned by Borrower that Lender, in its Permitted Discretion, deems to be Eligible Inventory.  Without limiting the foregoing, no Inventory shall be Eligible Inventory unless it:

 

(a) is finished goods or raw materials, and not work-in-process, packaging or shipping materials, labels, samples, display items, bags, replacement parts, sub-assemblies or manufacturing supplies;

 

(b) is not held on consignment, or is otherwise on hold, nor subject to any deposit or down payment;

 

(c) is in new and saleable condition and is not damaged, defective, shopworn or otherwise unfit for sale;

 

(d) is not slow-moving, perishable, obsolete or unmerchantable, and does not constitute returned or repossessed goods;

 

(e) meets all standards imposed by any Governmental Authority, has not been acquired from an entity subject to Sanctions or any specially designated nationals list maintained by OFAC and does not constitute hazardous materials under any Environmental Law;

 

(f) conforms with the covenants and representations herein;

 

(g) is subject to Lender’s duly perfected, first priority Lien, and no other Lien;

 

(h) is within the continental United States, is not in transit except between locations of Borrower, and is not consigned to any Person;

 

(i) is not subject to any warehouse receipt or negotiable Document;

 

(j) is not subject to any License or other arrangement that restricts Borrower’s or Lender’s right to dispose of such Inventory, unless Lender has received an appropriate Lien Waiver; and

 

(k) is not located on leased premises or in the possession of a warehouseman, processor, repairman, mechanic, shipper, freight forwarder or other Person, unless the lessor or such Person has delivered a Lien Waiver or, in the discretion of Lender, an appropriate Rent and Charges Reserve has been established; provided, however, the Borrower shall have 90 days following the Closing Date to provide a Lien Waiver with respect to its location in Milaca, MN, after which time Inventory at such location will be deemed ineligible unless Lender, in its discretion, establishes a Rent and Charges reserve for such location; and

 

(l) is reflected in the details of a current perpetual inventory report.

 

Environmental Agreement: an agreement of an Obligor to indemnify Lender from liability under Environmental Laws with respect to Real Estate subject to a Mortgage.

 

Environmental Laws: applicable laws (including programs, permits and guidance promulgated by regulatory agencies), relating to public health (other than occupational safety and health regulated by OSHA) or the

 

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protection or pollution of the environment, including the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. § 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. §§ 6991-6991i) and the Clean Water Act (33 U.S.C. §§ 1251 et seq.).

 

Environmental Notice: a notice (whether written or oral) from any Governmental Authority or other Person of any possible noncompliance with, investigation of a possible violation of, litigation relating to, or potential fine or liability under any Environmental Law, or with respect to any Environmental Release, environmental pollution or hazardous materials, including any complaint, summons, citation, order, claim, demand or request for correction, remediation or otherwise.

 

Environmental Release: a release as defined under any Environmental Law.

 

Equity Interest: the interest of any (a) shareholder in a corporation; (b) partner in a partnership (whether general, limited, limited liability or joint venture); (c) member in a limited liability company; or (d) other Person having any other form of equity security or ownership interest.

 

ERISA: the Employee Retirement Income Security Act of 1974.

 

ERISA Affiliate: any trade or business (whether or not incorporated) under common control with an Obligor within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

 

ERISA Event: (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Obligor or ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Obligor or ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) the determination that any Pension Plan or Multiemployer Plan is considered an at risk plan or a plan in critical or endangered status under the Code, ERISA or the Pension Protection Act of 2006; (f) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (g) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Obligor or ERISA Affiliate.

 

Event of Default: as defined in Section 10.

 

Excluded Swap Obligation: with respect to an Obligor, each Swap Obligation as to which, and only to the extent that, such Obligor’s guaranty of or grant of a Lien as security for such Swap Obligation is or becomes illegal under the Commodity Exchange Act because the Obligor does not constitute an “eligible contract participant” as defined in the act (determined after giving effect to any keepwell, support or other agreement for the benefit of such Obligor, and all guarantees of Swap Obligations by other Obligors) when such guaranty or grant of Lien becomes effective with respect to the Swap Obligation.  If a Hedging Agreement governs more than one Swap Obligation, only the Swap Obligation(s) or portions thereof described in the foregoing sentence shall be Excluded Swap Obligation(s) for the applicable Obligor.

 

Excluded Tax: (a) Taxes imposed on or measured by a Recipient’s net income (however denominated), franchise Taxes and branch profit Taxes (i) as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of Lender, its lending office located in, the jurisdiction imposing such Tax, or (ii) constituting Other Connection Taxes; and (b) U.S. federal withholding Taxes imposed pursuant to FATCA.

 

Extraordinary Expenses: all costs, expenses or advances that Lender may incur during a Default or Event of Default, or during the pendency of an Insolvency Proceeding of an Obligor, including those relating to (a) any audit, inspection, repossession, storage, repair, appraisal, insurance, manufacture, preparation or advertising for sale, sale, collection, or other preservation of or realization upon any Collateral; (b) any action, arbitration or other proceeding (whether instituted by or against Lender, any Obligor, any representative of creditors of an Obligor or any other Person) in any way relating to any Collateral (including the validity, perfection, priority or avoidability of Lender’s

 

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Liens with respect to any Collateral), Loan Documents, Letters of Credit or Obligations, including any lender liability or other Claims; (c) the exercise of any rights or remedies of Lender in, or the monitoring of, any Insolvency Proceeding; (d) settlement or satisfaction of any taxes, charges or Liens with respect to any Collateral; (e) any action to enforce any Obligations or Loan Documents or to realize upon any Collateral (whether by judicial action, self-help, notification of Account Debtors, exercise of set off or recoupment, credit bid or otherwise); and (f) negotiation and documentation of any modification, waiver, workout, restructuring or forbearance with respect to any Loan Documents or Obligations.  Such costs, expenses and advances include transfer fees, Other Taxes, storage fees, insurance costs, permit fees, utility reservation and standby fees, legal fees, appraisal fees, brokers’ and auctioneers’ fees and commissions, accountants’ fees, environmental study fees, wages and salaries paid to employees of any Obligor or independent contractors in liquidating any Collateral, and travel expenses.

 

FATCA:  Sections 1471 through 1474 of the Code (including any amended or successor version if substantively comparable and not materially more onerous to comply with), and any agreements entered into pursuant to Section 1471(b)(1) of the Code.

 

Federal Funds Rate: (a) the weighted average of interest rates on overnight federal funds transactions with members of the Federal Reserve System on the applicable day (which shall be the preceding Business Day, if the applicable day is not a Business Day), as published by the Federal Reserve Bank of New York on the next Business Day; or (b) if no such rate is published on the next Business Day, the average rate (rounded up to the nearest 1/8 of 1%) charged to Lender on the applicable day on such transactions, as determined by Lender; provided, that in no event shall such rate be less than zero.

 

Fiscal Quarter: means any of the quarterly accounting periods of Borrower, ending on March 31, June 30, September 30 and December 31 of each Fiscal Year.

 

Fiscal Year: the fiscal year of Borrower and its Subsidiaries for accounting and tax purposes, ending on December 31 of each year.

 

Fixed Charge Coverage Ratio: the ratio, determined on a consolidated basis for Borrower and its Subsidiaries for the most recent four Fiscal Quarters, of (a) EBITDA minus (i) Capital Expenditures (except those financed with Borrowed Money other than Revolver Loans) (ii) cash taxes paid and (iii) Distributions made, to (b) Fixed Charges.

 

Fixed Charges: the sum of interest expense (other than payment-in-kind) and scheduled principal payments made on Borrowed Money.

 

FLSA: the Fair Labor Standards Act of 1938.

 

Foreign Plan: any employee benefit plan or arrangement (a) maintained or contributed to by any Obligor or Subsidiary that is not subject to the laws of the United States; or (b) mandated by a government other than the United States for employees of any Obligor or Subsidiary.

 

Foreign Subsidiary: a Subsidiary that is a “controlled foreign corporation” under Section 957 of the Code, such that a guaranty by such Subsidiary of the Obligations or a Lien on the assets of such Subsidiary to secure the Obligations would result in material tax liability to Borrower.

 

Foreign Subsidiary OpEx Payments: means cash payments made by the Borrower in the ordinary course of business to Manufacturing & Assembly Solutions of Monterrey S DE RL DE CV to fund payroll and other ordinary course operating expenses.

 

Full Payment: with respect to any Obligations, (a) the full and indefeasible cash payment thereof, including any interest, fees and other charges accruing during an Insolvency Proceeding (whether or not allowed in the proceeding); (b) if such Obligations are LC Obligations or inchoate or contingent in nature, Cash Collateralization thereof (or delivery of a standby letter of credit acceptable to Lender in its discretion, in the amount of required Cash Collateral); and (c) a release of any Claims of Obligors against Lender arising on or before the payment date.  The Revolver Loans shall not be deemed to have been paid in full unless the Revolver Commitment has terminated.

 

GAAP: generally accepted accounting principles in effect in the United States from time to time.

 

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Governmental Approvals: all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and required reports to, all Governmental Authorities.

 

Governmental Authority: any federal, state, local, foreign or other agency, authority, body, commission, court, instrumentality, political subdivision, central bank, or other entity or officer exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions for any governmental, judicial, investigative, regulatory or self-regulatory authority (including any supra-national bodies such as the European Union or European Central Bank).

 

Guarantor Payment:  as defined in Section 5.10.3.

 

Guarantors: each Person that guarantees payment or performance of Obligations.

 

Guaranty: each guaranty agreement executed by a Guarantor in favor of Lender.

 

Hedging Agreement: any “swap agreement” as defined in Section 101(53B)(A) of the Bankruptcy Code.

 

Indemnified Taxes: (a) Taxes, other than Excluded Taxes, imposed on or relating to any payment of an Obligation; and (b) to the extent not otherwise described in clause (a), Other Taxes.

 

Indemnitees: Lender, other Secured Parties, and their officers, directors, employees, Affiliates, agents and attorneys.

 

Insolvency Proceeding: any case or proceeding commenced by or against a Person under any state, federal or foreign law for, or any agreement of such Person to, (a) the entry of an order for relief under the Bankruptcy Code, or any other insolvency, debtor relief or debt adjustment law; (b) the appointment of a receiver, trustee, liquidator, administrator, conservator or other custodian for such Person or any part of its Property; or (c) an assignment or trust mortgage for the benefit of creditors.

 

Intellectual Property: all intellectual and similar Property of a Person, including inventions, designs, patents, copyrights, trademarks, service marks, trade names, trade secrets, confidential or proprietary information, customer lists, know-how, software and databases; all embodiments or fixations thereof and all related documentation, applications, registrations and franchises; all licenses or other rights to use any of the foregoing; and all books and records relating to the foregoing.

 

Interest Period: as defined in Section 3.1.3.

 

Inventory Reserve: reserves established by Lender to reflect factors that may negatively impact the Value of Inventory, including change in salability, obsolescence, seasonality, theft, shrinkage, imbalance, change in composition or mix, markdowns and vendor chargebacks.

 

Investment: (a) a transaction or series of transactions resulting in (i) acquisition of a business division or substantially all assets of a Person; (ii) record or beneficial ownership of 50% or more of the Equity Interests of a Person; or (iii) merger, consolidation or combination of Borrower or any of its Subsidiaries with another Person; (b) an acquisition of record or beneficial ownership of any Equity Interests of a Person; or (c) an advance or capital contribution to or other investment in a Person.

 

IRS: the United States Internal Revenue Service.

 

LC Application: an application by Borrower to Lender for issuance of a Letter of Credit, in form and substance satisfactory to Lender.

 

LC Conditions: the following conditions necessary for issuance of a Letter of Credit: (a) each of the conditions set forth in Section 6 is satisfied as determined by Lender; (b) after giving effect to such issuance, total LC Obligations do not exceed the Letter of Credit Subline, no Overadvance exists and Revolver Usage does not exceed the Borrowing Base; (c) the Letter of Credit and payments thereunder are denominated in Dollars; and (d) the purpose and form of the proposed Letter of Credit are satisfactory to Lender in its discretion.

 

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LC Documents: all documents, instruments and agreements (including LC Requests and LC Applications) delivered by Borrower or any other Person to Lender in connection with any Letter of Credit.

 

LC Obligations: the sum of (a) all amounts owing by Borrower for drawings under Letters of Credit; and (b) the aggregate Stated Amount of all outstanding Letters of Credit.

 

Letter of Credit: any standby or documentary letter of credit, foreign guaranty, documentary bankers acceptance or similar instrument issued by Lender for the account or benefit of Borrower or Affiliate of Borrower.

 

Letter of Credit Subline: $1,500,000.

 

LIBOR: for any Interest Period, the per annum rate of interest (rounded up to the nearest 1/8th of 1%) determined by Lender at approximately 11:00 a.m. (London time) two Business Days prior to an interest period, for a term comparable to such period, equal to the London Interbank Offered Rate, or comparable or successor rate approved by Lender, as published on the applicable Reuters screen page (or other commercially available source designated by Lender from time to time); provided, that in no event shall LIBOR be less than zero.

 

LIBOR Loan: each set of LIBOR Revolver Loans or LIBOR Term Loans having a common length and commencement of Interest Period.

 

LIBOR Revolver Loan: a Revolver Loan that bears interest based on LIBOR.

 

LIBOR Term Loan: a Term Loan that bears interest based on LIBOR.

 

License: any license or agreement under which an Obligor is authorized to use Intellectual Property in connection with any manufacture, marketing, distribution or disposition of Collateral, any use of Property or any other conduct of its business.

 

Licensor: any Person from whom an Obligor obtains the right to use any Intellectual Property.

 

Lien: a Person’s interest in Property securing an obligation owed to, or a claim by, another Person, including any lien, security interest, pledge, hypothecation, assignment, trust, reservation, encroachment, easement, right-of-way, covenant, condition, restriction, lease, or other title exception or encumbrance.

 

Lien Waiver: an agreement, in form and substance satisfactory to Lender, by which (a) for any material Collateral located on leased premises, the lessor waives or subordinates any Lien it may have on the Collateral, and agrees to permit Lender to enter upon the premises and remove the Collateral or to use the premises to store or dispose of the Collateral; (b) for any Collateral held by a warehouseman, processor, shipper, customs broker or freight forwarder, such Person waives or subordinates any Lien it may have on the Collateral, agrees to hold any Documents in its possession relating to the Collateral as agent for Lender, and agrees to deliver the Collateral to Lender upon request; (c) for any Collateral held by a repairman, mechanic or bailee, such Person acknowledges Lender’s Lien, waives or subordinates any Lien it may have on the Collateral, and agrees to deliver the Collateral to Lender upon request; and (d) for any Collateral subject to a Licensor’s Intellectual Property rights, the Licensor grants to Lender the right, vis-à-vis such Licensor, to enforce Lender’s Liens with respect to the Collateral, including the right to dispose of it with the benefit of the Intellectual Property, whether or not a default exists under any applicable License.

 

Loan: a Revolver Loan or Term Loan.

 

Loan Documents: this Agreement, Other Agreements and Security Documents.

 

Loan Year: each 12 month period commencing on the Closing Date and on each anniversary of the Closing Date.

 

Margin Stock: as defined in Regulation U of the Board of Governors.

 

Material Adverse Effect: the effect of any event or circumstance that, taken alone or in conjunction with other events or circumstances, (a) has or could be reasonably expected to have a material adverse effect on the

 

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business, operations, Properties, prospects or condition (financial or otherwise) of any Obligor on the value of any material Collateral, on the enforceability of any Loan Documents, or on the validity or priority of Lender’s Liens on any Collateral; (b) impairs the ability of an Obligor to perform its obligations under the Loan Documents, including repayment of any Obligations; or (c) otherwise impairs the ability of Lender to enforce or collect any Obligations or to realize upon any Collateral.

 

Material Contract: any agreement or arrangement to which Borrower or any of its Subsidiaries is party (other than the Loan Documents) (a) that is deemed to be a material contract under any securities law applicable to such Person, including the Securities Act of 1933; (b) for which breach, termination, nonperformance or failure to renew could reasonably be expected to have a Material Adverse Effect; or (c) that relates to Subordinated Debt, or (d) to Debt in an aggregate amount of $500,000 or more.

 

Moody’s: Moody’s Investors Service, Inc., and its successors.

 

Mortgage: a mortgage, deed of trust or deed to secure debt pursuant to which an Obligor grants a Lien on its Real Estate to Lender, as security for the Obligations.

 

Multiemployer Plan: any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Obligor or ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

 

Net Proceeds: with respect to any disposition of Property, proceeds (including, when received, any deferred or escrowed payments) received by Borrower or any of its Subsidiaries in cash from such disposition, net of (a) reasonable and customary costs and expenses actually incurred in connection therewith, including legal fees and sales commissions; (b) amounts applied to repayment of Debt secured by a Permitted Lien senior to Lender’s Liens on Collateral sold; (c) transfer or similar taxes; and (d) reserves for indemnities, until such reserves are no longer needed.

 

NOLV Percentage: the net orderly liquidation value of Inventory, expressed as a percentage, expected to be realized at an orderly, negotiated sale held within a reasonable period of time, net of all liquidation expenses, as determined from the most recent appraisal of Borrower’s Inventory performed by an appraiser and on terms  reasonably satisfactory to Lender.

 

Notice of Borrowing: a Notice of Borrowing to be provided by Borrower to request a Revolver Loans, in form satisfactory to Lender.

 

Notice of Conversion/Continuation: a Notice of Conversion/Continuation to be provided by Borrower to request a conversion or continuation of any Loans as LIBOR Loans, in form satisfactory to Lender.

 

Obligations: all (a) principal of and premium, if any, on the Loans; (b) LC Obligations and other obligations of Obligors with respect to Letters of Credit; (c) interest, expenses, fees, indemnification obligations, Extraordinary Expenses and other amounts payable by Obligors under Loan Documents; (d) Bank Product Debt; and (e) other Debts, obligations and liabilities of any kind owing by any Obligor to Lender, whether now existing or hereafter arising, whether evidenced by a note or other writing, whether allowed in any Insolvency Proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, and whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint or several; provided, that Obligations of an Obligor shall not include its Excluded Swap Obligations.

