Document:

Exhibit 10.4

 

AGREEMENT AND RELEASE OF ADEA CLAIMS

 

This AGREEMENT
AND RELEASE OF ADEA CLAIMS (“Agreement”) is made and entered into by and
between EVANS & SUTHERLAND COMPUTER CORPORATION, a Utah corporation (the
“Company”), and JAMES R. OYLER (“Mr. Oyler”).

 

Recitals

 

WHEREAS, Mr.
Oyler has been serving as President and Chief Executive Officer of the Company
pursuant to an Employment Agreement dated as of May 16, 2000 (“Employment
“Agreement”), as amended by that certain Amendment No. 1 to Employment Agreement
dated as of September 22, 2000 (“Amendment No. 1”) (collectively the “Amended
Employment Agreement”), and as a member of the Company’s Board of Directors
(“Board”); and

 

WHEREAS, Mr.
Oyler has notified the Company of his intention to resign as President and
Chief Executive Officer of the Company and as a member of the Board; and

 

WHEREAS, the
Company and Mr. Oyler have executed a Separation and Release Agreement of even
date herewith (the “Separation Agreement”); and

 

WHEREAS, in
addition to the terms of the Separation Agreement, Mr. Oyler has agreed to
provide the Company with a release of any and all claims that he may have under
the Age Discrimination in Employment Act (“ADEA”) in exchange for the
consideration to be separately provided by the Company as set forth herein, in
accordance with the terms hereof; and

 

WHEREAS, the
Company is willing to provide Mr. Oyler with the consideration set forth herein
in exchange for the promises, covenants and other consideration to be provided
by Mr. Oyler as set forth herein, in accordance with the terms hereof;

 

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

 

Agreement

 

1.                                                                                       Payment to Mr. Oyler. The Company shall
pay to Mr. Oyler the sum of One Hundred Thousand Dollars and No Cents
($100,000.00) as a discretionary payment for services rendered and for the
release provided by Mr. Oyler hereunder (“Discretionary Payment”). The
Discretionary Payment shall be payable on the Effective Date. The Company shall
withhold from the Discretionary Payment all required amounts for income taxes
and payroll taxes, both federal and state.

 

 

 

2.                                                                                       Amended Employment Agreement and Separation Agreement
Shall Remain In Effect. The parties acknowledge that the terms,
conditions, covenants and obligations contained in the Amended Employment
Agreement, and in particular in paragraphs 1 and 15-31 of the Amended
Employment Agreement, and the terms, conditions, covenants and obligations
contained in the Separation Agreement, shall remain in full force and effect
following the effective date of this Agreement, and shall not be affected by
this Agreement.

 

3.                                                                                       Release of Claims by Mr. Oyler. In
partial consideration of the payment to Mr. Oyler provided in paragraph 1
above, and other good and valuable consideration, Mr. Oyler, for himself and
his heirs, successors, and assigns, hereby releases and forever discharges the
Company and its officers, shareholders, directors, employees, agents,
representatives, attorneys, parent, subsidiary and affiliated companies,
successors and assigns, and each of them, of and from any and all claims,
losses, demands, actions, causes of action, obligations, debts and/or
liabilities (“Oyler Released Claims”) arising out of any claims arising under
the Age Discrimination in Employment Act (“ADEA”) presently known or unknown,
in law or in equity, arising out of any acts, omissions, events or facts which
have occurred up to, and including the time of, the effective date of this
Agreement.

 

a.                                                                                                                                       Notwithstanding
the terms of the foregoing paragraph, Mr. Oyler does not release the Company
from any obligations it may have with respect to any of the following, except
as otherwise expressly provided in the Separation Agreement:  the Employee’s right to the continuation of
health, dental and vision insurance coverage under COBRA and subsequent
conversion or continuation policies; Mr. Oyler’s rights under the Evans &
Sutherland Incentive Plan (the “ESIP” also known as “MIP”), the Company’s
Senior Executive Retirement Plan, the Company’s 401(k) Deferred Compensation
Plan, and the Company’s Executive Savings Plan; Mr. Oyler’s rights with respect
to his stock options as modified by the Separation Agreement; the Company’s
obligations under the continuing provisions of the Amended Employment
Agreement, as set forth in Section 9 thereof; the Company’s indemnification
obligations under Article VI of the Company’s Bylaws, as amended and restated
as of the date hereof; the Company’s obligations under the Separation
Agreement, and the Company’s obligations under this Agreement.

 

4.                                                                                       No Admission of Liability. Neither the
execution of this Agreement, the consideration given for this Agreement, nor
the performance of any of the terms of this Agreement shall constitute or be
construed as any admission by the Company of any liability of any kind to Mr.
Oyler, or by Mr. Oyler of any liability of any kind to the Company, which
respective, liability is expressly denied.

 

5.                                                                                       Notice and Waiting Period Relating to Release of ADEA
Claim.

 

a.                                                                                                                                       This
Agreement includes a release of all claims under ADEA arising up to and
including the effective date of this Agreement, and Mr. Oyler acknowledges that
he has been advised of that fact and that he should fully consider this release
before executing it.

 

 

2

 

Mr. Oyler also
acknowledges that he has consulted with an attorney regarding his rights and
obligations regarding the release of this claim.

 

b.                                                                                                                                      Mr.
Oyler acknowledges that the Company has offered him ample time and opportunity,
consisting of a minimum of twenty-one (21) days, to consider and consult with
his attorney regarding this release. To the extent that Mr. Oyler does not use
such time, he expressly waives his right to take such time before entering into
this Agreement. Mr. Oyler’s execution of this Agreement constitutes his
acknowledgment that he had the opportunity and adequate time, consisting of a
minimum of twenty-one (21) days, to consider and consult with his attorney
regarding this release.

 

c.                                                                                                                                       Mr.
Oyler acknowledges that his release of any ADEA claim that he may have shall
become effective and enforceable seven days following the execution of this
Agreement by him and that Mr. Oyler may revoke his acceptance of the release of
any such ADEA claim by delivering written notice of his revocation of the said
release of any such ADEA claim to David Bateman, 770 Komas Drive, Salt Lake
City, Utah 84108, within said seven-day period. In the event that Mr. Oyler
revokes his release of any such ADEA claim within such seven-day period, this
entire Agreement shall be null and void. After the seven-day period has
elapsed, Mr. Oyler shall not be permitted to revoke his release of any such
ADEA claim, and such release, as well as all other provisions of this
Agreement, shall be binding upon Mr. Oyler.

 

6.                                                                                       Effective Date of Agreement. This
Agreement shall take effect and be binding upon the parties eight (8) days
following the execution of this Agreement by both parties (the “Effective
Date”).

 

7.                                                                                       Entire Agreement. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and fully supersedes any and all prior agreements or
understandings, oral or written, between the parties hereto pertaining to the
subject matter hereof. Notwithstanding the foregoing, it is expressly
understood and agreed by the parties that the Separation Agreement shall remain
in full force and effect, and the Amended Employment Agreement, including
paragraphs 1 and 15-31 thereof, shall remain in full force and effect, except
as modified by the Separation Agreement.

 

8.                                                                                       Choice of Law; Jurisdiction and Venue. This
Agreement shall be construed, interpreted and the rights of the parties
determined in accordance with the laws of the State of Utah (without giving
effect to its choice of law principles). Each of the parties submits to the
jurisdiction of any state or federal court sitting in Utah in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in
any such court. Each party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety or other security
that might be required of any other party with respect thereto.

 

 

3

 

[Remainder of
page intentionally left blank]

[Signature page
follows immediately]

 

 

4

 

IN WITNESS
WHEREOF, the parties hereto have executed this Agreement on the dates set forth
below.

 

	
   

  	
   

  	
  EVANS
  & SUTHERLAND COMPUTER CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
     8-June-2006

  	
   

  	
  By:

  	
    /s/David
  Coghlan

  	
   

  
	
   

  	
   

  	
   

  	
  David
  Coghlan, Chairman of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
     8-June-2006

  	
   

  	
   /s/
  James R. Oyler

  	
   

  
	
   

  	
   

  	
  JAMES R.
  OYLER

  

 

5Exhibit 10.5

 

LINE OF CREDIT AGREEMENT

 

THIS IS A LINE OF CREDIT AGREEMENT
(the “Agreement”), dated as of the 28th
day of April, 2006, between SPITZ, INC., a Delaware corporation (“Borrower”), with an
address of P.O. Box 198, Route 1, Chadds Ford, Pennsylvania, 19317;
FIRST KEYSTONE BANK, a federally
chartered stock savings bank organized and existing under the laws of the
United States of America, with a principal business office located at 22 West
State Street, Media, Pennsylvania, 19063 (“Lender”); and EVANS & SUTHERLAND COMPUTER CORPORATION,
a Utah corporation (hereinafter the “Guarantor”) .

 

1.                                      DEFINITIONS. The following terms when
used in this Agreement shall have the respective meanings set forth below:

 

1.1.                            Closing Date:  April 28, 2006.

 

1.2.                            Collateral:  The Land and all personal property, tangible
and intangible, including without limitation any and all accounts, inventory,
software, and equipment, which is now or at anytime hereafter owned by Borrower
subject only to the Permitted Liens.

 

1.3.                            Commitment Letter:  A certain Commitment Letter from Lender to
Borrower dated February 8, 2006.

 

1.4.                            Event of Default:  The occurrence of any event described in
Paragraph 5.1 hereof.

 

1.5.                            Governmental Authority:  The United States of America, the Commonwealth
of Pennsylvania, and any political subdivision thereof in which Borrowers
principal place of business is located, including without limitation, County of
Delaware, the Township of Chadds Ford, and any agency, department, court,
commission, board, bureau or instrumentality of any of them which exercises
jurisdiction over the Borrower.

 

1.6.                            Guaranty:  The Guaranty and Suretyship agreement of
Guarantor guaranteeing the payment and performance obligations of Borrower set
forth in the Loan Documents.

 

1.7.                            Land:  The real property currently occupied by
Borrower located at Route 1, Chadds Ford
Township, Delaware County, Pennsylvania, being Folio No. 04-00-00034-02,
as more particularly described on Exhibit “A” to the Mortgage, together with
all of the property rights, title, interests, easements and other rights
appurtenant to such real property and defined in the Mortgage as the Mortgaged
Property.