 

Obligor: Borrower, Guarantor, or other Person that is liable for payment of any Obligations or that has granted a Lien in favor of Lender on its assets to secure any Obligations.

 

OFAC:  Office of Foreign Assets Control of the U.S. Treasury Department.

 

Ordinary Course of Business: the ordinary course of business of Borrower or any of its Subsidiaries, undertaken in good faith and consistent with applicable law and past practices.

 

Organic Documents: with respect to any Person, its charter, certificate or articles of incorporation, bylaws, articles of organization, limited liability agreement, operating agreement, members agreement, shareholders

 

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agreement, partnership agreement, certificate of partnership, certificate of formation, voting trust agreement, or similar agreement or instrument governing the formation or operation of such Person.

 

OSHA: the Occupational Safety and Hazard Act of 1970.

 

Other Agreement: each LC Document, Lien Waiver, Subordination Agreement, Real Estate Related Document, Borrowing Base Certificate, Compliance Certificate, financial statement or report delivered hereunder, or other document, instrument or agreement (other than this Agreement or a Security Document) now or hereafter delivered by an Obligor or other Person to Lender in connection with any transactions relating hereto.

 

Other Connection Taxes:  Taxes imposed on a Recipient due to a present or former connection between it and the taxing jurisdiction (other than connections arising from the Recipient having executed, delivered, become party to, performed obligations or received payments under, received or perfected a Lien or engaged in any other transaction pursuant to, enforced, or sold or assigned an interest in, any Loan or Loan Document).

 

Other Taxes: all present or future stamp, court, documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a Lien under, or otherwise with respect to, any Loan Document, except Other Connection Taxes imposed with respect to an assignment.

 

Overadvance: as defined in Section 2.1.4.

 

PATRIOT Act: the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001).

 

Payment Item: each check, draft or other item of payment payable to Borrower, including those constituting proceeds of any Collateral.

 

PBGC: the Pension Benefit Guaranty Corporation.

 

Pension Plan: any employee pension benefit plan (as defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by any Obligor or ERISA Affiliate or to which the Obligor or ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the preceding five plan years.

 

Permitted Discretion: a determination made in the exercise, in good faith, of reasonable business judgment (from the perspective of a secured, asset-based lender).

 

Permitted Lien: as defined in Section 9.2.2.

 

Person: any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, Governmental Authority or other entity.

 

Plan: any employee benefit plan (as such term is defined in Section 3(3) of ERISA) established by an Obligor or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, an ERISA Affiliate.

 

Platform: as defined in Section 11.4.3.

 

Prime Rate: the rate of interest announced by Lender from time to time as its prime rate.  Such rate is set by Lender on the basis of various factors, including its costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such rate.  Any change in such rate publicly announced by Lender shall take effect at the opening of business on the day specified in the announcement.

 

Properly Contested: with respect to any obligation of an Obligor, (a) the obligation is subject to a bona fide dispute regarding amount or the Obligor’s liability to pay; (b) the obligation is being properly contested in good faith

 

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by appropriate proceedings promptly instituted and diligently pursued; (c) appropriate reserves have been established in accordance with GAAP; (d) non-payment could not have a Material Adverse Effect, nor result in forfeiture or sale of any assets of the Obligor; (e) no Lien is imposed on assets of the Obligor, unless bonded and stayed to the satisfaction of Lender; and (f) if the obligation results from entry of a judgment or other order, such judgment or order is stayed pending appeal or other judicial review.

 

Property: any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

 

Purchase Money Debt: (a) Debt (other than the Obligations) for payment of any of the purchase price of fixed assets; (b) Debt (other than the Obligations) incurred within 10 days before or after acquisition of any fixed assets, for the purpose of financing any of the purchase price thereof; and (c) any renewals, extensions or refinancings (but not increases) thereof.

 

Purchase Money Lien: a Lien that secures Purchase Money Debt, encumbering only the fixed assets acquired with such Debt and constituting a Capital Lease or a purchase money security interest under the UCC.

 

Qualified ECP:  an Obligor with total assets exceeding $10,000,000, or that constitutes an “eligible contract participant” under the Commodity Exchange Act and can cause another Person to qualify as an “eligible contract participant” under Section 1a(18)(A)(v)(II) of such act.

 

Real Estate: all right, title and interest (whether as owner, lessor or lessee) in any real Property or any buildings, structures, parking areas or other improvements thereon.

 

Recipient:  Lender or any other recipient of a payment to be made by an Obligor under a Loan Document or on account of an Obligation.

 

Reimbursement Date: as defined in Section 2.3.2.

 

Related Real Estate Documents: with respect to any Real Estate subject to a Mortgage, the following, in form and substance satisfactory to Lender and received by Lender for review at least 15 days prior to the effective date of the Mortgage:  (a) a mortgagee title policy (or binder therefor) covering Lender’s interest under the Mortgage, by an insurer acceptable to Lender, which must be fully paid on such effective date; (b) such assignments of leases, estoppel letters, attornment agreements, consents, waivers and releases as Lender may require with respect to other Persons having an interest in the Real Estate; (c) a current, as-built survey of the Real Estate, containing a metes-and-bounds property description and certified by a licensed surveyor acceptable to Lender; (d) a life-of-loan flood hazard determination and, if the Real Estate is located in a special flood hazard area, an acknowledged notice to borrower and flood insurance by an insurer acceptable to Lender; (e) a current appraisal of the Real Estate, prepared by an appraiser, and in form and substance satisfactory to Lender; (f) an environmental assessment, prepared by environmental engineers acceptable to Lender, and other reports, certificates, studies or data as Lender may reasonably require; and (g) an Environmental Agreement and such other documents, instruments or agreements as Lender may reasonably require with respect to any environmental risks regarding the Real Estate.

 

Rent and Charges Reserve: the aggregate of (a) all past due rent and other amounts owing by an Obligor to any landlord, warehouseman, processor, repairman, mechanic, shipper, freight forwarder, broker or other Person who possesses any Collateral or could assert a Lien on any Collateral; and (b) a reserve at least equal to three months’ rent and other charges that could be payable to any such Person, unless it has executed a Lien Waiver.

 

Reportable Event: any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

 

Restricted Payment: Distributions, Restricted Investments, and payments prohibited by Section 9.2.8.

 

Restricted Payment Conditions: shall be deemed satisfied in connection with a Restricted Payment if: (a) no Default or Event of Default has occurred and is continuing or would result immediately after giving effect to such Restricted Payment; (b) as of the date of any such Restricted Payment, immediately after giving effect thereto and at all times during the 30 day period immediately prior to such Restricted Payment, the Borrower shall have Availability of not less $4,000,000, calculated for such 30 day period on a pro forma basis assuming such Restricted

 

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Payment was made on the first day of such 30 day period; (c) the Borrower shall have a Fixed Charge Coverage Ratio of not less than 1.00 to 1.00 for the period of four Fiscal Quarters most recently ended prior to the date of such Restricted Payment, calculated on a pro forma basis assuming that such Restricted Payment was made during the period of four Fiscal Quarters most recently ended prior to the date of such Restricted Payment; and (d) Borrower shall have delivered to the Lender a certificate in form and substance reasonably satisfactory to the Lender certifying as to the items described in clauses (a), (b) and (c), including calculations of the items in clauses (b) and (c).

 

Restricted Investment: any Investment by Borrower or any of its Subsidiaries, other than (a) Investments in Subsidiaries to the extent existing on the Closing Date; and (b) Cash Equivalents that are subject to Lender’s Lien and control, pursuant to documentation in form and substance satisfactory to Lender; and (c) loans and advances permitted under Section 9.2.7..

 

Restrictive Agreement: an agreement (other than a Loan Document) that conditions or restricts the right of Borrower, any of its Subsidiaries or other Obligor to incur or repay Borrowed Money, to grant Liens on any assets, to declare or make Distributions, to modify, extend or renew any agreement evidencing Borrowed Money, or to repay any intercompany Debt.

 

Revolver Commitment: Lender’s obligation to make Revolver Loans and to issue Letters of Credit in an amount up to $16,000,000 in the aggregate.

 

Revolver Loan: a loan made pursuant to Section 2.1.

 

Revolver Termination Date: June 15, 2022.

 

Revolver Usage:  the aggregate amount of outstanding Revolver Loans, plus the aggregate Stated Amount of outstanding Letters of Credit.

 

Royalties: all royalties, fees, expense reimbursement and other amounts payable by Borrower under a License.

 

S&P: Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successors thereto.

 

Sanction: any international economic sanction administered or enforced by the United States Government (including OFAC), the United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority.

 

Secured Parties: Lender and providers of Bank Products.

 

Security Documents: the Guaranties, Mortgages, Deposit Account Control Agreements, and all other documents, instruments and agreements now or hereafter securing (or given with the intent to secure) any Obligations.

 

Senior Officer: the chairman of the board, president, chief executive officer or chief financial officer of Borrower or, if the context requires, an Obligor.

 

Solvent: as to any Person, such Person (a) owns Property whose fair salable value is greater than the amount required to pay all of its debts (including contingent, subordinated, unmatured and unliquidated liabilities); (b) owns Property whose present fair salable value (as defined below) is greater than the probable total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) of such Person as they become absolute and matured; (c) is able to pay all of its debts as they mature; (d) has capital that is not unreasonably small for its business and is sufficient to carry on its business and transactions and all business and transactions in which it is about to engage; (e) is not “insolvent” within the meaning of Section 101(32) of the Bankruptcy Code; and (f) has not incurred (by way of assumption or otherwise) any obligations or liabilities (contingent or otherwise) under any Loan Documents, or made any conveyance in connection therewith, with actual intent to hinder, delay or defraud either present or future creditors of such Person or any of its Affiliates.  “Fair salable value” means the amount that could be obtained for assets within a reasonable time, either through collection or through sale under ordinary

 

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selling conditions by a capable and diligent seller to an interested buyer who is willing (but under no compulsion) to purchase.

 

Specified Obligor:  an Obligor that is not then an “eligible contract participant” under the Commodity Exchange Act (determined prior to giving effect to  Section 5.10).

 

Stated Amount: the stated amount of a Letter of Credit, including any automatic increase provided by the terms of the Letter of Credit or related LC Documents, whether or not then effective.

 

Subordinated Debt: Debt incurred by Borrower that is expressly subordinate and junior in right of payment to Full Payment of all Obligations, and is on terms (including maturity, interest, fees, repayment, covenants and subordination) satisfactory to Lender.

 

Subordination Agreement: any agreement in favor of the Lender whereby Debt incurred by Borrower is made expressly subordinate and junior in right of payment to Full Payment of all Obligations, and is on terms satisfactory to Lender.

 

Subsidiary: any entity at least 50% of whose voting securities or Equity Interests is owned by Borrower (including indirect ownership through other entities in which Borrower directly or indirectly owns 50% of the voting securities or Equity Interests).

 

Swap Obligations:  with respect to any Obligor, its obligations under a Hedging Agreement that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.

 

Taxes: all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

 

Term Loan: a loan made pursuant to Section 2.2.

 

Term Loan Commitment: Lender’s obligation to make a Term Loan in an amount up to $5,000,000.

 

Trigger Period: the period (a) commencing on any day that Availability is less than $5,000,000 for five consecutive days; and (b) continuing until, during each of the preceding 30 consecutive days, Availability has been more than $5,000,000.

 

UCC: the Uniform Commercial Code as in effect in the State of Minnesota or, when the laws of any other jurisdiction govern the perfection or enforcement of any Lien, the Uniform Commercial Code of such jurisdiction.

 

Unfunded Pension Liability: the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to the Code, ERISA or the Pension Protection Act of 2006 for the applicable plan year.

 

Unused Line Fee Rate: a per annum rate equal to 0.25%.

 

Value: (a) for Inventory, its value determined on the basis of the lower of cost or market, calculated on a first-in, first-out basis, and excluding any portion of cost attributable to intercompany profit among Borrower and its Affiliates; and (b) for an Account, its face amount, net of any returns, rebates, discounts (calculated on the shortest terms), credits, allowances or Taxes (including sales, excise or other taxes) that have been or could be claimed by the Account Debtor or any other Person.

 

1.2          Accounting Terms.  Under the Loan Documents (except as otherwise specified herein), all accounting terms shall be interpreted, all accounting determinations shall be made, and all financial statements shall be prepared, in accordance with GAAP applied on a basis consistent with the most recent audited financial statements of Borrower delivered to Lender before the Closing Date and using the same inventory valuation method as used in such financial statements, except for any change required or permitted by GAAP if Borrower’s certified

 

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public accountants concur in such change, the change is disclosed to Lender, and all relevant provisions of the Loan Documents are amended in a manner satisfactory to Lender to take into account the effects of the change.

 

1.3          Uniform Commercial Code.  As used herein, the following terms are defined in accordance with the UCC in effect in the State of Minnesota from time to time:  “Account,” “Account Debtor,” “Chattel Paper,” “Commercial Tort Claim,” “Deposit Account,” “Document,” “Electronic Chattel Paper,” “Equipment,” “Fixtures,” “General Intangibles,” “Goods,” “Instrument,” “Inventory,” “Investment Property,” “Letter-of-Credit Right” and “Supporting Obligation.”

 

1.4          Certain Matters of Construction.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  The terms “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision.  Any pronoun used shall be deemed to cover all genders.  In the computation of periods of time from a specified date to a later specified date, “from” means “from and including,” and “to” and “until” each mean “to but excluding.”  The terms “including” and “include” shall mean “including, without limitation” and, for purposes of each Loan Document, the parties agree that the rule of ejusdem generis shall not be applicable to limit any provision.  Section titles appear as a matter of convenience only and shall not affect the interpretation of any Loan Document.  All references to (a) laws include all related regulations, interpretations, supplements, amendments and successor provisions; (b) any document, instrument or agreement include any amendments, waivers and other modifications, extensions or renewals (to the extent permitted by the Loan Documents); (c) any section mean, unless the context otherwise requires, a section of this Agreement; (d) any exhibits or schedules mean, unless the context otherwise requires, exhibits and schedules attached hereto, which are hereby incorporated by reference; (e) any Person include successors and assigns; (f) time of day mean time of day at Lender’s notice address under Section 11.4.1; or (g) discretion of Lender mean its sole and absolute discretion.  All references to Value, Borrowing Base components, Loans, Letters of Credit, Obligations and other amounts herein shall be denominated in Dollars, unless expressly provided otherwise, and all determinations (including calculations of Borrowing Base and financial covenants) made from time to time under the Loan Documents shall be made in light of the circumstances existing at such time.  Borrowing Base calculations shall be consistent with historical methods of valuation and calculation, and otherwise satisfactory to Lender (and not necessarily calculated in accordance with GAAP).  Borrower shall have the burden of establishing any alleged negligence, misconduct or lack of good faith by Lender under any Loan Documents.  No provision of any Loan Documents shall be construed against any party by reason of such party having, or being deemed to have, drafted the provision.  Reference to Borrower’s “knowledge” or similar concept means actual knowledge of a Senior Officer, or knowledge that a Senior Officer would have obtained if he or she had engaged in good faith and diligent performance of his or her duties, including reasonably specific inquiries of employees or agents and a good faith attempt to ascertain the matter.

 

SECTION 2.        CREDIT FACILITIES

 

2.1          Revolver Commitment.

 

2.1.1.      Revolver Loans.  Lender agrees, on the terms set forth herein, to make Revolver Loans to Borrower in an aggregate amount up to the Revolver Commitment, from time to time through the Commitment Termination Date.  The Revolver Loans may be repaid and reborrowed as provided herein.  In no event shall Lender have any obligation to honor a request for a Revolver Loan if Revolver Usage at such time plus the requested Loan would exceed the Borrowing Base.

 

2.1.2.      Use of Proceeds.  The proceeds of Revolver Loans shall be used by Borrower solely (a) to satisfy existing Debt; (b) to pay fees and transaction expenses associated with the closing of this credit facility; (c) to pay Obligations in accordance with this Agreement; and (d) for other lawful corporate purposes of Borrower, including working capital.  Borrower shall not, directly or indirectly, use any Letter of Credit or the proceeds of any Loan, nor use, lend, contribute or otherwise make available any Letter of Credit or proceeds of any Loan to any Subsidiary, joint venture partner or other Person, (y) to fund any activities of or business with any Person, or in any country, territory or jurisdiction, that, at the time of issuance of the Letter of Credit or funding of the Loan, is the subject of Sanctions; or (z) in any manner that will result in a violation of Sanctions by any Person (including any Secured Party or other individual or entity participating in the transaction).

 

2.1.3.      Termination of Revolver Commitment.  The Revolver Commitment shall terminate on the Revolver Termination Date, unless sooner terminated in accordance with this Agreement.  Upon at least 15 days

 

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prior written notice to Lender Borrower may, at its option, terminate the Revolver Commitment and this credit facility.  Any notice of termination given by Borrower shall be irrevocable.  On the termination date, Borrower shall make Full Payment of all Obligations.

 

2.1.4.      Overadvances.  If Revolver Usage exceeds the Borrowing Base (“Overadvance”) at any time, the excess amount shall be payable by Borrower on demand by Lender, but all such Revolver Loans shall nevertheless constitute Obligations secured by the Collateral and entitled to all benefits of the Loan Documents.  Any funding or sufferance of an Overadvance shall not constitute a waiver of the Event of Default caused thereby.

 

2.1.5.      Increase of Revolver Commitment.

 

(a)           The Borrower may request that the Lender increase the Revolver Commitment provided that (i) any such request for an increase shall be in a minimum amount of $5,000,000, (ii) the Borrower may make a maximum of four such requests, and (iii) after giving effect thereto, the sum of the total of increases to the Revolver Commitment does not exceed $20,000,000 in the aggregate.  Nothing contained in this section shall constitute, or otherwise be deemed to be, a commitment on the part of the Lender to increase the Revolver Commitment hereunder at any time and the Borrower acknowledges that the Lender may decline the request for any reason, or no reason whatsoever, notwithstanding the absence of a Material Adverse Effect, Default or Event of Default.