 

 

	
  JONES,
  STROHM & GUTHRIE

  	
   

  	
  10 Beatty Road

  
	
  A
  Professional Corporation

  	
   

  	
  Media, Pennsylvania 19063

  
	
  Attorneys
  At Law

  	
   

  	
  Telephone (610) 565-7100

  
	
   

  	
   

  	
  Fax (610) 565-7180

  

 

 

1.8.                            Legal
Requirements:  All applicable
laws, statutes, ordinances, rulings, regulations, codes, decrees, orders,
judgments, conditions, restrictions and requirements of any Governmental
Authority, including, without limitation, agreements, requirements,
restrictions and conditions related to any permit, approval or other grant of
authority, which, if not complied with, would have a Material Adverse Effect on
the Borrower, the Borrower’s business, or the Collateral.

 

1.9.                            Loan: 
The credit facility of up to Three
Million Dollars ($3,000,000.00) to be advanced by Lender to Borrower
pursuant to this Agreement and to be evidenced by the Note and secured by,
among other things, the Mortgage, the Security Agreement, the Pledge Agreement
and the Guaranty.

 

1.10.                     Loan Documents:  All agreements, documents, instruments,
certificates, legal opinions and other papers executed and delivered or
otherwise furnished by Borrower or Guarantor to Lender in connection with the
Loan including, without limitation, this Agreement, the Mortgage, the Security
Agreement, the Pledge Agreement, the Note, and the Guaranty.

 

1.11.                     Material Adverse Effect:  An event or occurrence which, if adversely
resolved or determined, would have a material adverse effect on the business,
operations, assets, properties, prospects, or conditions of Borrower or the
Collateral.

 

1.12.                     Maturity Date: The earlier to occur of: (i) demand by
Lender in the event of either the occurrence of an Event of Default or the
retirement, termination, departure from the employ of Borrower or the
substantial diminution of the management authority or responsibilities of
either Jonathan Shaw or Paul Dailey in the operations of Borrower; (ii) thirty
(30) days of demand; or (iii) June 30, 2007.

 

1.13.                     Mortgage:  The mortgage of even date herewith from
Borrower to Lender granting a second lien
mortgage and security interest in, among other things, the Land.

 

1.14.                     Note:  The Line of Credit Note of even date herewith
from Borrower to Lender evidencing the Loan in the maximum principal amount of
up to Three Million Dollars ($3,000,000.00) and all extensions, renewals and
modifications thereof.

 

1.15.                     Permitted Liens:    “Permitted Liens” means the following with
respect to the Collateral exclusive of the Land: (i) purchase money security
interests; (ii) leases of specific items of equipment consented to in writing
by Lender; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Lender; (v) security interests
being terminated substantially concurrently with the Loan Documents
(hereinafter defined); (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in

 

2

 

clauses (i) or (ii) above; and (viii) liens
in favor of customs and revenue authorities which secure payment of customs
duties in connection with the importation of goods.

 

1.16.                     Pledge Agreement:  The pledge agreement of even date herewith
from Guarantor to Lender assigning, granting and conveying to Lender a
continuing first priority security interest and lien in and to one hundred
(100%) percent of the issued and outstanding shares of stock in Borrower
(representing all of the ownership interests in Borrower).

 

1.17.                     Security Agreement:  The Security Agreement between Borrower and
Lender dated even date herewith.

 

2.                                      LOAN.

 

2.1.                            General.
Lender will lend to Borrower, and Borrower may borrow from Lender, up to the
Maximum Credit Limit (hereinafter defined). Provided there exists no Event of
Default hereunder, principal advances of available funds under the Loan shall
be advanced to Borrower at Borrower’s written request from time to time until
the earlier to occur of (i) the occurrence of an Event of Default under the
Note, (ii) Lender making demand for payment in full of the Loan pursuant to the
terms of the Note, or (iii) fifteen [15] days prior to the Maturity Date,
provided, however, the aggregate amount advanced, less repayments, shall not
exceed at any one time outstanding the Maximum Credit Limit. Lender shall not
be obligated to fund all or any part of a requested advance under the Loan made
during the running of any applicable cure period following Lender’s giving
notice of default to Borrower under the Note, or if such advance would cause
the aggregate amount advanced, less repayments, to exceed the Maximum Credit
Limit. Notwithstanding anything herein to the contrary, in the event the
outstanding balance of the Note exceeds the Maximum Credit Limit because of a
reduction in the Maximum Credit Limit (either by reason of a reduction in the
amount of Qualified Accounts Receivable, Qualified Inventory or otherwise),
Borrower and Guarantor will immediately pay to Lender the amount necessary to
reduce the outstanding balance of the Note to a sum equal to or less than the
Maximum Credit Limit.

 

2.2                               Maximum
Credit Limit. Until the second day following the Closing Date, the
aggregate amount advanced, less repayments, shall not exceed at any one time
outstanding (the “Maximum Credit Limit”) the lesser of: (i) Three Million
Dollars ($3,000,000.00); or (ii) the sum of (a) eighty (80%) percent of the
Borrower’s “Qualified Accounts Receivable” (as hereinafter defined) and (b)
fifty (50%) percent of Borrower’s “Qualified Inventory” (as hereinafter
defined). On the third day following the Closing Date, the Maximum Credit Limit
shall be reduced to the lesser of: (i) Two Million Five Hundred Thousand
Dollars ($2,500,000.00); or (ii) the sum of (a) eighty (80%) percent of the
Borrower’s Qualified Accounts Receivable and (b) fifty (50%) percent of
Borrower’s Qualified Inventory. “Qualified Accounts Receivable” shall mean
accounts receivable earned by Borrower in the ordinary course of business for
services rendered and goods sold to customers for which no claims of offset or
defense have been asserted (excluding such accounts only to the extent of such
claim or offset has been asserted), and which, in

 

3

 

the reasonable opinion of Lender, are not of
doubtful collectability, and which have been outstanding for one hundred twenty
(120) days or less from date of invoice, as reflected on the most recent,
certified statement of accounts receivable delivered to Lender, which statement
shall include a copy of all invoices, in form and substance satisfactory to
Lender, respecting any account receivable from any particular debtor in excess
of Two Hundred Thousand Dollars ($200,000.00). “Qualified Inventory” shall be
valued at the lesser of the invoice price or present market value in accordance
with generally accepted accounting principles, consistently applied, and shall
mean all inventory which is in good merchantable condition, is not obsolete or
discontinued, which would properly be classified as “raw materials”, “work in
process”, or “finished goods inventory” under generally accepted accounting
principles, and which has been fully paid for from Borrower’s own funds and for
which no security interest exists except the security interest to be granted in
favor of Lender as herein contemplated. An account receivable or item of
inventory which is at any time a Qualified Account Receivable or an item of
Qualified Inventory, but which subsequently fails to meet any of the foregoing
requirements, shall cease to be a Qualified Account Receivable or an item of
Qualified Inventory as the case may be, for so long as such failure continues. Notwithstanding
anything herein to the contrary, if Borrower requests and Lender issues a
letter of credit, an amount equal to the undrawn balance under any such letter
of credit shall be set aside and frozen from the Maximum Credit Limit and be
unavailable for advance under the Loan. If any sum is drawn under any such
letter of credit, an advance under the Loan will be made in an amount equal to
the draw under the letter of credit and applied on account of Borrower’s
obligation to repay Lender for sums drawn under such letter of credit.

 

2.3                               Procedure
For Disbursements:  Advance requests
shall be made in writing and signed by Jonathan Shaw, Paul Dailey, or Lance
Sessions or such other officers and/or employees of Borrower as Borrower may
from time to time authorize and are approved by Lender. Further, Lender, in its
sole and absolute discretion, may refuse to honor any request for an advance
made by any person or entity other than Borrower notwithstanding any power or
authority granted such person or entity by Borrower, unless Borrower has
secured Lender’s prior written acknowledgment and consent to the granting of such
power or authority. Advances of available funds under the Loan shall be
deposited into Borrower’s account with Lender unless otherwise requested by
Borrower and approved by Lender.

 

2.4.                            Conditions
to Loan Disbursement. The obligation of Lender to make any advance under
the Loan is subject to the following conditions precedent:

 

2.4.1                     Borrower shall have complied with
all of the terms and conditions of the Commitment Letter, including without
limitation the execution and delivery of all certificates and documents therein
required.

 

4

 

2.4.2                     Borrower shall execute and deliver
to Lender such further certificates and documents as Lender may reasonably
require from time to time to effectuate the purpose of the Loan and the terms
of this Agreement.

 

2.4.3                     Borrower’s representations and
warranties set forth herein shall be and remain unbroken, true and correct.

 

2.5                               Loan
Purpose:  The purpose of the Loan is
working capital.

 

2.6.                            Automatic
Payment. Borrower hereby authorizes Lender to charge, when due, the sum of
principal, interest and any other charges or fees due and payable under the
Loan (the “Installment”) to an account of Borrower maintained with Lender for
such purpose (collectively the “Deposit Account”), and to apply such sums
charged to the Deposit Account on account of the Installment. Should the
Deposit Account have insufficient funds to permit payment in full of the
Installment when due, then: (i) in addition to any late charge, fee or premium
due under the Loan as a consequence of Borrower’s failure to pay the
Installment when due, the Lender shall charge to the Deposit Account an
insufficient funds each time a charge is made to the Deposit Account on account
of the Installment for which insufficient funds are available; (ii) Lender may,
in Lenders sole discretion, elect to charge to the Deposit Account such portion
of the Installment as Lender shall elect and such charge to the Deposit Account
on account of the Installment shall not constitute or be construed as a waiver
by Lender of any of the rights and remedies available to Lender as a result of
Borrower’s failure to pay the Installment, in full, when due; and (iii) Lender
may, at Lender’s sole discretion, elect to subsequently charge to the Deposit Account,
at such times as Lender may elect, such portion or all of the unpaid
Installment. Borrower is responsible to maintain sufficient funds available in
the Deposit Account to meet any applicable minimum balance requirements and to
pay the Installment. This authorization is irrevocable and any attempted
revocation of this authorization shall constitute an Event of Default.