 

(b)           As a condition precedent to (i) requesting such an increase, the Borrower shall deliver to the Lender a certificate of the Borrower signed by a Senior Officer (A) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such increase and (B) certifying that, before and after giving effect to such increase or addition, the conditions precedent in Section 6.2 are satisfied and (ii) the Lender agreeing to such an increase, the Borrower shall deliver to the Lender an amendment to this Agreement in form and substance satisfactory to the Lender,  a legal opinion from counsel to the Borrower and other documents consistent with those delivered on the Closing Date, to the extent requested by the Lender.

 

2.2          Term Loan Commitment.  Lender agrees, on the terms set forth herein, to make a Term Loan to Borrower in an amount up to the Term Loan Commitment.  The Term Loan shall be funded by Lender on the Closing Date, and the Term Loan Commitment shall expire upon funding.

 

2.3          Letter of Credit Facility.

 

2.3.1.      Issuance of Letters of Credit.  Lender agrees to issue Letters of Credit from time to time until 30 days prior to the Revolver Termination Date (or until the Commitment Termination Date, if earlier), on the terms set forth herein, including the following:

 

(a)           Borrower acknowledges that Lender’s willingness to issue any Letter of Credit is conditioned upon its receipt of a LC Application with respect to the requested Letter of Credit, as well as such other instruments and agreements as Lender may customarily require for issuance of a letter of credit of similar type and amount.  Lender shall have no obligation to issue any Letter of Credit unless (i) it receives a LC Application at least three Business Days prior to the requested date of issuance; and (ii) each LC Condition is satisfied.

 

(b)           Letters of Credit may be requested by Borrower to support obligations incurred in the Ordinary Course of Business, or as otherwise approved by Lender in its Permitted Discretion.  Increase, renewal or extension of a Letter of Credit shall be treated as issuance of a new Letter of Credit, except that Lender may require a new LC Application in its discretion.

 

(c)           Borrower assumes all risks of the acts, omissions or misuses of any Letter of Credit by the beneficiary.  In connection with issuance of any Letter of Credit, Lender shall not be responsible for the existence, character, quality, quantity, condition, packing, value or delivery of any goods purported to be represented by any Documents; any differences or variation in the character, quality, quantity, condition, packing, value or delivery of any goods from that expressed in any Documents; the form, validity, sufficiency, accuracy, genuineness or legal effect of any Documents or of any endorsements thereon; the time, place, manner or order in which shipment of goods is made; partial or incomplete shipment of, or failure to ship, any goods referred to in a Letter of Credit or Documents; any deviation from instructions, delay, default or fraud by any shipper or other Person in connection with any goods, shipment or delivery; any breach of contract between a shipper or vendor and Borrower; errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph,

 

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telex, telecopy, e-mail, telephone or otherwise; errors in interpretation of technical terms; the misapplication by a beneficiary of any Letter of Credit or the proceeds thereof; or any consequences arising from causes beyond the control of Lender, including any act or omission of a Governmental Authority.  No Indemnitee shall be liable to any Obligor or other Person for any action taken or omitted to be taken in connection with any Letter of Credit or LC Documents except as a result of its gross negligence or willful misconduct.  Lender shall be fully subrogated to the rights and remedies of each beneficiary whose claims against Borrower are discharged with proceeds of any Letter of Credit.

 

(d)           In connection with its administration of and enforcement of rights or remedies under any Letters of Credit or LC Documents, Lender shall be entitled to act, and shall be fully protected in acting, upon any certification, documentation or communication in whatever form believed by Lender, in good faith, to be genuine and correct and to have been signed, sent or made by a proper Person.  Lender may consult with and employ legal counsel, accountants and other experts to advise it concerning its obligations, rights and remedies, and shall be entitled to act upon, and shall be fully protected in any action taken in good faith reliance upon, any advice given by such experts.  Lender may employ agents and attorneys-in-fact in connection with any matter relating to Letters of Credit or LC Documents, and shall not be liable for the negligence or misconduct of agents and attorneys-in-fact selected with reasonable care.

 

2.3.2.      Reimbursement.  If Lender honors any request for payment under a Letter of Credit, Borrower shall pay to Lender, on the same day (“Reimbursement Date”), the amount paid under such Letter of Credit and all applicable fees, together with interest at the interest rate for Base Rate Revolver Loans from the Reimbursement Date until payment by Borrower.  The obligation of Borrower to reimburse Lender for any payment made under a Letter of Credit shall be absolute, unconditional, irrevocable, and joint and several, and shall be paid without regard to any lack of validity or enforceability of any Letter of Credit or the existence of any claim, setoff, defense or other right that Borrower may have at any time against the beneficiary.  Whether or not Borrower submits a Notice of Borrowing, Borrower shall be deemed to have requested a Borrowing of Base Rate Revolver Loans in an amount necessary to pay all amounts due on any Reimbursement Date.

 

2.3.3.      Cash Collateral.  If at any time (a) an Event of Default exists, (b) the Commitment Termination Date has occurred, or (c) the Revolver Termination Date is scheduled to occur within 20 Business Days, then Borrower shall, at Lender’s request, Cash Collateralize all outstanding Letters of Credit.  If Borrower fails to provide any Cash Collateral as required hereunder, Lender may advance, as Revolver Loans, the amount of Cash Collateral required.

 

SECTION 3.        INTEREST, FEES AND CHARGES

 

3.1          Interest.

 

3.1.1.      Rates and Payment of Interest.

 

(a)           The Obligations shall bear interest (i) if a Base Rate Loan, at the Base Rate in effect from time to time, plus the Applicable Margin; (ii) if a LIBOR Loan, at LIBOR for the applicable Interest Period, plus the Applicable Margin; and (iii) if any other Obligation (including, to the extent permitted by law, interest not paid when due), at the Base Rate in effect from time to time, plus the Applicable Margin for Revolver Loans.

 

(b)           During an Insolvency Proceeding with respect to Borrower, or during any other Event of Default if Lender in its discretion so elects, Obligations shall bear interest at the Default Rate (whether before or after any judgment).  Borrower acknowledges that the cost and expense to Lender due to an Event of Default are difficult to ascertain and that the Default Rate is fair and reasonable compensation for this.

 

(c)           Interest shall accrue from the date a Loan is advanced or Obligation is incurred or payable, until paid in full by Borrower, and shall in no event be less than zero at any time.  Interest accrued on the Loans shall be due and payable in arrears, (i) on the first day of each month; (ii) on any date of prepayment, with respect to the principal amount of Loans being prepaid; and (iii) on the Commitment Termination Date.  Interest accrued on any other Obligations shall be due and payable as provided in the Loan Documents and, if no payment date is specified, shall be due and payable on demand.  Notwithstanding the foregoing, interest accrued at the Default Rate shall be due and payable on demand.

 

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3.1.2.      Application of LIBOR to Outstanding Loans.

 

(a)           Borrower may on any Business Day, subject to delivery of a Notice of Conversion/Continuation, elect to convert any portion of the Base Rate Loans to, or to continue any LIBOR Loan at the end of its Interest Period as, a LIBOR Loan.  During any Default or Event of Default, Lender may declare that no Loan may be made, converted or continued as a LIBOR Loan.

 

(b)           Whenever Borrower desires to convert or continue Loans as LIBOR Loans, Borrower shall give Lender a Notice of Conversion/Continuation, no later than 11:00 a.m. at least two Business Days before the requested conversion or continuation date.  Each Notice of Conversion/Continuation shall be irrevocable, and shall specify the amount of Loans to be converted or continued, the conversion or continuation date (which shall be a Business Day), and the duration of the Interest Period (which shall be deemed to be 30 days if not specified).  If, upon the expiration of any Interest Period in respect of any LIBOR Loans, Borrower shall have failed to deliver a Notice of Conversion/Continuation, it shall be deemed to have elected to convert such Loans into Base Rate Loans.

 

3.1.3.      Interest Periods.  In connection with the making, conversion or continuation of any LIBOR Loans, Borrower shall select an interest period (“Interest Period”) to apply, which interest period shall be 30, 60, 90 or 180 days (if available from Lender); provided, however, that:

 

(a)           the Interest Period shall begin on the date the Loan is made or continued as, or converted into, a LIBOR Loan, and shall expire on the numerically corresponding day in the calendar month at its end;

 

(b)           if any Interest Period begins on a day for which there is no corresponding day in the calendar month at its end or if such corresponding day falls after the last Business Day of such month, then the Interest Period shall expire on the last Business Day of such month; and if any Interest Period would otherwise expire on a day that is not a Business Day, the period shall expire on the next Business Day; and

 

(c)           no Interest Period shall extend beyond the Revolver Termination Date; and no Interest Period for a LIBOR Term Loan may be established that would require repayment before the end of an Interest Period in order to make any scheduled principal payment on the Term Loan.

 

3.1.4.      Interest Rate Not Ascertainable.  If, due to any circumstance affecting the London interbank market, Lender determines that adequate and fair means do not exist for ascertaining LIBOR on any applicable date or that any Interest Period is not available on the basis provided herein, then Lender shall immediately notify Borrower of such determination.  Until Lender notifies Borrower that such circumstance no longer exists, the obligation of Lender to make affected LIBOR Loans shall be suspended, and no further Loans may be converted into or continued as such LIBOR Loans.

 

3.2          Fees.  Borrower shall pay to Lender the fees set forth on Exhibit D to this Agreement.

 

3.3          Computation of Interest, Fees, Yield Protection.  All interest, as well as fees and other charges calculated on a per annum basis, shall be computed for the actual days elapsed, based on a year of 360 days.  Each determination by Lender of any interest, fees or interest rate hereunder shall be final, conclusive and binding for all purposes, absent manifest error.  All fees shall be fully earned when due and shall not be subject to rebate, refund or proration.  All fees payable under Section 3.2 are compensation for services and are not, and shall not be deemed to be, interest or any other charge for the use, forbearance or detention of money.  A certificate as to amounts payable by Borrower under Section 3.4, 3.6, 3.7, 3.9 or 5.9, submitted to Borrower by Lender shall be final, conclusive and binding for all purposes, absent manifest error, and Borrower shall pay such amounts to the appropriate party within 10 days following receipt of the certificate.

 

3.4          Reimbursement Obligations.  Borrower shall pay all Extraordinary Expenses promptly upon request.  Borrower also shall reimburse Lender for all legal, accounting, appraisal, consulting, and other fees, costs and expenses incurred by it in connection with (a) negotiation and preparation of any Loan Documents, including any amendment or other modification thereof; (b) administration of and actions relating to any Collateral, Loan Documents and transactions contemplated thereby, including any actions taken to perfect or maintain priority of Lender’s Liens on any Collateral, to maintain any insurance required hereunder or to verify Collateral; and (c) subject to the limits of Section 9.1.1(b), each inspection, audit or appraisal with respect to any Obligor or Collateral, whether prepared by Lender’s personnel or a third party.  All legal, accounting and consulting fees shall

 

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be charged to Borrower by Lender’s professionals at their full hourly rates, regardless of any alternative fee arrangements that Lender or any of its Affiliates may have with such professionals that otherwise might apply to this or any other transaction.  Borrower acknowledges that counsel may provide Lender with a benefit (such as a discount, credit or accommodation for other matters) based on counsel’s overall relationship with Lender, including fees paid hereunder.  If, for any reason (including inaccurate reporting by Borrower), it is determined that a higher Applicable Margin should have applied to a period than was actually applied, then the proper margin shall be applied retroactively, and Borrower shall immediately pay to Lender an amount equal to the difference between the amount of interest and fees that would have accrued using the proper margin and the amount actually paid.  All amounts payable by Borrower under this Section shall be due on demand.

 

3.5          Illegality.  If Lender determines that any applicable law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for Lender to make, maintain or fund LIBOR Loans, or to determine or charge interest rates based upon LIBOR, or any Governmental Authority has imposed material restrictions on the authority of Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by Lender to Borrower, any obligation of Lender to make or continue LIBOR Loans or to convert Base Rate Loans to LIBOR Loans shall be suspended until Lender notifies Borrower that the circumstances giving rise to such determination no longer exist.  Upon delivery of such notice, Borrower shall prepay or, if applicable, convert all LIBOR Loans to Base Rate Loans, either on the last day of the Interest Period therefor, if Lender may lawfully continue to maintain LIBOR Loans to such day, or immediately, if Lender may not lawfully continue to maintain LIBOR Loans.  Upon any such prepayment or conversion, Borrower shall also pay accrued interest on the amount so prepaid or converted.

 

3.6          Inability to Determine Rates.  If Lender notifies Borrower in connection with a Borrowing, conversion or continuation of, a LIBOR Loan that for any reason (a) Dollar deposits are not being offered to banks in the London interbank Eurodollar market for the applicable Loan amount or Interest Period, (b) adequate and reasonable means do not exist for determining LIBOR for the applicable Interest Period, or (c) LIBOR for the applicable Interest Period does not adequately and fairly reflect the cost to Lender of funding the Loan, then Lender’s obligation to make or maintain LIBOR Loans shall be suspended to the extent of the affected LIBOR Loan or Interest Period until Lender revokes the notice.  Upon receipt of the notice, Borrower may revoke any pending request for a Borrowing, conversion or continuation of a LIBOR Loan or, failing that, will be deemed to have submitted a request for a Base Rate Loan.

 

3.7          Increased Costs; Capital Adequacy.

 

3.7.1.      Increased Costs Generally.  If any Change in Law shall:

 

(a)           impose, modify or deem applicable any reserve, liquidity, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, Lender (except any reserve requirement reflected in LIBOR);

 

(b)           subject any Recipient to Taxes (other than (i) Indemnified Taxes, (ii) Taxes described in clause (b) of the definition of Excluded Taxes, or (iii) Connection Income Taxes) with respect to any Loan, Letter of Credit, Commitment or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or

 

(c)           impose on Lender or any interbank market any other condition, cost or expense affecting any Loan, Letter of Credit, Commitment or Loan Document;

 

and the result in clause (a), (b) or (c) above shall be to increase the cost to Lender of making or maintaining any Loan or Commitment, or converting to or continuing any interest option for a Loan, or to increase the cost to Lender of issuing or maintaining any Letter of Credit (or of maintaining its obligation to issue a Letter of Credit), or to reduce the amount of any sum received or receivable by Lender hereunder (whether of principal, interest or any other amount) then, upon request by Lender, Borrower will pay to Lender such additional amount or amounts as will compensate Lender for such additional costs incurred or reduction suffered.

 

3.7.2.      Capital Requirements.  If Lender determines that a Change in Law affecting Lender or its holding company regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on Lender’s or such holding company’s capital as a consequence of this Agreement, Commitments, Loans or Letters of Credit to a level below that which Lender or such holding company could have achieved but for such

 

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Change in Law (taking into consideration its policies with respect to capital adequacy), then from time to time Borrower will pay to Lender such additional amounts as will compensate it or its holding company for the reduction suffered.

 

3.7.3.      LIBOR Loan Reserves.  If Lender is required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits, Borrower shall pay additional interest to Lender on each LIBOR Loan equal to the costs of such reserves allocated to the Loan by Lender (as determined by it in good faith, which determination shall be conclusive).  The additional interest shall be due and payable on each interest payment date for the Loan; provided, however, that if Lender notifies Borrower of the additional interest less than 10 days prior to the interest payment date, then the additional interest shall be payable 10 days after Borrower’s receipt of the notice.

 

3.7.4.      Compensation.  Failure or delay on the part of Lender to demand compensation pursuant to this Section shall not constitute a waiver of its right to demand such compensation, but Borrower shall not be required to compensate Lender for any increased costs or reductions suffered more than nine months (plus any period of retroactivity of the Change in Law giving rise to the demand) prior to the date that Lender notifies Borrower of the applicable Change in Law and of Lender’s intention to claim compensation therefor.

 

3.8          Mitigation.  If Lender gives a notice under Section 3.5 or requests compensation under Section 3.7, or if Borrower is required to pay any Indemnified Taxes or additional amounts under Section 5.9, then at the request of Borrower, Lender shall use reasonable efforts to designate a different lending office or to assign its rights and obligations hereunder to another of its offices, branches or Affiliates, if, in the judgment of Lender, such designation or assignment (a) would eliminate the need for such notice or reduce amounts payable or to be withheld in the future, as applicable; and (b) would not subject Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to it or unlawful.  Borrower shall pay all reasonable costs and expenses incurred by Lender in connection with any such designation or assignment.

 

3.9          Funding Losses.  If for any reason (a) any Borrowing, conversion or continuation of, a LIBOR Loan does not occur on the date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether or not withdrawn), (b) any repayment or conversion of a LIBOR Loan occurs on a day other than the end of its Interest Period, or (c) Borrower fails to repay a LIBOR Loan when required hereunder, then Borrower shall pay to Lender all resulting losses and expenses, including loss of anticipated profits and any loss, expense or fee arising from redeployment of funds or termination of match fundings.  For purposes of calculating amounts payable under this Section, Lender shall be deemed to have funded a LIBOR Loan by a matching deposit or other borrowing in the London interbank market for a comparable amount and period, whether or not the Loan was in fact so funded.

 

3.10        Maximum Interest.  Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable law (“maximum rate”).  If Lender shall receive interest in an amount that exceeds the maximum rate, the excess interest shall be applied to the principal of the Obligations or, if it exceeds such unpaid principal, refunded to Borrower.  In determining whether the interest contracted for, charged or received by Lender exceeds the maximum rate, Lender may, to the extent permitted by applicable law, (a) characterize any payment that is not principal as an expense, fee or premium rather than interest; (b) exclude voluntary prepayments and the effects thereof; and (c) amortize, prorate, allocate and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

 

SECTION 4.        LOAN ADMINISTRATION

 

4.1          Manner of Borrowing and Funding Revolver Loans.

 

4.1.1.      Notice of Borrowing.

 

(a)           Whenever Borrower desires funding of a Revolver Loan, Borrower shall give Lender a Notice of Borrowing.  Such notice must be received by Lender by 11:00 a.m. (i) on the requested funding date for a Base Rate Loan, and (ii) at least two Business Days prior to the requested funding date for a LIBOR Loan.  Notices received after such time shall be deemed received on the next Business Day.  Each Notice of Borrowing shall be irrevocable and shall specify (A) the amount of the Borrowing, (B) the requested funding date (which must be a

 

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Business Day), (C) whether the Borrowing is to be made as a Base Rate Loan or LIBOR Loan, and (D) in the case of a LIBOR Loan, the applicable Interest Period (which shall be deemed to be 30 days if not specified).

 

(b)           Unless payment is otherwise made by Borrower, the becoming due of any Obligations (whether principal, interest, fees or other charges, including Extraordinary Expenses, LC Obligations, Cash Collateral and Bank Product Debt) shall be deemed to be a request for a Base Rate Revolver Loan on the due date in the amount due and the Loan proceeds shall be disbursed as direct payment of such relevant Obligation.  In addition, Lender may, at its option, charge such amount against any operating, investment or other account of Borrower maintained with Lender or any of its Affiliates.

 

(c)           If Borrower maintains disbursement account with Lender or any of its Affiliates, then presentation for payment in the account of a Payment Item when there are insufficient funds to cover it shall be deemed to be a request for a Base Rate Revolver Loan on the presentation date, in the amount of the Payment Item.  Proceeds of the Loan may be disbursed directly to the account.

 

4.1.2.      Notices.  Borrower may request, convert or continue Loans, select interest rates, and transfer funds based on telephonic or e-mailed instructions to Lender.  Borrower shall confirm each such request by prompt delivery to Lender of a Notice of Borrowing or Notice of Conversion/Continuation, if applicable, but if it differs materially from the action taken by Lender, the records of Lender shall govern.  Lender shall not have any liability for any loss suffered by Borrower as a result of Lender acting upon its understanding of telephonic or e-mailed instructions from a person believed in good faith to be a person authorized to give such instructions on Borrower’s behalf.

 

4.2          Number and Amount of LIBOR Loans; Determination of Rate.  Each Borrowing of LIBOR Loans when made shall be in a minimum amount of $500,000, plus any increment of $100,000 in excess thereof.  No more than four Borrowings of LIBOR Loans may be outstanding at any time, and all LIBOR Loans having the same length and beginning date of their Interest Periods shall be aggregated together and considered one Borrowing for this purpose.  Upon determining LIBOR for any Interest Period requested by Borrower, Lender shall promptly notify Borrower thereof by telephone or electronically and, if requested by Borrower, shall confirm any telephonic notice in writing.

 

4.3          [Intentionally Omitted].

 

4.4          [Intentionally Omitted].

 

4.5          Effect of Termination.  On the effective date of the termination of the Revolver Commitment, the Obligations shall be immediately due and payable, and each Secured Party may terminate its Bank Products.  Until Full Payment of the Obligations, all undertakings of Borrower contained in the Loan Documents shall continue, and Lender shall retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents.  Lender shall not be required to terminate its Liens unless it receives Cash Collateral or a written agreement, in each case satisfactory to it, protecting it from dishonor or return of any Payment Item previously applied to the Obligations.  Sections 2.3, 3.4, 3.6, 3.7, 3.9, 5.6, 5.9, 11.3, this Section, and each indemnity or waiver given by an Obligor in any Loan Document, shall survive Full Payment of the Obligations.

 

SECTION 5.        PAYMENTS

 

5.1          General Payment Provisions.  All payments of Obligations shall be made in Dollars, without offset, counterclaim or defense of any kind, free and clear of (and without deduction for) any Taxes, and in immediately available funds, not later than 12:00 noon on the due date.  Any payment after such time shall be deemed made on the next Business Day.  Any payment of a LIBOR Loan prior to the end of its Interest Period shall be accompanied by all amounts due under Section 3.9.  Borrower agrees that Lender shall have the continuing, exclusive right to apply and reapply payments and proceeds of Collateral against Obligations, in such manner as Lender deems advisable, but whenever possible, any prepayment of Loans shall be applied first to Base Rate Loans and then to LIBOR Loans.

 

5.2          Repayment of Revolver Loans.  Revolver Loans shall be due and payable in full on the Commitment Termination Date, unless payment is sooner required hereunder.  Revolver Loans may be prepaid from time to time, without penalty or premium.  If an Overadvance exists at any time, Borrower shall, on the sooner of

 

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Lender’s demand or the first Business Day after Borrower has knowledge thereof, repay Revolver Loans in an amount sufficient to reduce Revolver Usage to the Borrowing Base.  If any asset disposition includes the disposition of Accounts or Inventory, Borrower shall apply Net Proceeds to repay Revolver Loans equal to the greater of (a) the net book value of such Accounts and Inventory, or (b) the reduction in Borrowing Base resulting from the disposition. Concurrently with any issuance of Equity Interests by Borrower, Borrower shall prepay Revolver Loans in an amount equal to the Net Proceeds of such issuance.  Unless requested by the Borrower, prepayments shall not reduce the Revolver Commitment.

 

5.3          Repayment of Term Loan.

 

5.3.1.      Payment of Principal.  The Term Loan shall be repaid on the first day of each month in consecutive monthly installments of $41,491.00, commencing on July 1, 2017 and continuing through the Commitment Termination Date, on which date all principal, interest and other amounts owing with respect to the Term Loan shall be due and payable in full.  Once repaid, whether such repayment is voluntary or required, no portion of the Term Loan may be reborrowed.

 

5.3.2.      Mandatory Prepayments.

 

(a)           Concurrently with any disposition of Equipment or Real Estate that is permitted under Section 9.2.6, Borrower shall prepay the Term Loan in an amount equal to the Net Proceeds of such disposition;

 

(b)           Concurrently with the receipt of any proceeds of insurance or condemnation awards paid in respect of any Equipment or Real Estate, Borrower shall prepay the Term Loan in an amount equal to such proceeds, subject to Section 5.7;

 

(c)           [Intentionally Omitted]; and

 

(d)           On the Commitment Termination Date, Borrower shall prepay the entire Term Loan (unless sooner repaid hereunder).

 

5.3.3.      Optional Prepayments.  Borrower may, at its option from time to time, prepay the Term Loan, which prepayment must be at least $500,000, plus any increment of $100,000 in excess thereof.  Borrower shall give written notice to Lender of an intended prepayment of the Term Loan, which notice shall specify the amount of the prepayment, shall be irrevocable once given, shall be given at least 10 Business Days prior to the end of a month and shall be effective as of the first day of the next month.

 

5.3.4.      Application of Prepayments.  All partial prepayments of the Term Loan shall be applied to installments of principal in respect of the Term Loan in the inverse order of their maturities.

 

5.4          Payment of Other Obligations.  Obligations other than Loans, including LC Obligations and Extraordinary Expenses, shall be paid by Borrower as provided in the Loan Documents or, if no payment date is specified, on demand.

 

5.5          Dominion Account.  Borrower shall maintain Dominion Accounts pursuant to lockbox or other arrangements acceptable to Lender.  Borrower shall obtain an agreement (in form and substance satisfactory to Lender) from each lockbox servicer and Dominion Account bank, establishing Lender’s control over and Lien in the lockbox or Dominion Account requiring immediate deposit of all remittances received in the lockbox to a Dominion Account, and waiving offset rights of such servicer or bank, except for customary administrative charges.  If a Dominion Account is not maintained with Lender, Lender may require immediate transfer of all funds in such account to a Dominion Account maintained with Lender.  Lender assumes no responsibility to Borrower for any lockbox arrangement or Dominion Account, including any claim of accord and satisfaction or release with respect to any Payment Items accepted by any bank.  Borrower shall request in writing and otherwise take all necessary steps to ensure that all payments on Accounts or otherwise relating to Collateral are made directly to a Dominion Account (or a lockbox relating to a Dominion Account).  If Borrower or any of its Subsidiaries receives cash or Payment Items with respect to any Collateral, it shall hold same in trust for Lender and promptly (not later than the next Business Day) deposit same into a Dominion Account.

 

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5.6          Marshaling; Payments Set Aside.  Lender shall have no obligation to marshal any assets in favor of any Obligor or against any Obligations.  If any payment by or on behalf of Borrower is made to Lender, or Lender exercises a right of setoff, and any of such payment or setoff is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by Lender in its discretion) to be repaid to a trustee, receiver or any other Person, then the Obligation originally intended to be satisfied, and all Liens, rights and remedies relating thereto, shall be revived and continued in full force and effect as if such payment or setoff had not occurred.

 

5.7          Application of Payments.

 

5.7.1.      Dominion Account.  The ledger balance in the main Dominion Account as of the end of a Business Day shall be applied to the Obligations at the beginning of the next Business Day.  If, a credit balance results from such application, it shall not accrue interest in favor of Borrower and shall be made available to Borrower as long as no Default or Event of Default exists.  Notwithstanding anything herein to the contrary, monies and collateral proceeds obtained from an Obligor shall not be applied to repayment of its Excluded Swap Obligations.  For purposes of calculating interest only, Lender will be deemed to have applied funds deposited to the Dominion Account or otherwise received by Lender to pay down the Obligations on the first Business Day following the Business Day of deposit to the Dominion Account or receipt by Lender.

 

5.7.2.      Insurance and Condemnation Proceeds.  Any proceeds of insurance (other than proceeds from workers’ compensation or D&O insurance) and any awards arising from condemnation of any Collateral shall be paid to Lender.  Any such proceeds or awards that relate to Inventory shall be applied to payment of the Revolver Loans, and then to other Obligations, other than the Term Loan.  Subject to Section 5.7.3 below, any proceeds or awards that relate to Equipment or Real Estate shall be applied first to the Term Loan, then to Revolver Loans and then to other Obligations.

 

5.7.3.      Reinvestment of Proceeds.  If requested by Borrower in writing within 15 days after Lender’s receipt of any insurance proceeds or condemnation awards relating to any loss or destruction of Equipment or Real Estate, Borrower may use such proceeds or awards to repair or replace such Equipment or Real Estate (and until so used, the proceeds shall be held by Lender as Cash Collateral) as long as (i) no Default or Event of Default exists; (ii) such repair or replacement is promptly undertaken and concluded, in accordance with plans reasonably satisfactory to Lender; (iii) replacement buildings are constructed on the sites of the original casualties and are of comparable size, quality and utility to the destroyed buildings; (iv) the repaired or replaced Property is free of Liens, other than Permitted Liens that are not Purchase Money Liens; (v) Borrower complies with disbursement procedures for such repair or replacement as Lender may reasonably require; and (vi) the aggregate amount of such proceeds or awards from any single casualty or condemnation does not exceed $1,500,000.

 

5.8          Account Stated.  Lender shall maintain, in accordance with customary practices, loan account(s) evidencing the Debt of Borrower hereunder.  Any failure of Lender to record anything in a loan account, or any error in doing so, shall not limit or otherwise affect the obligation of Borrower to pay any amount owing hereunder.  Entries made in a loan account shall constitute presumptive evidence of the information contained therein.  If any information contained in a loan account is provided to or inspected by any Person, the information shall be conclusive and binding on such Person for all purposes absent manifest error, except to the extent such Person notifies Lender in writing within 30 days after receipt or inspection that specific information is subject to dispute.

 

5.9          Taxes.

 

5.9.1.      Payments Free of Taxes; Obligation to Withhold; Tax Payment.

 

(a)           All payments of Obligations by Obligors shall be made without deduction or withholding for any Taxes, except as required by applicable law.  If applicable law (as determined by Lender in its discretion) requires the deduction or withholding of any Tax from any such payment by a Recipient or Obligor, then the Recipient or Obligor shall be entitled to make such deduction or withholding based on information and documentation provided pursuant to this Section.

 

(b)           If a Recipient or Obligor is required by the Code to withhold or deduct Taxes, including backup withholding and withholding taxes, from any payment, then the Recipient shall pay the full amount that it determines is to be withheld or deducted to the relevant Governmental Authority pursuant to the Code.  If a

 

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Recipient or Obligor is required by any applicable law other than the Code to withhold or deduct Taxes from any payment, then the Recipient or Obligor, to the extent required by applicable law, shall timely pay the full amount to be withheld or deducted to the relevant Governmental Authority.  In each case, to the extent the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Obligor shall be increased as necessary so that the Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made.

 

(c)           Without limiting the foregoing, Borrower shall timely pay all Other Taxes to the relevant Governmental Authority in accordance with applicable law or, at Lender’s option, timely reimburse Lender for payment thereof.

 

5.9.2.      Tax Indemnification.  Borrower shall indemnify and hold harmless, on a joint and several basis, each Recipient against any Indemnified Taxes (including those imposed or asserted on or attributable to amounts payable under this Section) payable or paid by a Recipient or required to be withheld or deducted from a payment to a Recipient, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  Borrower shall make payment within 10 days after demand for any amount or liability payable under this Section.  A certificate delivered to Borrower by Lender (for itself or on behalf of a Recipient) as to the amount of such payment or liability, shall be conclusive absent manifest error.

 

5.9.3.      Evidence of Payments.  If Lender or an Obligor pays any Taxes pursuant to this Section, then upon request, Lender or Borrower, as applicable, shall deliver to the other a copy of a receipt issued by the appropriate Governmental Authority evidencing the payment, a copy of any return required by applicable law to report the payment, or other evidence of payment reasonably satisfactory to the requesting party.

 

5.9.4.      Treatment of Certain Refunds.  If Lender determines in its discretion that it or another Recipient has received a refund of any Taxes that were indemnified by Borrower or with respect to which Borrower paid additional amounts pursuant to this Section, Lender shall pay or shall cause the other Recipient to pay to Borrower the amount of such refund (but only to the extent of indemnity payments made, or additional amounts paid, by Borrower with respect to the Taxes giving rise to the refund), net of all out-of-pocket expenses (including Taxes) incurred by the Recipient and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund).  Borrower shall, upon request by Lender, repay to the Recipient any refund amount so paid over to Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) if the Recipient is required to repay such refund to the Governmental Authority.  Notwithstanding anything herein to the contrary, no Recipient shall be required to pay any amount to Borrower if such payment would place the Recipient in a less favorable net after-Tax position than it would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid.  In no event shall any Recipient be required to make its tax returns (or any other information relating to its taxes that it deems confidential) available to any Obligor or other Person.

 

5.9.5.      Status of Lender.  If Lender is entitled to an exemption from or reduction of withholding Tax with respect to payments of Obligations, it shall deliver to Borrower properly completed and executed documentation reasonably requested by Borrower as will permit such payments to be made without or at a reduced rate of withholding.  In addition, Lender, if reasonably requested by Borrower, shall deliver such other documentation prescribed by applicable law as is necessary to enable Borrower to determine whether Lender is subject to backup withholding or information reporting requirements.  Notwithstanding the foregoing, such documentation shall not be required if Lender believes delivery of the documentation would subject it to any material unreimbursed cost or expense or would materially prejudice its legal or commercial position.

 

5.9.6.      Documentation.  Without limiting the foregoing, Lender shall deliver to Borrower, from time to time upon reasonable request, executed originals of IRS Form W-0, certifying that Lender is exempt from U.S. federal backup withholding Tax.  If payment of any Obligation to Lender would be subject to U.S. federal withholding Tax imposed by FATCA if Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code), Lender shall deliver to Borrower at the time(s) prescribed by law and otherwise as reasonably requested by Borrower such documentation prescribed by applicable law (including Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Borrower as may be necessary for it to comply with its obligations under FATCA and to determine that

 

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Lender has complied with its obligations under FATCA or to determine the amount to deduct and withhold from such payment.  Solely for purposes of the preceding sentence, “FATCA” shall include any amendments made to FATCA after the date hereof.  If any form or certification delivered by Lender pursuant to this Section expires or becomes obsolete or inaccurate in any respect, Lender shall update the form or certification or notify Borrower in writing of its inability to do so.

 

5.9.7.      Survival.  Each party’s obligations under this Section 5.9 shall survive any assignment by Lender of rights or obligations hereunder, termination of the Commitments, and any repayment, satisfaction, discharge or Full Payment of any Obligations.

 

SECTION 6.        CONDITIONS PRECEDENT

 

6.1          Conditions Precedent to Initial Loans.  In addition to the conditions set forth in Section 6.2, Lender shall not be required to fund any requested Loan, issue any Letter of Credit or otherwise extend credit to Borrower hereunder, until the date (“Closing Date”) that each of the conditions precedent set forth on Exhibit C has been satisfied.

 

6.2          Conditions Precedent to All Credit Extensions.  Lender shall not be required to fund any Loans, issue any Letters of Credit, or grant any other accommodation to or for the benefit of Borrower, unless the following conditions are satisfied:

 

(a)           No Default or Event of Default shall exist at the time of, or result from, such funding, issuance or grant;

 

(b)           The representations and warranties of each Obligor in the Loan Documents shall be true and correct in all material respects (or, in the case of any representation and warranty qualified by materiality, in all respects) on the date of, and upon giving effect to, such funding, issuance or grant (except for representations and warranties that expressly relate to an earlier date);

 

(c)           All conditions precedent in any other Loan Document shall be satisfied;

 

(d)           No event shall have occurred or circumstance exist that has or could reasonably be expected to have a Material Adverse Effect; and

 

(e)           With respect to issuance of a Letter of Credit, the LC Conditions shall be satisfied.

 

Each request (or deemed request) by Borrower for funding of a Loan, issuance of a Letter of Credit or grant of an accommodation shall constitute a representation by Borrower that the foregoing conditions are satisfied on the date of such request and on the date of such funding, issuance or grant.  As an additional condition to any funding, issuance or grant, Lender shall have received such other information, documents, instruments and agreements as it deems appropriate in connection therewith.