 

2.7.                            Acknowledgment
of Partial Payment. Lender acknowledges that, prior to the Closing Date, the
Borrower has transferred to Transnational Industries, Inc., an amount equal to
[Five Hundred Thousand Dollars ($500,000)] in partial payment of the
outstanding accounts receivable which are payable to Transnational by Borrower
and further acknowledges that such payment was authorized by the Lender
pursuant to the Commitment Letter.

 

 3.                                   REPRESENTATIONS
AND WARRANTIES. Borrower and Guarantor (in each case only as to itself and
its properties) represent and warrant to Lender as of the date hereof and at
all times when this Agreement shall remain in effect or the Note shall remain
outstanding that:

 

3.1.                            Organization
and Good Standing. Borrower is duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania and the State of
Delaware. Guarantor is duly organized, validly existing and in good standing
under the laws of the jurisdiction(s) in which Guarantor was organized and

 

5

 

conducts business. The character of the
properties owned or leased by Borrower or Guarantor and the nature of
Borrower’s and Guarantor’s businesses do not require Borrower or Guarantor to
be qualified and in good standing in any other state in order to avoid material
liability or disadvantage. Certified copies of Borrower’s and Guarantor’s
organizational documents and all amendments thereto have been delivered to
Lender and are current, correct and complete as of the date hereof.

 

3.2.                            Power
of Authority. Borrower and Guarantor have full power and authority (i) to
own Borrower’s and Guarantor’s properties respectively, and (ii) to conduct
Borrower’s and Guarantor’s businesses as now conducted and as to be conducted. Borrower
and Guarantor have full power and authority to execute, deliver and comply with
the provisions of each of the Loan Documents executed by Borrower and Guarantor
respectively. Each of the Loan Documents executed by Borrower and Guarantor
respectively constitute the legally binding obligation of Borrower and/or
Guarantor enforceable against Borrower and Guarantor in accordance with its
terms.

 

3.3.                            No
Litigation. There is no action, suit or proceeding pending or, to the
knowledge of Borrower and Guarantor, threatened against or affecting Borrower
or all or any portion of the Collateral, except actions, suits and proceedings
fully covered by insurance less any deductible.

 

3.4.                            Conflict. Neither the execution nor the
delivery of any of the Loan Documents, nor the performance or satisfaction by
Borrower or Guarantor of any of the provisions thereof, conflicts with or
results in a breach of any of the provisions of any applicable Legal
Requirements, or any agreement or other instrument to which Borrower or
Guarantor is a party or by which Borrower or Guarantor is bound, or result in
the creation or imposition of any lien, charge or encumbrance upon any property
of Borrower other than any lien created pursuant to any of the Loan Documents.

 

3.5.                            Consent. No consent, approval or other
authorization of or by any Governmental Authority is required in connection
with the execution or delivery by Borrower or Guarantor of any of the Loan
Documents, or compliance with or performance of any of the provisions thereof
other than those which have been obtained and provided to Lender.

 

3.6.                            Permits and Approvals. Borrower has secured
all licenses, permits, authorizations, consents and approvals required by any
Governmental Authority for the use and occupation of the Land as commercial
real estate.

 

3.7.                            Compliance; Zoning. Borrower has complied with
all Legal Requirements respecting the occupancy of the Land.

 

6

 

3.8.                            Financial Statements.

 

3.8.1.                  The financial statements and tax
returns of Borrower and Guarantor delivered to Lender prior to the date hereof
are Borrower’s and Guarantor’s most current financial statements and tax
returns and fully and accurately present the financial condition and income of
Borrower and Guarantor as of the date thereof, in accordance with generally
accepted accounting principles consistently applied. There are no liabilities
or obligations of Borrower or Guarantor which are individually or in the
aggregate material, either accrued, absolute, contingent or otherwise, except
(i) to the extent set forth in the balance sheets and the notes thereto and not
heretofore paid or discharged, (ii) those incurred subsequent to the date of
the foregoing financial statements, which are consistent with past business
practice and in the normal and ordinary course of business, and (iii)  to the extent not required to be disclosed by
generally accepted accounting principals.

 

3.8.2.                  Since the dates of the foregoing
financial statements, there has not been (i) any material adverse change in the
financial condition or in the operations, business or property of Borrower or
Guarantor or (ii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the operations, business or
property of Borrower or Guarantor. Borrower and Guarantor are not aware of any
fact or circumstance, which (with or without the passage of time or the giving
of notice or both) would reasonably likely result in any such change.

 

3.9.                            Taxes and Assessments. Except to the extent
subject to a good faith dispute with appropriate reserves posted with Lender,
all federal, state and other tax returns and reports of Borrower and Guarantor
required to be filed have been duly filed, and all federal, state and other
taxes, assessments (including assessments for municipal improvements), fees or
other governmental charges imposed upon Borrower which are due and payable have
been paid. Borrower and Guarantor are not aware of any proposed material tax or
other assessments against Borrower and no extension of time for assessment or
payment of any federal, state or local tax by the Borrower is in effect, unless
an extension has been applied for and granted and any taxes due with such
extension paid.