 

SECTION 7.        COLLATERAL

 

7.1          Grant of Security Interest.  To secure the prompt payment and performance of the Obligations, Borrower hereby grants to Lender, on behalf of itself and the other Secured Parties, a continuing security interest in and Lien upon all Property of Borrower, including all of the following Property, whether now owned or hereafter acquired, and wherever located:  (a) all Accounts; (b) all Chattel Paper, including Electronic Chattel Paper; (c) all Commercial Tort Claims, including those shown on Schedule 8.1.15; (d) all Deposit Accounts; (e) all Documents; (f) all General Intangibles, including Intellectual Property; (g) all Goods, including Inventory, Equipment and Fixtures; (h) all Instruments; (i) all Investment Property; (j) all Letter-of-Credit Rights; (k) all Supporting Obligations; (l) all monies, whether or not in the possession or under the control of Lender, or a bailee or Affiliate of Lender, including any Cash Collateral; (m) all accessions to, substitutions for, and all replacements, products, and cash and non-cash proceeds of the foregoing, including proceeds of and unearned premiums with respect to insurance policies, and claims against any Person for loss, damage or destruction of any Collateral; and (n) all books and records (including customer lists, files, correspondence, tapes, computer programs, print-outs and computer records) pertaining to the foregoing; provided, that in no event shall the Collateral include more than 65% of the voting stock of any Foreign Subsidiary.

 

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7.2          Lien on Deposit Accounts; Cash Collateral.

 

7.2.1.      Deposit Accounts.  To further secure the prompt payment and performance of the Obligations, Borrower hereby grants to Lender a continuing security interest in and Lien upon all amounts credited to any Deposit Account of Borrower, including sums in any blocked, lockbox, sweep or collection account.  Borrower hereby authorizes and directs each bank or other depository to deliver to Lender, upon request, all balances in any Deposit Account maintained for Borrower, without inquiry into the authority or right of Lender to make such request.

 

7.2.2.      Cash Collateral.  Cash Collateral may be invested, at Lender’s discretion (and with the consent of Borrower, as long as no Event of Default exists), but Lender shall have no duty to do so, regardless of any agreement or course of dealing with Borrower, and shall have no responsibility for any investment or loss.  As security for its Obligations, Borrower hereby grants to Lender a security interest in and Lien upon all Cash Collateral held from time to time and all proceeds thereof, whether held in a Cash Collateral Account or otherwise.  Lender may apply Cash Collateral to the payment of Obligations as they become due, in such order as Lender may elect.  Each Cash Collateral Account and all Cash Collateral shall be under the sole dominion and control of Lender, and neither Borrower nor any other Person shall have any right to any Cash Collateral, until Full Payment of the Obligations.

 

7.3          Real Estate Collateral.

 

7.3.1.      Lien on Real Estate.  The Obligations shall also be secured by Mortgages upon Real Estate owned by Borrower located in Mankato, Minnesota, Bemidji, Minnesota and Merrifield, Minnesota, all as more particularly described in the Mortgage encumbering the same.  The Mortgages shall be duly recorded, at Borrower’s expense, in each office where such recording is required to constitute a fully perfected Lien on the Real Estate covered thereby.

 

7.3.2.      Collateral Assignment of Leases.  To further secure the prompt payment and performance of the Obligations, Borrower hereby transfers and assigns to Lender all of Borrower’s right, title and interest in, to and under all now or hereafter existing leases of real Property to which Borrower is a party, whether as lessor or lessee, and all extensions, renewals, modifications and proceeds thereof.

 

7.4          Other Collateral.

 

7.4.1.      Commercial Tort Claims.  Borrower shall promptly notify Lender in writing if Borrower has a Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $100,000), shall promptly amend Schedule 8.1.15 to include such claim, and shall take such actions as Lender deems appropriate to subject such claim to a duly perfected, first priority Lien in favor of Lender.

 

7.4.2.      Certain After-Acquired Collateral.  Borrower shall promptly notify Lender in writing if, after the Closing Date, Borrower obtains any interest in any Collateral consisting of Deposit Accounts, Chattel Paper, Documents, Instruments, Intellectual Property, Investment Property or Letter-of-Credit Rights and, upon Lender’s request, shall promptly take such actions as Lender deems appropriate to effect Lender’s duly perfected, first priority Lien upon such Collateral, including obtaining any appropriate possession, control agreement or Lien Waiver.  If any Collateral is in the possession of a third party, at Lender’s request, Borrower shall obtain an acknowledgment that such third party holds the Collateral for the benefit of Lender.

 

7.5          Limitations.  The Lien on Collateral granted hereunder is given as security only and shall not subject Lender to, or in any way modify, any obligation or liability of Borrower relating to any Collateral.  In no event shall the grant of any Lien under any Loan Document secure an Excluded Swap Obligation of the granting Obligor.

 

7.6          Further Assurances; Extent of Liens.  All Liens granted to Lender under the Loan Documents are for the benefit of Secured Parties.  Promptly upon request, Borrower shall deliver such instruments and agreements, and shall take such actions, as Lender deems appropriate under applicable law to evidence or perfect its Lien on any Collateral, or otherwise to give effect to the intent of this Agreement.  Borrower authorizes Lender to file any financing statement that describes the Collateral as “all assets” or “all personal property” of Borrower, or

 

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words to similar effect, and ratifies any action taken by Lender before the Closing Date to effect or perfect its Lien on any Collateral.

 

SECTION 8.        REPRESENTATIONS AND WARRANTIES

 

8.1          General Representations and Warranties.  To induce Lender to enter into this Agreement and to make available the Commitments, Loans and Letters of Credit, Borrower represents and warrants that:

 

8.1.1.      Organization and Qualification.  Borrower and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization.  Borrower and each of its Subsidiaries is duly qualified, authorized to do business and in good standing as a foreign corporation in each jurisdiction where failure to be so qualified could reasonably be expected to have a Material Adverse Effect.

 

8.1.2.      Power and Authority.  Each Obligor is duly authorized to execute, deliver and perform its Loan Documents.  The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary action, and do not (a) require any consent or approval of any holders of Equity Interests of any Obligor, except those already obtained; (b) contravene the Organic Documents of any Obligor; (c) violate or cause a default under any applicable law or Material Contract; or (d) result in or require the imposition of a Lien (other than Permitted Liens) on any Obligor’s Property.

 

8.1.3.      Enforceability.  Each Loan Document is a legal, valid and binding obligation of each Obligor party thereto, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.

 

8.1.4.      Capital Structure.  Schedule 8.1.4 shows, for Borrower and each of its Subsidiaries, its name, jurisdiction of organization, authorized and issued Equity Interests, holders of its Equity Interests, and agreements binding on such holders with respect to such Equity Interests.  Except as disclosed on Schedule 8.1.4, in the five years preceding the Closing Date, neither Borrower nor any of its Subsidiaries has acquired any substantial assets from any other Person nor been the surviving entity in a merger or combination.  Borrower has good title to its Equity Interests in its Subsidiaries, subject only to Lender’s Lien, and all such Equity Interests are duly issued, fully paid and non-assessable.  Except as disclosed on Schedule 8.1.4, there are no outstanding purchase options, warrants, subscription rights, agreements to issue or sell, convertible interests, phantom rights or powers of attorney relating to Equity Interests of Borrower or any of its Subsidiaries.

 

8.1.5.      Title to Properties; Priority of Liens.  Borrower and each of its Subsidiaries has good and marketable title to (or valid leasehold interests in) all of its Real Estate, and good title to all of its personal Property, including all Property reflected in any financial statements delivered to Lender, in each case free of Liens except Permitted Liens.  Borrower and each of its Subsidiaries has paid and discharged all lawful claims that, if unpaid, could become a Lien on its Properties, other than Permitted Liens.  All Liens of Lender in the Collateral are duly perfected, first priority Liens, subject only to Permitted Liens that are expressly allowed to have priority over Lender’s Liens.

 

8.1.6.      Accounts.  Lender may rely, in determining which Accounts are Eligible Accounts, on all statements and representations made by Borrower with respect thereto.  Borrower warrants, with respect to each Account at the time it is shown as an Eligible Account in a Borrowing Base Certificate, that:  (a) it is genuine and enforceable in accordance with its terms and is not evidenced by a judgment;  (b) it arises out of a completed, bona fide sale and delivery of goods or rendition of services in the Ordinary Course of Business, and substantially in accordance with any purchase order, contract or other document relating thereto; (c) it is for a sum certain, maturing as stated in the invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Lender on request; (d) it is not, to Borrower’s knowledge, subject to any offset, Lien (other than Lender’s Lien), deduction, defense, dispute, counterclaim or other adverse condition except as arising in the Ordinary Course of Business and disclosed to Lender; (e) no purchase order, agreement, document or applicable law restricts assignment of the Account to Lender (regardless of whether, under the UCC, the restriction is ineffective); and (f) no extension, compromise, settlement, modification, credit, deduction or return has been authorized with respect to the Account, except discounts or allowances granted in the Ordinary Course of Business for prompt payment that are reflected on the face of the invoice related thereto and in the reports submitted to Lender hereunder.

 

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8.1.7.      Financial Statements.  The consolidated and consolidating balance sheets, and related statements of income, cash flow and shareholders’ equity, of Borrower and its Subsidiaries that have been and are hereafter delivered to Lender, are prepared in accordance with GAAP, and fairly present the financial positions and results of operations of Borrower and its Subsidiaries at the dates and for the periods indicated.  All projections delivered from time to time to Lender have been prepared in good faith, based on reasonable assumptions in light of the circumstances at such time.  Since December 31, 2016, there has been no change in the condition, financial or otherwise, of Borrower or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect.  No financial statement delivered to Lender at any time contains any untrue statement of a material fact, nor fails to disclose any material fact necessary to make such statement not materially misleading.  Borrower and each of its Subsidiaries is Solvent.

 

8.1.8.      Surety Obligations.  Neither Borrower nor any of its Subsidiaries is obligated as surety or indemnitor under any bond or other contract that assures payment or performance of any obligation of any Person, except as permitted hereunder.

 

8.1.9.      Taxes.  Borrower and each of its Subsidiaries has filed all federal, state and local tax returns and other reports that it is required by law to file, and has paid, or made provision for the payment of, all Taxes upon it, its income and its Properties that are due and payable, except to the extent being Properly Contested.  The provision for Taxes on the books of Borrower and each of its Subsidiaries is adequate for all years not closed by applicable statutes, and for its current Fiscal Year.

 

8.1.10.    Brokers.  There are no brokerage commissions, finder’s fees or investment banking fees payable in connection with any transactions contemplated by the Loan Documents.

 

8.1.11.    Intellectual Property. Borrower and each of its Subsidiaries owns or has the lawful right to use all Intellectual Property necessary for the conduct of its business, without conflict with any rights of others other than any conflicts that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Except as disclosed on Schedule 8.1.11, neither Borrower nor any of its Subsidiaries pays or owes any Royalty or other compensation to any Person with respect to any Intellectual Property.  All Intellectual Property owned, used or licensed by, or otherwise subject to any interests of, Borrower or any its Subsidiaries is shown on Schedule 8.1.11.

 

8.1.12.    Governmental Approvals.  Borrower and each of its Subsidiaries has, is in compliance with, and is in good standing with respect to, all Governmental Approvals necessary to conduct its business and to own, lease and operate its Properties, other than any such non-compliance that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

8.1.13.    Compliance with Laws.  Borrower and each of its Subsidiaries has duly complied, and its Properties and business operations are in compliance, in all material respects with all applicable law, except where noncompliance could not reasonably be expected to have a Material Adverse Effect.  Since January 1, 2012, there have been no citations, notices or orders of material noncompliance issued to Borrower or any of its Subsidiaries under any applicable law.  No Inventory has been produced in violation of the FLSA.  Except as disclosed on Schedule 8.1.13, neither Borrower’s nor any of its Subsidiaries’ past or present operations, Real Estate or other Properties are subject to any federal, state or local investigation to determine whether any remedial action is needed to address any environmental pollution, hazardous material or environmental clean-up.  Since January 1, 2012, neither Borrower nor any of its Subsidiaries has received any Environmental Notice.  Neither Borrower nor any of its Subsidiaries has any contingent liability with respect to any Environmental Release, environmental pollution or hazardous material on any Real Estate now or previously owned, leased or operated by it other than any liability that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  The representations and warranties contained in the Environmental Agreement are true and correct on the Closing Date.

 

8.1.14.    Burdensome Contracts.  Neither Borrower nor any of its Subsidiaries is party or subject to any Restrictive Agreement, except as shown on Schedule 8.1.14.  No such Restrictive Agreement prohibits the execution, delivery or performance of any Loan Document by an Obligor.

 

8.1.15.    Litigation.  Except as shown on Schedule 8.1.15, there are no proceedings or investigations pending or, to Borrower’s knowledge, threatened against Borrower or any of its Subsidiaries, or any of their businesses, operations, Properties, prospects or conditions, that (a) relate to any Loan Documents or

 

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transactions contemplated thereby; or (b) could reasonably be expected to have a Material Adverse Effect if determined adversely to Borrower or any of its Subsidiaries.  Except as shown on such Schedule, no Obligor has a Commercial Tort Claim (other than, as long as no Default or Event of Default exists, a Commercial Tort Claim for less than $100,000).  Neither Borrower nor any of its Subsidiaries is in default with respect to any order, injunction or judgment of any Governmental Authority.

 

8.1.16.    No Defaults.  No event or circumstance has occurred or exists that constitutes a Default or Event of Default.  Neither Borrower nor any of its Subsidiaries is in default, and no event or circumstance has occurred or exists that with the passage of time or giving of notice would constitute a default by Borrower or any of its Subsidiaries, under any Material Contract or in the payment of any Borrowed Money or allow termination of any Material Contract.

 

8.1.17.    ERISA.  Except as disclosed on Schedule 8.1.17:

 

(a)           Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code, and other federal and state laws.  Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the knowledge of Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification.  Each Obligor and ERISA Affiliate has met all applicable requirements under the Code, ERISA and the Pension Protection Act of 2006 other than any failures to comply that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and no application for a waiver of the minimum funding standards or an extension of any amortization period has been made with respect to any Plan.

 

(b)           There are no pending or, to the knowledge of Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect.  There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted in or could reasonably be expected to have a Material Adverse Effect.

 

(c)           (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) no Obligor or ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) no Obligor or ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; (v) no Obligor or ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA; and (vi) as of the most recent valuation date for any Pension Plan or Multiemployer Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is at least 60%, and no Obligor or ERISA Affiliate knows of any fact or circumstance that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below 60% as of such date.

 

(d)           With respect to any Foreign Plan, (i) all employer and employee contributions required by law or by the terms of the Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices other than any failures to pay or accrue contributions that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; (ii) the fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance, or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles; and (iii) it has been registered as required and has been maintained in good standing with applicable regulatory authorities.

 

8.1.18.    Trade Relations.  There exists no actual or threatened termination, limitation or modification of any business relationship between Borrower or any of its Subsidiaries and any customer or supplier, or any group of customers or suppliers, who individually or in the aggregate are material to the business of Borrower or any of its Subsidiaries.

 

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8.1.19.    Labor Relations.  Neither Borrower nor any of its Subsidiaries is party to or bound by any collective bargaining agreement, management agreement or consulting agreement.  There are no material grievances, disputes or controversies with any union or other organization of Borrower’s or any of its Subsidiaries’ employees, or, to Borrower’s knowledge, any asserted or threatened strikes, work stoppages or demands for collective bargaining.

 

8.1.20.    Payable Practices.  Neither Borrower nor any of its Subsidiaries has made any material change in its historical accounts payable practices from those in effect on the Closing Date.

 

8.1.21.    Not a Regulated Entity.  No Obligor is (a) an “investment company” or a “person directly or indirectly controlled by or acting on behalf of an investment company” within the meaning of the Investment Company Act of 1940; or (b) subject to regulation under the Federal Power Act, the Interstate Commerce Act, any public utilities code or any other applicable law regarding its authority to incur Debt.

 

8.1.22.    Margin Stock.  Neither Borrower nor any of its Subsidiaries is engaged, principally or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock.  No Loan proceeds or Letters of Credit will be used by Borrower to purchase or carry, or to reduce or refinance any Debt incurred to purchase or carry, any Margin Stock or for any related purpose governed by Regulations T, U or X of the Board of Governors.

 

8.1.23.    OFAC.  Neither Borrower nor any of its Subsidiaries or, to the knowledge of Borrower or any of its Subsidiaries, any director, officer, employee, agent, affiliate or representative thereof, is an individual or entity currently the subject of any Sanctions.  Neither Borrower nor any of its Subsidiaries is located, organized or resident in a Designated Jurisdiction.

 

8.1.24.    Deposit Accounts.  Schedule 9.1.9 sets forth all Deposit Accounts maintained by Borrower, including all Dominion Accounts.

 

8.2          Complete Disclosure.  No Loan Document contains any untrue statement of a material fact, nor fails to disclose any material fact necessary to make the statements contained therein not materially misleading.  There is no fact or circumstance that any Obligor has failed to disclose to Lender in writing that could reasonably be expected to have a Material Adverse Effect.

 

SECTION 9.        COVENANTS AND CONTINUING AGREEMENTS

 

9.1          Affirmative Covenants.  As long as any Commitment or Obligations are outstanding, Borrower shall, and shall cause each Subsidiary to:

 

9.1.1.      Inspections; Appraisals.

 

(a)           Permit Lender from time to time, subject (except when a Default or Event of Default exists) to reasonable notice and normal business hours, to visit and inspect the Properties of Borrower or any of its Subsidiaries, inspect, audit and make extracts from Borrower’s or any of its Subsidiaries’ books and records, and discuss with its officers, employees, agents, advisors and independent accountants Borrower’s or any of its Subsidiaries’ business, financial condition, assets, prospects and results of operations.  Lender shall not have any duty to Borrower to make any inspection, nor to share any results of any inspection, appraisal or report with Borrower.  Borrower acknowledges that all inspections, appraisals and reports are prepared by Lender for its purposes, and Borrower shall not be entitled to rely upon them.

 

(b)           Reimburse Lender for all its charges, costs and expenses in connection with (i) examinations of any Obligor’s books and records or any other financial or Collateral matters as Lender deems appropriate, up to one time per Loan Year; provided, however, that if an examination is in initiated during a Trigger Period, up to two times per Loan Year; and (ii) appraisals of Inventory up to one time per Loan Year; provided, however, that if an appraisal is in initiated during a Trigger Period, up to two times per Loan Year; provided, further, that if an examination or appraisal is initiated during a Default or Event of Default, all charges, costs and expenses therefor shall be reimbursed by Borrower without regard to such limits.  Subject to and without limiting the foregoing, Borrower agrees to pay Lender’s then reasonable standard charges for examination activities, including

 

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the reasonable standard charges of Lender’s internal examination and appraisal groups, as well as the reasonable charges of any third party used for such purposes.

 

9.1.2.      Financial and Other Information.  Keep adequate records and books of account with respect to its business activities, in which proper entries are made in accordance with GAAP reflecting all financial transactions; and furnish to Lender all financial statements, reports and other items set forth on Exhibit E no later than the time specified therein.

 

9.1.3.      Collateral Reporting.  Provide Lender with each certificate, report or schedule set forth on Exhibit F attached hereto no later than the times specified therein.

 

9.1.4.      Notices.  Notify Lender in writing, promptly after Borrower’s obtaining knowledge thereof, of any of the following that affects an Obligor:  (a) the threat or commencement of any proceeding or investigation, whether or not covered by insurance, if an adverse determination could have a Material Adverse Effect; (b) any pending or threatened labor dispute, strike or walkout, or the expiration of any material labor contract; (c) any default under or termination of a Material Contract; (d) the existence of any Default or Event of Default; (e) any judgment in an amount exceeding $250,000; (f) any violation or asserted violation of any applicable law (including ERISA, OSHA, FLSA, or any Environmental Laws), if an adverse resolution could have a Material Adverse Effect; (g) the occurrence of any ERISA Event; (h) any proposed modification to any material License or entry into a new material License in each case at least 30 days prior to its effective date or any default or breach asserted by any Person to have occurred under any License which could reasonably be expected to result in a Material Adverse Effect; or (i) the discharge of or any withdrawal or resignation by Borrower’s independent accountants.

 

9.1.5.      Compliance with Laws.  Comply with all applicable laws, including ERISA, Environmental Laws, FLSA, OSHA, Anti-Terrorism Laws, and laws regarding collection and payment of Taxes, and maintain all Governmental Approvals necessary to the ownership of its Properties or conduct of its business, unless failure to comply (other than failure to comply with Anti-Terrorism Laws) or maintain could not reasonably be expected to have a Material Adverse Effect.

 

9.1.6.      Taxes.  Pay and discharge all Taxes prior to the date on which they become delinquent or penalties attach, unless such Taxes are being Properly Contested.  If an Account of Borrower includes a charge for any Taxes, Lender is authorized, in its discretion, to pay the amount thereof to the proper taxing authority for the account of Borrower and to charge Borrower therefor; provided, however, that Lender shall not be liable for any Taxes that may be due from Borrower or with respect to any Collateral.

 

9.1.7.      Insurance.

 

(a)           Maintain insurance with respect to the Collateral, covering casualty, hazard, theft, malicious mischief, flood and other risks, in amounts, with endorsements and with insurers (with a Best Rating of at least A+, unless otherwise approved by Lender in its discretion) satisfactory to Lender.  All proceeds under each policy shall be payable to Lender.  From time to time upon request, Borrower shall deliver to Lender the originals or certified copies of its insurance policies and updated flood plain searches.  Unless Lender shall agree otherwise, each policy shall include satisfactory endorsements (i) showing Lender as lender’s loss payee; (ii) requiring 30 days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever; and (iii) specifying that the interest of Lender shall not be impaired or invalidated by any act or neglect of Borrower or the owner of the Property, nor by the occupation of the premises for purposes more hazardous than are permitted by the policy.  If Borrower fails to provide and pay for any insurance, Lender may, at its option, but shall not be required to, procure the insurance and charge Borrower therefor.  Borrower agrees to deliver to Lender, promptly as rendered, copies of all reports made to insurance companies.  While no Event of Default exists, Borrower may settle, adjust or compromise any insurance claim, as long as the proceeds are delivered to Lender.  If an Event of Default exists, only Lender shall be authorized to settle, adjust and compromise such claims.

 

(b)           Without limiting clause (a) above, maintain insurance with insurers (with a Best Rating of at least A+, unless otherwise approved by Lender in its sole discretion) reasonably satisfactory to Lender, (i) with respect to the Properties and business of Borrower and its Subsidiaries of such type (including product liability, workers’ compensation, larceny, embezzlement, or other criminal misappropriation insurance), in such amounts, and with such coverages and deductibles as are customary for companies similarly situated; and (ii) business interruption

 

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insurance in an amount not less than $2,000,000, with deductibles and subject to an insurance assignment satisfactory to Lender.

 

9.1.8.      Licenses.  Keep each material License affecting any Collateral (including the manufacture, distribution or disposition of Inventory) or any other material Property of Borrower and its Subsidiaries in full force and effect and pay all Royalties when due.

 

9.1.9.      Deposit Accounts; Depository Bank.  Take all actions necessary to establish Lender’s control of each such Deposit Account (other than an account exclusively used for payroll, payroll taxes or employee benefits, or an account containing not more than $10,000 at any time).  Borrower shall be the sole account holder of each Deposit Account and shall not allow any other Person (other than Lender) to have control over a Deposit Account or any Property deposited therein.  Borrower shall promptly notify Lender of any opening or closing of a Deposit Account and, with the consent of Lender, will amend Schedule 9.1.9 to reflect same. No later than 120 days after the Closing Date, Borrower shall maintain Lender as its principal depository bank, including for the maintenance of all operating, collection, disbursement and other deposit accounts and for all Cash Management Services.

 

9.1.10.    Other Collateral Covenants.  Comply with the following additional covenants related to Collateral:

 

(a)           All tangible items of Collateral, other than Inventory in transit, shall at all times be kept by Borrower at the business locations set forth in Schedule 9.1.10, except that Borrower may (a) make sales or other dispositions of Collateral in accordance with Section 9.2.6; and (b) move Collateral to another location in the United States, upon 30 Business Days prior written notice to Lender.

 

(b)           Whether or not a Default or Event of Default exists, Lender shall have the right at any time, in the name of Lender, any designee of Lender or Borrower, to verify the validity, amount or any other matter relating to any Accounts of Borrower by mail, telephone or otherwise.  Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude any such verification process.

 

(c)           All expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping any Collateral, all Taxes payable with respect to any Collateral (including any sale thereof), and all other payments required to be made by Lender to any Person to realize upon any Collateral, shall be borne and paid by Borrower.  Lender shall not be liable or responsible in any way for the safekeeping of any Collateral, for any loss or damage thereto (except for reasonable care in its custody while Collateral is in Lender’s actual possession), for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency or other Person whatsoever, but the same shall be at Borrower’s sole risk.

 

(d)           Borrower shall defend its title to Collateral and Lender’s Liens therein against all Persons, claims and demands, except Permitted Liens.

 

(e)           Borrower shall ensure that the Equipment is mechanically and structurally sound, and capable of performing the functions for which it was designed, in accordance with manufacturer specifications subject to normal wear and tear.

 

(f)            Upon request, Borrower shall provide Lender with copies of all existing agreements, and promptly after execution thereof provide Lender with copies of all future agreements, between an Obligor and any landlord, warehouseman, processor, shipper, bailee or other Person that owns any premises at which any Collateral may be kept or that otherwise may possess or handle any Collateral.

 

(g)           Borrower shall use, store and maintain all Inventory with reasonable care and caution, in accordance with applicable standards of any insurance and in conformity with all applicable law, and shall make current rent payments (within applicable grace periods provided for in leases) at all locations where any Collateral is located.

 

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9.2          Negative Covenants.  As long as any Commitment or Obligations are outstanding, Borrower shall not, and shall cause each Subsidiary not to:

 

9.2.1.      Permitted Debt.  Create, incur, guarantee or suffer to exist any Debt, except:  (a) the Obligations; (b) Subordinated Debt existing on the Closing Date; (c) Purchase Money Debt of Borrower and its Subsidiaries that is unsecured or secured only by a Purchase Money Lien, as long as the aggregate amount of new Purchase Money Debt incurred during any fiscal year of Borrower does not exceed $3,000,000 during such fiscal year; (d) Bank Product Debt incurred in the Ordinary Course of Business; (e) Contingent Obligations (i) arising from endorsements of Payment Items for collection or deposit in the Ordinary Course of Business; (ii) arising from Hedging Agreements permitted hereunder; (iii) existing on the Closing Date, and any extension or renewal thereof that does not increase the amount of such Contingent Obligation when extended or renewed; (iv) incurred in the Ordinary Course of Business with respect to surety, appeal or performance bonds, or other similar obligations; (v) arising from customary indemnification obligations in favor of purchasers in connection with dispositions of Equipment permitted hereunder; or (vi) arising under the Loan Documents.

 

9.2.2.      Permitted Liens.  Create or suffer to exist any Lien upon any of its Property, except the following (collectively, “Permitted Liens”):  (a) Liens in favor of Lender; (b) Purchase Money Liens securing Purchase Money Debt that is permitted under Section 9.2.1; (c) Liens for Taxes not yet due or being Properly Contested; (d) statutory Liens (other than Liens for Taxes or imposed under ERISA) arising in the Ordinary Course of Business, but only if (i) payment of the obligations secured thereby is not yet due or is being Properly Contested, and (ii) such Liens do not materially impair the value or use of the Property or materially impair operation of the business of Borrower or any of its Subsidiaries; (e) Liens incurred or deposits made in the Ordinary Course of Business to secure the performance of government tenders, bids, contracts, statutory obligations and other similar obligations, as long as such Liens are at all times junior to Lender’s Liens and are required or provided by law; (f) Liens arising in the Ordinary Course of Business that are subject to Lien Waivers; (g) Liens arising by virtue of a judgment or judicial order against Borrower or any of its Subsidiaries, or any Property of Borrower or any of its Subsidiaries, as long as such Liens are (i) in existence for less than 20 consecutive days or being Properly Contested, and (ii) at all times junior to Lender’s Liens; (h) easements, rights-of-way, restrictions, covenants or other agreements of record, and other similar charges or encumbrances on Real Estate, that do not secure any monetary obligation and do not interfere with the Ordinary Course of Business; (i) normal and customary rights of setoff upon deposits in favor of depository institutions, and Liens of a collecting bank on Payment Items in the course of collection; and (j) existing Liens shown on Schedule 9.2.2.

 

9.2.3.      [Intentionally Omitted].

 

9.2.4.      Distributions; Upstream Payments.

 

(a)           Declare or make any Distributions, except (i) a Distribution by a Subsidiary of Borrower to Borrower, (ii) Distributions consisting solely of redemptions of Equity Interests in the Borrower in an aggregate amount not to exceed $300,000 during each calendar year, but only so long as no Default or Event of Default has occurred and is continuing or would result immediately after giving effect to such Distribution and (iii) subject to the satisfaction of the Restricted Payment Conditions, other Distributions.

 

(b)           Create or suffer to exist any encumbrance or restriction on the ability of a Subsidiary to make any Distribution to Borrower, except for restrictions under the Loan Documents, under applicable law or in effect on the Closing Date as shown on Schedule 8.1.14.

 

9.2.5.      Restricted Investments.  Make any Restricted Investment, provided, however, Borrower may make (a) in addition to the Foreign Subsidiary OpEx Payments, Restricted Investments in Foreign Subsidiaries constituting advances or capital contributions to, or other investments in, such Subsidiaries in an aggregate amount not to exceed $500,000 during each calendar year, so long as (i) no Default or Event of Default has occurred and is continuing or would result immediately after giving effect to any such Restricted Investment; and (ii) as of the date of any such Restricted Investment, and immediately after giving effect thereto, the Borrower shall have Availability of not less $2,000,000; (b) Foreign Subsidiary OpEx Payments in an aggregate amount not to exceed $750,000 during each calendar month, so long as (i) such payments, and the expenses for which such payments are being made, are consistent with the Borrower’s historical practices with respect to the recipient of such payments and (ii) no Default or Event of Default has occurred and is continuing or would result immediately after giving effect to any

 

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such Foreign Subsidiary OpEx Payment; and (c) other Restricted Investments, including additional Restricted Investments in Subsidiaries, subject to the satisfaction of the Restricted Payment Conditions with respect to such Restricted Investments.

 

9.2.6.      Disposition of Assets.  Sell, lease, license, consign, transfer or otherwise dispose of any Property of an Obligor or a Subsidiary of an Obligor, including a disposition of Property in connection with a sale-leaseback transaction or synthetic lease, except (a) as long as no Default or Event of Default exists and all Net Proceeds are remitted to Lender, a disposition of Property of an Obligor that is (i) a sale of Inventory in the Ordinary Course of Business; (ii) a disposition of Equipment that, in the aggregate during any 12 month period, has a fair market or book value (whichever is more) of $250,000 or less; or (iii) a disposition of Inventory that is obsolete, unmerchantable or otherwise unsalable in the Ordinary Course of Business; (b) replacement of Equipment that is worn, damaged or obsolete with Equipment of like function and value, if the replacement Equipment is acquired substantially contemporaneously with such disposition and is free of Liens; (c) a transfer of Property by a Subsidiary or Obligor to Borrower; or (d) dispositions or other transfers of Equipment to a Foreign Subsidiary, provided,  that, (i) no Default or Event of Default exists at the time of such disposition or transfer, (ii) during any 12 month period, the fair market or book value (whichever is more) of such disposed of or transferred Equipment does not exceed $200,000 and (iii) to the extent any Net Proceeds are received in respect of such Equipment, such Net Proceeds are remitted to the Lender.

 

9.2.7.      Loans.  Make any loans or other advances of money to any Person, except advances to an officer or employee for salary, travel expenses, commissions and similar items in the Ordinary Course of Business.

 

9.2.8.      Restrictions on Payment of Certain Debt.  Make any payments (whether voluntary or mandatory, or a prepayment, redemption, retirement, defeasance or acquisition) with respect to any (a) Subordinated Debt, except to the extent expressly permitted under any subordination agreement relating to such Debt (and a Senior Officer of Borrower shall certify to Lender, not less than five Business Days prior to the date of payment, that all conditions under such agreement have been satisfied); or (b) Borrowed Money (other than the Obligations) prior to its due date under the agreements evidencing such Debt as in effect on the Closing Date (or as amended thereafter with the written consent of Lender), provided, however, the Borrower may make payments prohibited by this Section 9.2.8 subject to the satisfaction of the Restricted Payment Conditions with respect to such payment.

 

9.2.9.      Fundamental Changes.

 

(a)           Change its name or conduct business under any fictitious name; change its tax, charter or other organizational identification number or change its form or state of organization, in each case above (i) without at least 30 days prior notice to Lender and (ii) without written acknowledgment from Lender that either (A) such change will not adversely affect the validity, perfection or priority of the Lender’s security interest in the Collateral, or (B) any reasonable action requested by the Lender in connection therewith has been completed or taken (including any action to continue the perfection of any Liens in favor of the Lender in any Collateral); or

 

(b)           Liquidate, wind up its affairs or dissolve itself; or merge, combine or consolidate with any Person, whether in a single transaction or in a series of related transactions, except for mergers or consolidations of a wholly-owned Subsidiary with another wholly-owned Subsidiary or into Borrower.

 

9.2.10.    Subsidiaries.  Form or acquire any Subsidiary after the Closing Date or permit any existing Subsidiary to issue any additional Equity Interests except directors’ qualifying shares.

 

9.2.11.    Organic Documents.  Amend, modify or otherwise change any of its Organic Documents, except in connection with a transaction permitted under Section 9.2.9.

 

9.2.12.    Tax Consolidation.  File or consent to the filing of any consolidated income tax return with any Person other than Borrower and its Subsidiaries.

 

9.2.13.    Accounting Changes.  Make any material change in accounting treatment or reporting practices, except as required by GAAP and in accordance with Section 1.2; or change its Fiscal Year.

 

9.2.14.    Restrictive Agreements.  Become a party to any Restrictive Agreement, except a Restrictive Agreement (a) in effect on the Closing Date and listed on Schedule 8.1.14; (b) relating to secured Debt

 

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permitted hereunder, as long as the restrictions apply only to collateral for such Debt; or (c) constituting customary restrictions on assignment in leases and other contracts.

 

9.2.15.    Hedging Agreements.  Enter into any Hedging Agreement, except to hedge risks arising in the Ordinary Course of Business and not for speculative purposes.

 

9.2.16.    Conduct of Business.  Engage in any business, other than its business as conducted on the Closing Date and any activities incidental thereto.

 

9.2.17.    Affiliate Transactions.  Enter into or be party to any transaction with an Affiliate, except (a) transactions expressly permitted by the Loan Documents; (b) payment of reasonable compensation to officers and employees for services actually rendered, and payment of customary directors’ fees and indemnities; and (c) transactions with Affiliates in the Ordinary Course of Business (including those consummated prior to the Closing Date and shown on Schedule 9.2.17) so long as such transactions are upon fair and reasonable terms fully disclosed to Lender and no less favorable than would be obtained in a comparable arm’s-length transaction with a non-Affiliate.

 

9.2.18.    Plans.  Become party to any Multiemployer Plan or Foreign Plan, other than any in existence on the Closing Date.

 

9.2.19.    Amendments to Subordinated Debt.  Amend, supplement or otherwise modify any document, instrument or agreement relating to any Subordinated Debt, if such modification (a) increases the principal balance of such Debt, or increases any required payment of principal or interest; (b) accelerates the date on which any installment of principal or any interest is due, or adds any additional redemption, put or prepayment provisions; (c) shortens the final maturity date or otherwise accelerates amortization; (d) increases the interest rate; (e) increases or adds any fees or charges; (f) modifies any covenant in a manner or adds any representation, covenant or default that is more onerous or restrictive in any material respect for Borrower or any of its Subsidiaries, or that is otherwise materially adverse to Borrower, any of its Subsidiaries or Lender; or (g) results in the Obligations not being fully benefited by the subordination provisions thereof.