 

3.10.                     Title.

 

3.10.1. Borrower holds good title to the Collateral,
free and clear of all liens, encumbrances, licenses, security interests, covenants,
conditions, restrictions, and any other matters affecting title except (i) the
Permitted Liens and (ii) the liens and encumbrances created in favor of Lender.

 

3.10.2. Borrower’s right, title and interest
in and to each of the agreements, documents, instruments, contracts, permits,
licenses and other materials and assets, if any, assigned to Lender pursuant to
this Agreement and the other Loan Documents are free and clear of all liens,
encumbrances, leases, licenses, covenants, conditions, restrictions, security
interests, other assignments and other matters affecting title (except the
Permitted Liens), and Borrower is permitted to assign such agreements,

 

7

 

documents, instruments, contracts, permits, licenses
and other materials and assets. Borrower and Guarantor have no knowledge of the
existence of any default under or breach of any of the foregoing.

 

3.10.3 
Borrower is lawfully authorized to encumber the Collateral.

 

3.11.                     Insurance.
No notice has been received from any insurance company which issued any of the
insurance policies or any of their agents, brokers or representatives, stating
in effect that any such policy (i) will not be renewed, (ii) will be renewed
only at a materially higher premium than is presently payable therefore and
which is not consistent with renewals for similarly situated companies, or
(iii) will be renewed only with materially lesser or materially less complete
coverage than is presently provided, and which is not consistent with renewals
for similarly situated companies.

 

3.12.                     No
Default. No event has occurred and is continuing that is an Event of
Default or which would be an Event of Default with the passage of time or the
giving of notice or both.

 

3.13.                     Condemnation.
There is no pending condemnation, expropriation, eminent domain or similar
proceeding affecting the Land or any portion thereof, and Borrower and
Guarantor have not received any written or oral notice of any thereof and have
no knowledge that any such proceeding is contemplated.

 

3.14.                     Leases;
Agreements for Purchase. There are no leases or agreements of purchase and
sale for all or any portion of the Land.

 

3.15.                     Representations
and Warranties True and Correct. The representations and warranties of
Borrower and/or Guarantor made to Lender are true, correct and complete in
every material respect. No representation, warranty or statement of Borrower
and/or Guarantor contained herein or in any of the Loan Documents or in any
other document, instrument or certificate delivered to Lender pursuant hereto
or in connection with the transactions contemplated hereunder contains any
untrue statement of any material fact, or omits or shall omit to state a
material fact the absence of which makes such representation, warranty or
statement misleading.

 

3.16.                     Financing
Statements:  No financing statement
(other than any which may have been filed on behalf of the Lender or which may
have been filed with respect to Permitted Liens) covering any of the Collateral
is on file in any public office. Borrower is the owner of all Collateral, free
of all liens and claims other than Permitted Liens and the security interest
granted pursuant to the Loan Documents, Borrower has full corporate power and
authority to execute the Loan Documents and perform Borrower’s obligations
thereunder, and to subject the Collateral to the security interest thereunder;
and all information with respect to Collateral and account debtors set forth in
any schedule, certificate or other writing at any time heretofore or hereafter
furnished by Borrower to

 

8

 

Lender, and all other written information
heretofore or hereafter furnished by Borrower to Lender, is true and correct as
of the date furnished.

 

4.                                      COVENANTS OF BORROWER AND GUARANTOR .

 

4.1.                            Affirmative Covenants. Borrower and Guarantor
(in each case only as to itself and its properties) covenant and agree that,
from the date hereof and so long as this Agreement shall remain in effect or
the indebtedness evidenced by the Note shall remain outstanding, Borrower and
Guarantor, shall:

 

4.1.1.                  Existence.
Borrower shall do or cause to be done all things necessary to preserve and keep
Borrower’s legal existence in full force and effect under the laws of the State
of Delaware. Guarantor shall do or cause to be done all things necessary to
preserve and keep Guarantor’s legal existence in full force and effect under
the laws of the jurisdiction in which Guarantor may have been organized. Borrower
and Guarantor shall do or cause to be done all things necessary to remain
qualified and licensed in all jurisdictions in which such qualification or
licensing is required for the conduct of Borrower’s and/or Guarantor’s business
except where the failure to so qualify would not have a material adverse
effect, including, without limitation, with respect to the Borrower, the
Commonwealth of Pennsylvania. Borrower and Guarantor shall promptly deliver to
Lender any and all documents evidencing an amendment to or modification of the
articles of incorporation, certificate of organization, bylaws, operating
agreement or other organization documents respecting Borrower or Guarantor.

 

4.1.2.                  Required
Notices. Give, or cause to be given, prompt written notice to Lender of (i)
any action or proceeding instituted by or against Borrower, Guarantor or the
Collateral by or before any Governmental Authority, or any such proceeding
threatened against Borrower, Guarantor or the Collateral which, if adversely
determined, is reasonably likely to have a material and adverse effect upon the
business, assets or condition (financial, legal or otherwise) of Borrower,
Guarantor or the Collateral, or (ii) any other action, event or condition of
any nature which is reasonably likely to have a material adverse effect upon
the business or assets of Borrower or Guarantor or which, with the giving of
notice or the passage of time or both, would constitute an Event of Default
under this Agreement or a default under any other material contract, instrument
or agreement to which Borrower or Guarantor is a party or by which Borrower,
Guarantor or any of Borrower’s or Guarantor’s properties or assets may be bound
or subject.