 

9.2.20.    Returns of Inventory; Affixed Equipment.  Return any Inventory to a supplier, vendor or other Person, whether for cash, credit or otherwise, unless (a) such return is in the Ordinary Course of Business; (b) no Default, Event of Default or Overadvance exists or would result therefrom; (c) Lender is promptly notified if the aggregate Value of all Inventory returned in any month exceeds $250,000; and (d) any payment received by Borrower for a return is promptly remitted to Lender for application to the Obligations.  Borrower shall not permit any Equipment to become affixed to real Property unless any landlord or mortgagee delivers a Lien Waiver.

 

9.2.21.    Acquisition, Sale and Maintenance of Inventory.  Acquire or accept any Inventory on consignment or approval, and Borrower shall take all steps to assure that all Inventory is produced in material compliance with applicable law, including the FLSA.  Borrower shall not sell any Inventory on consignment or approval or any other basis under which the customer may return or require Borrower to repurchase such Inventory.

 

9.3          Financial Covenants.  As long as any Commitment or Obligations are outstanding, Borrower shall:

 

9.3.1.      Fixed Charge Coverage Ratio.  Maintain a Fixed Charge Coverage Ratio of at least 1.0  to 1.0 for each period of four Fiscal Quarters, commencing with the period of four Fiscal Quarters ending March 31, 2017.

 

SECTION 10.      EVENTS OF DEFAULT; REMEDIES ON DEFAULT

 

10.1        Events of Default.  Each of the following shall be an “Event of Default” if it occurs for any reason whatsoever, whether voluntary or involuntary, by operation of law or otherwise:

 

(a)           Borrower fails to pay the Obligations when due (whether at stated maturity, on demand, upon acceleration or otherwise);

 

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(b)                                 Any representation, warranty or other written statement of an Obligor made in connection with any Loan Documents or transactions contemplated thereby is incorrect or misleading in any material respect when given;

 

(c)                                  Borrower breaches or fail to perform any covenant contained in Section 5.5, 5.7, 7.2, 7.3, 7.4, 7.6, 9.1.1(a), 9.1.2, 9.1.3, 9.1.4(d), 9.1.7, 9.2 or 9.3;

 

(d)                                 An Obligor breaches or fails to perform any other covenant contained in any Loan Documents, and such breach or failure is not cured within 15 days after a Senior Officer of such Obligor has knowledge thereof or receives notice thereof from Lender, whichever is sooner; provided, however, that such notice and opportunity to cure shall not apply if the breach or failure to perform is not capable of being cured within such period or is a willful breach by an Obligor;

 

(e)                                  A Guarantor repudiates, revokes or attempts to revoke its Guaranty; an Obligor or third party denies or contests the validity or enforceability of any Loan Documents or Obligations, or the perfection or priority of any Lien granted to Lender; or any Loan Document ceases to be in full force or effect for any reason (other than a waiver or release by Lender);

 

(f)                                   Any breach or default of an Obligor occurs under (i) any Hedging Agreement; or (ii) any instrument or agreement to which it is a party or by which it or any of its Properties is bound, relating to any Debt (other than the Obligations) in excess of $500,000, if the maturity of or any payment with respect to such Debt may be accelerated or demanded due to such breach;

 

(g)                                  Any judgment or order for the payment of money is entered against an Obligor in an amount that exceeds, individually or cumulatively with all unsatisfied judgments or orders against all Obligors, $500,000 (net of insurance coverage therefor that has not been denied by the insurer), unless a stay of enforcement of such judgment or order is in effect, by reason of a pending appeal or otherwise;

 

(h)                                 A loss, theft, damage or destruction occurs with respect to any Collateral if the amount not covered by insurance exceeds $500,000;

 

(i)                                     An Obligor is enjoined, restrained or in any way prevented by any Governmental Authority from conducting any material part of its business; an Obligor suffers the loss, revocation or termination of any material license, permit, lease or agreement necessary to its business; there is a cessation of any material part of an Obligor’s business for a material period of time; any material Collateral or Property of an Obligor is taken or impaired through condemnation; an Obligor agrees to or commences any liquidation, dissolution or winding up of its affairs; or an Obligor is not Solvent;

 

(j)                                    (i) An Insolvency Proceeding is commenced by an Obligor; (ii) an Obligor makes an offer of settlement, extension or composition to its unsecured creditors generally; (iii) a trustee is appointed to take possession of any substantial Property of or to operate any of the business of an Obligor; or (iv) an Insolvency Proceeding is commenced against an Obligor and the Obligor consents to institution of the proceeding, the petition commencing the proceeding is not timely contested by the Obligor, the petition is not dismissed within 30 days after filing, or an order for relief is entered in the proceeding;

 

(k)                                 An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan that has resulted or could reasonably be expected to result in liability of an Obligor to a Pension Plan, Multiemployer Plan or PBGC, or that constitutes grounds for appointment of a trustee for or termination by the PBGC of any Pension Plan or Multiemployer Plan; an Obligor or ERISA Affiliate fails to pay when due any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan; or any event similar to the foregoing occurs or exists with respect to a Foreign Plan;

 

(l)                                     An Obligor or any of its Senior Officers is criminally indicted or convicted for (i) a felony committed in the conduct of the Obligor’s business, or (ii) violating any state or federal law (including the Controlled Substances Act, Money Laundering Control Act of 1986 and Illegal Exportation of War Materials Act) that could lead to forfeiture of any material Property or any Collateral; or

 

(m)                             A Change of Control occurs;

 

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10.2                        Remedies upon Default.  If an Event of Default described in Section 10.1(j) occurs with respect to Borrower, then to the extent permitted by applicable law, all Obligations shall become automatically due and payable and all Commitments shall terminate, without any action by Lender or notice of any kind.  In addition, or if any other Event of Default exists, Lender may in its discretion do any one or more of the following from time to time:

 

(a)                                 declare any Obligations immediately due and payable, whereupon they shall be due and payable without diligence, presentment, demand, protest or notice of any kind, all of which are hereby waived by Borrower to the fullest extent permitted by law;

 

(b)                                 terminate, reduce or condition any Commitment, or make any adjustment to the Borrowing Base;

 

(c)                                  require Obligors to Cash Collateralize their LC Obligations, Bank Product Debt and other Obligations that are contingent or not yet due and payable, and, if Obligors fail to deposit such Cash Collateral, Lender may advance the required Cash Collateral as Revolver Loans; and

 

(d)                                 exercise any other rights or remedies afforded under any agreement, by law, at equity or otherwise, including the rights and remedies of a secured party under the UCC.  Such rights and remedies include the rights to (i) take possession of any Collateral; (ii) require Borrower to assemble Collateral, at Borrower’s expense, and make it available to Lender at a place designated by Lender; (iii) enter any premises where Collateral is located and store Collateral on such premises until sold (and if the premises are owned or leased by Borrower, Borrower agrees not to charge for such storage); and (iv) sell or otherwise dispose of any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale, with such notice as may be required by applicable law, in lots or in bulk, at such locations, all as Lender, in its discretion, deems advisable.  Borrower agrees that 10 days’ notice of any proposed sale or other disposition of Collateral by Lender shall be reasonable, and that any sale conducted on the internet or to a licensor of Intellectual Property shall be commercially reasonable.  Lender may conduct sales on any Obligor’s premises, without charge, and any sales may be adjourned from time to time in accordance with applicable law.  Lender shall have the right to sell, lease or otherwise dispose of any Collateral for cash, credit or any combination thereof, and Lender may purchase any Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of the purchase price, may set off the amount of such price against the Obligations.

 

10.3                        License.  Lender is hereby granted an irrevocable, non-exclusive license or other right to use, license or sub-license (without payment of royalty or other compensation to any Person) any or all Intellectual Property of Borrower, computer hardware and software, trade secrets, brochures, customer lists, promotional and advertising materials, labels, packaging materials and other Property, in advertising for sale, marketing, selling, collecting, completing manufacture of, or otherwise exercising any rights or remedies with respect to, any Collateral.  Borrower’s rights and interests under Intellectual Property shall inure to Lender’s benefit.

 

10.4                        Setoff.  At any time during an Event of Default, Lender and its Affiliates are authorized, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by Lender or such Affiliate to or for the credit or the account of an Obligor against its Obligations, whether or not Lender or such Affiliate shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or are owed to a branch or office of Lender or such Affiliate different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of Lender and each such Affiliate under this Section are in addition to other rights and remedies (including other rights of offset) that such Person may have.

 

10.5                        Remedies Cumulative; No Waiver.

 

10.5.1.           Cumulative Rights.  All agreements, warranties, guaranties, indemnities and other undertakings of Obligors under the Loan Documents are cumulative and not in derogation of each other.  The rights and remedies of Lender under the Loan Documents are cumulative, may be exercised at any time and from time to time, concurrently or in any order, and are not exclusive of any other rights or remedies available by agreement, by law, at equity or otherwise.  All such rights and remedies shall continue in full force and effect until Full Payment of all Obligations.

 

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10.5.2.           Waivers.  No waiver or course of dealing shall be established by (a) the failure or delay of Lender to require strict performance by any Obligor under any Loan Document, or to exercise any rights or remedies with respect to Collateral or otherwise; (b) the making of any Loan or issuance of any Letter of Credit during a Default, Event of Default or other failure to satisfy any conditions precedent; or (c) acceptance by Lender of any payment or performance by an Obligor under any Loan Documents in a manner other than that specified therein.  Any failure to satisfy a financial covenant on a measurement date shall not be cured or remedied by satisfaction of such covenant on a subsequent date.

 

SECTION 11.                  MISCELLANEOUS

 

11.1                        Amendments and Waivers.

 

11.1.1.           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of Borrower, Lender, and their respective successors and assigns, except that Borrower shall not have the right to assign its rights or delegate its obligations under any Loan Documents.

 

11.1.2.           Amendments and Other Modifications.  No modification of any Loan Document, including any extension or amendment of a Loan Document or any waiver of a Default or Event of Default, shall be effective without the prior written agreement of Lender and each Obligor party to such Loan Document; provided, however, that only the consent of the parties to a Bank Product agreement shall be required for any modification of such agreement.  Any waiver or consent granted by Lender shall be effective only if in writing, and only for the matter specified.

 

11.2                        Power of Attorney.  Borrower hereby irrevocably constitutes and appoints Lender (and all Persons designated by Lender) as Borrower’s true and lawful attorney (and agent-in-fact) for the purposes provided in this Section.  Lender, or Lender’s designee, may, without notice and in either its or Borrower’s name, but at the cost and expense of Borrower:

 

(a)                                 Endorse Borrower’s name on any Payment Item or other proceeds of Collateral (including proceeds of insurance) that come into Lender’s possession or control; and

 

(b)                                 During an Event of Default, (i) notify any Account Debtors of the assignment of their Accounts, demand and enforce payment of Accounts, by legal proceedings or otherwise, and generally exercise any rights and remedies with respect to Accounts; (ii) settle, adjust, modify, compromise, discharge or release any Accounts or other Collateral, or any legal proceedings brought to collect Accounts or Collateral; (iii) collect, liquidate and receive balances in Deposit Accounts or investment accounts, and take control, in any manner, of proceeds of Collateral; (iv) receive, open and dispose of mail addressed to Borrower, and notify postal authorities to deliver any such mail to an address designated by Lender; (v) use Borrower’s stationery and sign its name to verifications of Accounts and notices to Account Debtors; (vi) use information contained in any data processing, electronic or information systems relating to Collateral; (vii) make and adjust claims under insurance policies; and (viii) do all other things necessary to carry out the intent and purpose of this Agreement.

 

11.3                        Indemnity.  BORROWER SHALL INDEMNIFY AND HOLD HARMLESS THE INDEMNITEES AGAINST ANY CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE, INCLUDING CLAIMS ASSERTED BY ANY OBLIGOR OR OTHER PERSON OR ARISING FROM THE NEGLIGENCE OF AN INDEMNITEE.  In no event shall any party to a Loan Document have any obligation thereunder to indemnify or hold harmless an Indemnitee with respect to a Claim that is determined in a final, non-appealable judgment by a court of competent jurisdiction to result from the gross negligence or willful misconduct of such Indemnitee.

 

11.4                        Notices and Communications.

 

11.4.1.           Notice Address.  Subject to Section 4.1.3, all notices and other communications by or to a party hereto shall be in writing and shall be given to such party at its address shown below, or at such other address as a party may hereafter specify by notice in accordance with this Section 11.4.  Each communication shall be effective only (a) if given by facsimile transmission, when transmitted to the applicable facsimile number, if confirmation of receipt is received; (b) if given by mail, three Business Days after deposit in the U.S. mail, with first-class postage pre-paid, addressed to the applicable address; or (c) if given by personal delivery, when duly

 

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delivered to the notice address with receipt acknowledged.  Notwithstanding the foregoing, no notice to Lender pursuant to Section 2.1.3, 2.3, 3.1.2, 4.1.1 or 5.3.3 shall be effective until actually received by the individual to whose attention at Lender such notice is required to be sent.  Any written communication that is not sent in conformity with the foregoing provisions shall nevertheless be effective on the date actually received by the noticed party.

 

Addresses for notice:

 

	
(i)
    	
 
    	
If to Borrower:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Nortech Systems   Incorporated
    
	
 
    	
 
    	
7550 Meridian Circle N;   #150
    
	
 
    	
 
    	
Maple Grove, MN 55369
    
	
 
    	
 
    	
Attn: Paula Graff,   VP & CFO
    
	
 
    	
 
    	
Facsimile: 952-449-0442
    
	
 
    	
 
    	
 
    
	
(ii)
    	
 
    	
If to Lender:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Bank of America, N.A.
    
	
 
    	
 
    	
20975 Swenson Drive;   #200
    
	
 
    	
 
    	
Waukesha, WI 53186
    
	
 
    	
 
    	
Attn: Brian Conole
    
	
 
    	
 
    	
Facsimile: 262-207-3347
    

 

 

11.4.2.           Electronic Communications; Voice Mail.  Electronic mail and internet websites may be used only for routine communications, such as delivery of financial statements, Borrowing Base Certificates and other information required by Section 9.1.2, administrative matters, distribution of Loan Documents, and matters permitted under Section 4.1.3.  Lender make no assurances as to the privacy and security of electronic communications.  Electronic and voice mail may not be used as effective notice under the Loan Documents.

 

11.4.3.           Platform.  Borrowing Base information, reports, financial statements and other materials shall be delivered by Borrower pursuant to procedures approved by Lender, including electronic delivery (if possible) upon request by Lender to an electronic system maintained by it (“Platform”).  Borrower shall notify Lender of each posting of reports or other information on the Platform.  All information shall be deemed received by Lender only upon its receipt of such notice.  The Platform is provided “as is” and “as available.”  NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS, OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY LENDER WITH RESPECT TO THE PLATFORM.  Lender does not warrant the adequacy or functioning of the Platform, and expressly disclaims liability for any issues involving the Platform.  No Indemnitee shall have any liability to Borrower or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) relating to use by any Person of the Platform or delivery of any information over the internet.

 

11.4.4.           Non-Conforming Communications.  Lender may rely upon any communications purportedly given by or on behalf of Borrower even if they were not made in a manner specified herein, were incomplete or were not confirmed, or if the terms thereof, as understood by the recipient, varied from a later confirmation.  Borrower shall indemnify and hold harmless each Indemnitee from any liabilities, losses, costs and expenses arising from any electronic or telephonic communication purportedly given by or on behalf of Borrower.

 

11.5                        Performance of Borrower’s Obligations.  Lender may, in its discretion at any time and from time to time, at Borrower’s expense, pay any amount or do any act required of Borrower under any Loan Documents or otherwise lawfully requested by Lender to (a) enforce any Loan Documents or collect any Obligations; (b) protect, insure, maintain or realize upon any Collateral; or (c) defend or maintain the validity or priority of Lender’s Liens in any Collateral, including any payment of a judgment, insurance premium, warehouse charge, finishing or processing charge, or landlord claim, or any discharge of a Lien.  All payments, costs and expenses (including Extraordinary Expenses) of Lender under this Section shall be reimbursed by Borrower, on demand, with interest from the date incurred until paid in full, at the Default Rate applicable to Base Rate Revolver Loans.  Any payment

 

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made or action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default or to exercise any other rights or remedies under the Loan Documents.

 

11.6                        Credit Inquiries.  Lender may (but shall have no obligation) to respond to usual and customary credit inquiries from third parties concerning any Obligor or Subsidiary.

 

11.7                        Severability.  Wherever possible, each provision of the Loan Documents shall be interpreted in such manner as to be valid under applicable law.  If any provision is found to be invalid under applicable law, it shall be ineffective only to the extent of such invalidity and the remaining provisions of the Loan Documents shall remain in full force and effect.

 

11.8                        Cumulative Effect; Conflict of Terms.  The provisions of the Loan Documents are cumulative.  The parties acknowledge that the Loan Documents may use several limitations or measurements to regulate similar matters, and they agree that these are cumulative and that each must be performed as provided.  Except as otherwise provided in another Loan Document (by specific reference to the applicable provision of this Agreement), if any provision contained herein is in direct conflict with any provision in another Loan Document, the provision herein shall govern and control.

 

11.9                        Counterparts; Execution.  Any Loan Document may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement shall become effective when Lender has received counterparts bearing the signatures of all parties hereto.  Delivery of a signature page of any Loan Document by telecopy or other electronic means shall be effective as delivery of a manually executed counterpart of such agreement.  Any electronic signature, contract formation on an electronic platform and electronic record-keeping shall have the same legal validity and enforceability as a manually executed signature or use of a paper-based recordkeeping system to the fullest extent permitted by applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any similar state law based on the Uniform Electronic Transactions Act.

 

11.10                 Entire Agreement.  Time is of the essence with respect to all Loan Documents and Obligations.  The Loan Documents constitute the entire agreement, and supersede all prior understandings and agreements, among the parties relating to the subject matter thereof.