 

4.1.3.                  Payment
of Debts, Taxes. Pay and discharge or cause to be paid and discharged when
due and prior to the accrual thereon of interest or penalty, all taxes,
assessments and governmental charges or levies imposed upon the Collateral,
Borrower, or its income or receipts, or any of its properties, as well as all
lawful claims for labor, materials and supplies or otherwise which, if unpaid,
might become a lien or charge upon such properties or any part thereof, unless
the same shall be contested by Borrower and/or Guarantor in good faith with
appropriate reserves posted with Lender (in no event

 

9

 

less than the amount in controversy), and
which contest is pursued with due diligence by appropriate proceedings.

 

4.1.4.                  Compliance.
Promptly and faithfully comply with, conform to and obey (i) all present and future
Legal Requirements applicable to Borrower or the Land, and (ii) all other
agreements and covenants to which Borrower or Guarantor is bound or subject,
the noncompliance of which could have a Material Adverse Effect. Promptly and
faithfully comply with, conform to and obey all present and future orders,
rules, regulations and requirements of any national or local board of fire
underwriters relating in any way to the Land or any portion thereof. Promptly
pay all license and permit fees and similar municipal charges relating in any
way to the Land or any portion thereof or the construction or use of any
building and improvement placed or to be placed upon and forming a part of the
Land. Borrower and Guarantor shall immediately notify Lender of Borrower’s or
Guarantor’s receipt of notice from any Governmental Authority or any national
or local board of fire underwriters relating to the construction, use or
occupancy of the Land or any part thereof, or which requires any action to be
taken with respect to the Land or any part thereof or which are reasonably
likely to have an adverse effect on the Land or any part thereof.

 

4.1.5. Books
and Records. Keep, or cause to be kept, in accordance with generally
accepted accounting principles consistently applied, proper and complete books
of record and account concerning affairs of Borrower and the Collateral and
make such records available upon one (1) day prior notice in Borrower’s offices
at all reasonable times for inspection by Lender. Borrower and Guarantor agree
to retain all such books and records for a period of two (2) years after the
repayment in full of the Loan. As a publicly traded corporation, Guarantor
agrees that its financial statements and information reported will be true and
accurate to the best information and belief of Guarantor.

 

4.1.6. Financial
Statements. So long as the Loan or any portion thereof remains outstanding,
Borrower and Guarantor, at Borrower’s and Guarantor’s sole cost and expense, shall
deliver or cause to be delivered to Lender current and complete financial
statements and other information as follows:

 

4.1.6.1. Borrower.
With respect to the Borrower:

 

(a)                                  Within
ninety (90) days following the end of Borrower’s tax year, current year end
audited financial statements including, without limitation, a balance sheet,
income statement and statement of source and application of funds. Such
financial statements shall be (i) compiled and audited by a certified public
accounting firm selected and paid for by Borrower and satisfactory to Lender,
(ii) prepared in accordance with generally accepted accounting principles
consistently applied, (iii) in form reasonably satisfactory to Lender, and (iv)
certified as true, correct and complete by the Borrower’s chief financial
officer and Guarantor respectively.

 

10

 

(b)                                  Within
sixty (60) days of the date the same are due for filing (including any
available extensions properly applied for, copies of Borrower’s Federal Income
Tax Returns. All copies of such returns shall be certified by Borrower, as true
and correct and as actually filed with the Internal Revenue Service.

 

(c)                                  Within
ten (10) days of the end of each month, Borrower shall deliver to Lender an
accounts receivable aging report listing all Qualifying Accounts Receivable and
a listing of all Qualified Inventory, in a format and with such information as
Lender may require, which shall be certified as true, correct and complete by
the Borrower’s chief financial officer.

 

(d)                                  Within
thirty (30) days of each calendar quarter end, management prepared financial
statements including, without limitation, a balance sheet, income statement and
statement of source and application of funds. Such financial statements shall
be (i) prepared in accordance with generally accepted accounting principles
consistently applied, (ii) in form reasonably satisfactory to Lender, and (iii)
certified as true, correct and complete by the Borrower’s chief financial
officer.

 

(e)                                  Such
additional financial and other information as the Lender may from time to time
reasonably request.

 

4.1.6.2. Borrower.
With respect to the Guarantor:

 

(a)                                  Within
ninety (90) days following the end of Guarantor’s fiscal year and each fiscal
quarter, respectively, in each year, Guarantor’s Annual Report on Form 10-K and
quarterly report on Form 10-Q, each of which will include financial statements
consisting of a balance sheet, income statement and statement of source and
application of funds for Guarantor. Such financial statements for Guarantor
shall: (i) in the case of the annual statements be accompanied by an audit
opinion by a certified public accounting firm selected and paid for by
Guarantor and satisfactory to Lender (it being agreed that Guarantor’s current
certified public accounting firm or other nationally recognized public
accounting firm is acceptable to the Lender), (ii) be prepared in accordance
with generally accepted accounting principles consistently applied, (iii) be in
form reasonably satisfactory to Lender and (iv) be certified as true, correct
and complete by Guarantor’s chief financial officer.