 

11.11                 No Control; No Advisory or Fiduciary Responsibility.  Nothing in any Loan Document and no action of Lender pursuant to any Loan Document shall be deemed to constitute control of any Obligor by Lender.  In connection with all aspects of each transaction contemplated by any Loan Document, Borrower acknowledges and agrees that (a)(i) this credit facility and all related services by Lender or its Affiliates are arm’s-length commercial transactions between Borrower and such Person; (ii) Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate; and (iii) Borrower is capable of evaluating, and understand and accept, the terms, risks and conditions of the transactions contemplated by the Loan Documents; (b) each of Lender and its Affiliates is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for Borrower, its Affiliates or any other Person, and has no obligation with respect to the transactions contemplated by the Loan Documents except as expressly set forth therein; and (c) Lender and its Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of Borrower and its Affiliates, and have no obligation to disclose any of such interests to Borrower or its Affiliates.  To the fullest extent permitted by applicable law, Borrower hereby waives and releases any claims that it may have against Lender and its Affiliates with respect to any breach of agency or fiduciary duty in connection with any transaction contemplated by a Loan Document.

 

11.12                 Confidentiality.  Lender agrees to maintain the confidentiality of all Information (as defined below), except that Information may be disclosed (a) to its Affiliates, and its and their partners, directors, officers, employees, agents, advisors and representatives (provided they are informed of the confidential nature of the Information and instructed to keep it confidential); (b) to the extent requested by any governmental, regulatory or self-regulatory authority purporting to have jurisdiction over it or its Affiliates; (c) to the extent required by applicable law or by any subpoena or other legal process; (d) to any other party hereto; (e) in connection with any action or proceeding relating to any Loan Documents or Obligations; (f) subject to an agreement containing provisions substantially the same as this Section, to any potential or actual transferee of any interest in a Loan Document or any actual or prospective party (or its advisors) to any Bank Product or to any swap, derivative or other transaction under which payments are to be made by reference to an Obligor or Obligor’s obligations; (g) with the

 

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consent of Borrower; or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) is available to Lender or its Affiliates on a nonconfidential basis from a source other than Borrower.  Notwithstanding the foregoing, Lender may publish or disseminate general information concerning this credit facility, and may use Borrower’s logos, trademarks or product photographs in advertising materials.  As used herein, “Information” means all information received from an Obligor or Subsidiary relating to it or its business, that is identified as confidential when delivered.  Person required to maintain the confidentiality of Information pursuant to this Section shall be deemed to have complied if it exercises a degree of care similar to that accorded its own confidential information.  Lender acknowledges that (i) Information may include material non-public information; (ii) it has developed compliance procedures regarding the use of such information; and (iii) it will handle the material non-public information in accordance with applicable law.

 

11.13                 [Intentionally Omitted]

 

11.14                 GOVERNING LAW.  UNLESS EXPRESSLY PROVIDED IN ANY LOAN DOCUMENT, THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND ALL CLAIMS, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES EXCEPT FEDERAL LAWS RELATING TO NATIONAL BANKS.

 

11.15                 Consent to Forum.

 

11.15.1.    Forum.  BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF ANY FEDERAL OR STATE COURT SITTING IN OR WITH JURISDICTION OVER MINNESOTA, IN ANY DISPUTE, ACTION, LITIGATION OR OTHER PROCEEDING RELATING IN ANY WAY TO ANY LOAN DOCUMENTS, AND AGREES THAT ANY DISPUTE, ACTION, LITIGATION OR OTHER PROCEEDING SHALL BE BROUGHT BY IT SOLELY IN ANY SUCH COURT.  BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL CLAIMS, OBJECTIONS AND DEFENSES THAT IT MAY HAVE REGARDING ANY SUCH COURT’S PERSONAL OR SUBJECT MATTER JURISDICTION, VENUE OR INCONVENIENT FORUM.  EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.4.1.  A final judgment in any proceeding of any such court shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or any other manner provided by applicable law.

 

11.15.2.    Other Jurisdictions.  Nothing herein shall limit the right of Lender to bring proceedings against any Obligor in any other court, nor limit the right of any party to serve process in any other manner permitted by applicable law.  Nothing in this Agreement shall be deemed to preclude enforcement by Lender of any judgment or order obtained in any forum or jurisdiction.

 

11.16                 Waivers by Borrower.  To the fullest extent permitted by applicable law, Borrower waives (a) the right to trial by jury (which Lender hereby also waives) in any proceeding or dispute of any kind relating in any way to any Loan Documents, Obligations or Collateral; (b) presentment, demand, protest, notice of presentment, default, non-payment, maturity, release, compromise, settlement, extension or renewal of any commercial paper, accounts, documents, instruments, chattel paper and guaranties at any time held by Lender on which Borrower may in any way be liable, and hereby ratifies anything Lender may do in this regard; (c) notice prior to taking possession or control of any Collateral; (d) any bond or security that might be required by a court prior to allowing Lender to exercise any rights or remedies; (e) the benefit of all valuation, appraisement and exemption laws; (f) any claim against Lender, on any theory of liability, for special, indirect, consequential, exemplary or punitive damages (as opposed to direct or actual damages) in any way relating to any enforcement action, Obligations, Loan Documents or transactions relating thereto; and (g) notice of acceptance hereof.  Borrower acknowledges that the foregoing waivers are a material inducement to Lender entering into this Agreement and that Lender is relying upon the foregoing in its dealings with Borrower.  Borrower has reviewed the foregoing waivers with its legal counsel and has knowingly and voluntarily waived its jury trial and other rights following consultation with legal counsel.  In the event of litigation, this Agreement may be filed as a written consent to a trial by the court.

 

11.17                 PATRIOT Act Notice.  Lender hereby notifies Borrower that pursuant to the PATRIOT Act, Lender is required to obtain, verify and record information that identifies Borrower, including its legal name, address, tax ID number and other information that will allow Lender to identify it in accordance with the PATRIOT Act.  Lender will also require information regarding each personal guarantor, if any, and may require information

 

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regarding Borrower’s management and owners, such as legal name, address, social security number and date of birth.  Borrower shall, promptly upon request, provide all documentation and other information as Lender may request from time to time in order to comply with any obligations under “know your customer,” anti-money laundering or other requirements of applicable law.

 

11.18                 NO ORAL AGREEMENT.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.

 

[Remainder of page intentionally left blank; signatures begin on following page]

 

43

 

IN WITNESS WHEREOF, this Agreement has been executed and delivered  as of the date set forth above.

 

	
 
    	
LENDER:
    
	
 
    	
 
    
	
 
    	
BANK OF AMERICA, N.A.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Brian Conole
    
	
 
    	
Name:
    	
Brian Conole
    
	
 
    	
Title:
    	
Senior VP
    

 

[Signature Page to Loan and Security Agreement]

 

 

	
 
    	
BORROWER:
    
	
 
    	
 
    
	
 
    	
NORTECH SYSTEMS INCORPORATED
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Paula Graff
    
	
 
    	
Name:
    	
Paula Graff
    
	
 
    	
Title:
    	
VP & CFO
    

 

 

[Signature Page to Loan and Security Agreement]

 

 

EXHIBIT A

 

FORM OF BORROWING BASE CERTIFICATE

 

See attached

 

 

EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

In accordance with the terms of the Loan and Security Agreement dated June 15, 2017 (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the “Loan Agreement”) by and among Nortech Systems Incorporated (“Borrower”) and Bank of America, N.A., I hereby certify that:

 

1.                                      I am the [President] [Chief Financial Officer] of Borrower;

 

2.                                      The enclosed financial statements are prepared in accordance with generally accepted accounting principles;

 

3.                                      No Default or Event of Default (each as defined in the Loan Documents), has occurred.

 

4.                                      Borrower is in compliance with the financial covenant(s) set forth in Section 9.3 of the Loan Agreement, as demonstrated by the calculations contained in Schedule I, attached hereto and made a part hereof.

 

	
 
    	
Nortech Systems Incorporated, as Borrower
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

 

SCHEDULE I TO COMPLIANCE CERTIFICATE

 

[Borrower to provide detailed calculations of financial covenants]

 

 

EXHIBIT C

 

CONDITIONS PRECEDENT

 

(a)           Each Loan Document shall have been duly executed and delivered to Lender by each of the signatories thereto, and each Obligor shall be in compliance with all terms thereof.

 

(b)           Lender shall have received acknowledgments of all filings or recordations necessary to perfect its Liens in the Collateral, as well as UCC and Lien searches and other evidence satisfactory to Lender that such Liens are the only Liens upon the Collateral, except Permitted Liens.

 

(c)           Lender shall have received the Related Real Estate Documents for all Real Estate subject to a Mortgage.

 

(d)           Lender shall have received duly executed agreements establishing each Dominion Account and related lockbox, in form and substance, and with financial institutions, satisfactory to Lender.

 

(e)           Lender shall have received certificates, in form and substance satisfactory to it, from a knowledgeable Senior Officer of Borrower certifying that, after giving effect to the initial Loans and transactions hereunder, (i) Borrower is Solvent; (ii) no Default or Event of Default exists; (iii) the representations and warranties set forth in Section 8 are true and correct; and (iv) Borrower has complied with all agreements and conditions to be satisfied by it under the Loan Documents.

 

(f)            Lender shall have received a certificate of a duly authorized officer of each Obligor, certifying (i) that attached copies of such Obligor’s Organic Documents are true and complete, and in full force and effect, without amendment except as shown; (ii) that an attached copy of resolutions authorizing execution and delivery of the Loan Documents is true and complete, and that such resolutions are in full force and effect, were duly adopted, have not been amended, modified or revoked, and constitute all resolutions adopted with respect to this credit facility; and (iii) to the title, name and signature of each Person authorized to sign the Loan Documents.  Lender may conclusively rely on this certificate until it is otherwise notified by the applicable Obligor in writing.

 

(g)           Lender shall have received a written opinion of counsel to the Borrower, as well as any local counsel to Borrower or Lender, in form and substance satisfactory to Lender.

 

(h)           Lender shall have received copies of the charter documents of each Obligor, certified by the Secretary of State or other appropriate official of such Obligor’s jurisdiction of organization.  Lender shall have received good standing certificates for each Obligor, issued by the Secretary of State or other appropriate official of such Obligor’s jurisdiction of organization and each jurisdiction where such Obligor’s conduct of business or ownership of Property necessitates qualification.

 

(i)            Lender shall have received copies of policies or certificates of insurance for the insurance policies carried by Borrower, all in compliance with the Loan Documents.

 

(j)            Lender shall have completed its business, financial and legal due diligence of Obligors, including a roll-forward of its previous field examination, with results satisfactory to Lender.  No material adverse change in the financial condition of any Obligor or in the quality, quantity or value of any Collateral shall have occurred since December 31, 2016.

 

(k)           Borrower shall have paid all fees and expenses to be paid to Lender on the Closing Date.

 

(l)            Lender shall have received a Borrowing Base Certificate prepared as of March 31, 2017, as updated within one Business Day before the Closing Date.  Upon giving effect to the initial funding of Loans and issuance of Letters of Credit, and the payment by Borrower of all fees and expenses incurred in connection herewith as well as any payables stretched beyond their customary payment practices, Availability shall be at least $6,500,000.

 

 

EXHIBIT D

 

FEES

 

(a)           Unused Line Fee.  Borrower shall pay to Lender a fee equal to the Unused Line Fee Rate times the amount by which the Revolver Commitment exceeds the average daily Revolver Usage during any month.  Such fee shall be payable in arrears, on the first day of each month and on the Commitment Termination Date.

 

(b)           LC Facility Fees.  Borrower shall pay to Lender (i) a fee equal to the Applicable Margin in effect for LIBOR Revolver Loans times the average daily Stated Amount of Letters of Credit, which fee shall be payable monthly in arrears, on the first day of each month; (ii) a fronting fee equal to 0.25% per annum on the Stated Amount of each Letter of Credit, which fee shall be payable monthly in arrears, on the first day of each month; and (iii) all customary charges associated with the issuance, amending, negotiating, payment, processing, transfer and administration of Letters of Credit, which charges shall be paid as and when incurred.  During an Event of Default, the fee payable under clause (i) shall be increased by 2% per annum.

 

(c)           Closing Fee.  On the Closing Date, Borrower shall pay to Lender a closing fee of $61,550.

 

(d)           Annual Administration Fee.  On the Closing Date and on the first day of each Loan Year thereafter, the Borrower shall pay to Lender an annual administration fee of $15,000.

 

 

EXHIBIT E

 

FINANCIAL REPORTING

 

As long as any Commitment or Obligations are outstanding, Borrower shall, and shall cause each Subsidiary to furnish to Lender:

 

(a)           as soon as available, and in any event within 90 days after the close of each Fiscal Year, balance sheets as of the end of such Fiscal Year and the related statements of income, cash flow and shareholders’ equity for such Fiscal Year, on consolidated and consolidating bases for Borrower and its Subsidiaries, which consolidated statements shall be audited and certified (without qualification) by a firm of independent certified public accountants of recognized standing selected by Borrower and reasonably acceptable to Lender, and shall set forth in comparative form corresponding figures for the preceding Fiscal Year and other information acceptable to Lender;

 

(b)           as soon as available, and in any event within 45 days after the end of each Fiscal Quarter, unaudited balance sheets as of the end of such Fiscal Quarter and the related statements of income and cash flow for such Fiscal Quarter and for the portion of the Fiscal Year then elapsed, on consolidated and consolidating bases for Borrower and its Subsidiaries, setting forth in comparative form corresponding figures for the preceding Fiscal Year and certified by the chief financial officer of Borrower as prepared in accordance with GAAP and fairly presenting the financial position and results of operations for such month and period, subject to normal year-end adjustments and the absence of footnotes;

 

(c)           concurrently with delivery of financial statements under clauses (a) and (b) above, or more frequently if requested by Lender while a Default or Event of Default exists, a Compliance Certificate executed by the chief financial officer of Borrower;

 

(d)           concurrently with delivery of financial statements under clause (a) above, copies of all management letters and other material reports submitted to Borrower by its accountants in connection with such financial statements;

 

(e)           not later than 60 days following the end of each Fiscal Year, projections of Borrower’s consolidated balance sheets, results of operations, cash flow and Availability for the next Fiscal Year, month by month and for the following three Fiscal Years, year by year;

 

(f)            By the 15th day of each month, as of the close of business of the previous month, Borrower shall deliver to Lender a listing of Borrower’s trade payables, specifying the trade creditor and balance due, and a detailed trade payable aging, all in form satisfactory to Lender;

 

(g)           promptly after the sending or filing thereof, copies of any proxy statements, financial statements or reports that Borrower has made generally available to its shareholders; copies of any regular, periodic and special reports or registration statements or prospectuses that Borrower files with the Securities and Exchange Commission or any other Governmental Authority, or any securities exchange; and copies of any press releases or other statements made available by Borrower to the public concerning material changes to or developments in the business of Borrower;

 

(h)           promptly after the sending or filing thereof, copies of any annual report to be filed in connection with each Plan or Foreign Plan;

 

(i)            such other reports and information (financial or otherwise) as Lender may request from time to time in connection with any Collateral or Borrower’s, any of its Subsidiaries’ or other Obligor’s financial condition or business; and

 

(j)            as soon as available, and in any event within 120 days after the close of each Fiscal Year, financial statements for each Guarantor, in form and substance satisfactory to Lender.

 

 

EXHIBIT F

 

COLLATERAL REPORTING

 

(a)           By the 15th day of each month, Borrower shall deliver to Lender a Borrowing Base Certificate prepared as of the close of business of the previous month, and at such other times as Lender may request, provided that while a Borrowing Base Trigger Period exists, Borrower must deliver to the Lender a Borrowing Base Certificate no later than the third Business Day of each week as of the last Business Day of the immediately preceding week, provided, however, if the Borrowing Base Trigger Period commences, other than as a result of an Event of Default, on the first, second or third Business Day of any week, the Borrower shall have until the third Business Day of the following week to commence delivery of weekly Borrowing Base Certificates.  All calculations of Availability in any Borrowing Base Certificate shall originally be made by Borrower and certified by a Senior Officer, provided that Lender may from time to time review and adjust any such calculation (i) to reflect its reasonable estimate of declines in value of any Collateral, due to collections received in the Dominion Account or otherwise; and (ii) to the extent the calculation is not made in accordance with this Agreement or does not accurately reflect the Availability Reserve.

 

(b)           Borrower shall keep accurate and complete records of its Accounts, including all payments and collections thereon, and shall submit to Lender sales, collection, reconciliation and other reports in form reasonably satisfactory to Lender, on such periodic basis as Lender may reasonably request (but no more frequently than once per month so long as no Event of Default has occurred and is continuing).  Borrower shall also provide to Lender, on or before the 15th day of each month, a detailed aged trial balance of all Accounts as of the end of the preceding month, specifying each Account’s Account Debtor name and address, amount, invoice date and due date, showing any discount, allowance, credit, authorized return or dispute, and including such proof of delivery, copies of invoices and invoice registers, copies of related documents, repayment histories, status reports and other information as Lender may reasonably request.  If Accounts in an aggregate face amount of $500,000 or more cease to be Eligible Accounts, Borrower shall notify Lender of such occurrence promptly (and in any event within one Business Day) after Borrower has knowledge thereof.

 

(c)           Borrower shall keep accurate and complete records of its Inventory, including costs and daily withdrawals and additions, and shall submit to Lender inventory and reconciliation reports in form reasonably satisfactory to Lender, on such periodic basis as Lender may reasonably request (but no more frequently than once per month so long as no Event of Default has occurred and is continuing).  Borrower shall conduct periodic (and on a more frequent basis if requested by Lender when an Event of Default exists) cycle counts of inventory consistent with historical practices, and shall provide to Lender a report based on each such inventory count promptly upon completion thereof, together with such supporting information as Lender may reasonably request.

 

(d)           Borrower shall keep accurate and complete records of its Equipment, including kind, quality, quantity, cost, acquisitions and dispositions thereof, and shall submit to Lender, on such periodic basis as Lender may reasonably request, a current schedule thereof, in form reasonably satisfactory to Lender (but no more frequently than twice per year so long as no Event of Default has occurred and is continuing).  Promptly upon request, Borrower shall deliver to Lender evidence of its ownership or interests in any Equipment.

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