 

(b)                                  Such
additional financial and other information as the Lender may from time to time
reasonably request, subject to applicable Securities laws and other
requirements for publicly traded companies.

 

Borrower and/or Guarantor shall promptly
notify Lender in writing if there is any material adverse change since the date
of the last preceding statement submitted to Lender in the financial position
of Borrower or Guarantor, and if there has been such a change, a detailed
explanation thereof. Borrower hereby authorize any accountant or other tax
preparer to forward to Lender on an ongoing basis copies of Borrower’s Federal
Income

 

11

 

Tax Returns when filed, or any applications
for extension when applicable, all without further notice or authorization from
Borrower. This authorization is irrevocable and shall remain in effect until
the Loan is paid n full.

 

4.1.7. Change
in Circumstances. Promptly notify Lender in writing of any change in any
fact or circumstance represented or warranted by Borrower or Guarantor herein
or in any other documents furnished to Lender in connection with this Agreement
which are reasonably likely to have a material adverse effect.

 

4.1.8. Additional
Instruments. Execute such additional instruments as may be requested by
Lender in order to carry out the intent of this Agreement and the other Loan
Documents and to perfect or give further assurances of any of the rights granted
or provided for hereunder or under any of the other Loan Documents.

 

4.1.9. Indemnification.
Indemnify, defend and hold harmless Lender and its officers, directors,
employees and agents from and against any and all liabilities, losses, claims,
damages and expenses, including reasonable attorneys’ fees and expenses, of any
kind or nature directly or indirectly resulting from or arising out of the
Loan, or the Loan Documents, including, without limitation, all claims for
commissions by any broker or intermediary, disputes between or among Borrower,
Guarantor, any Governmental Authorities, subcontractors, material suppliers,
account debtors, purchasers and tenants, unless caused by the gross negligence
or willful malfeasance of Lender or its officers, directors, employees or
agents, or by Lender’s failure to perform its covenants under the Loan
Documents.

 

4.1.10. Reimbursement
of Costs. Reimburse Lender for all of Lender’s reasonable costs payable to
third parties incidental to the preparation and making of the Loan, including,
without limitation, monthly credit reports, recording fees, filing fees,
surveys and premiums for title insurance as may be required by Lender, the fees
and expenses of any consultant employed by Lender, and all costs and expenses of
Lender’s counsel relating to preparation or approval of any of the Loan
Documents, examination of matters subject to Lender’s approval and legal
services rendered in connection with Borrower’s and/or Guarantor’s failure to
perform in accordance with the Loan Documents or otherwise relating to the
transaction. All such costs billed at or prior to the Closing Date shall be
paid on or before the Closing Date.

 

4.1.11. Notices.
Forward to Lender copies of all notices given or received by Borrower or
Guarantor respecting any termination, renewal, default or other material event
of Borrower, to or from: (i) any subcontractor or material supplier of
Borrower, (ii) any insurer or insurance underwriters of Borrower, (iii) any
utility company or any Governmental Authority respecting the Land (including,
without limitation, notices of nonconforming construction, notices relating to
Hazardous Materials and any Environmental Laws, and notice of inability to
perform the terms of any contract or agreement), promptly upon the giving or
receipt of such notice.

 

12

 

4.1.12.           Loan
Proceeds. Use Loan proceeds for the purposes identified in the Commitment
and this Agreement.

 

4.1.13.           Bank
Accounts and Compensating Balance. Borrower shall establish a significant
banking relationship with Lender, to include, without limitation, Borrower’s
maintaining operating accounts with Lender and Borrower’s depositing
substantially all receivables through such operating accounts. At all times
during the term of the Loan, Borrower shall maintain with Lender deposit
accounts with an aggregate average daily balance of not less than $200,000.00
measured quarterly, and at no time shall the aggregate daily balance of such
deposit accounts be below $100,000.00 for any consecutive five (5) day period
(the “Compensating Balance”).

 

4.1.14.           Storage.
Borrower shall store all of Borrower’s inventory and equipment at Borrower’s
place of business or at such other locations as are customarily utilize by
Borrower in the ordinary course of business and shall take such steps as are
reasonably necessary to safeguard and care for such inventory and equipment. Upon
request of Bank, Borrower shall deliver to Lender copies of all invoices for
purchased inventory.

 

4.1.15.           Place of
Business. Borrower will promptly advise Lender in writing of its opening of
any new places of business, or the closing of any of its existing places of
business.

 

4.1.16.           Financing
Statements. Borrower will sign such financing statement or statements, in
form satisfactory to Lender, which Lender may at any time desire to file in
order to perfect its security interest in the Collateral and reimburse Lender
for the costs of filing the same; and it will execute and deliver to Lender any
instruments, documents, assignment or other writing which may be necessary to
Lender, to carry out the terms of the Loan and to perfect is security interest
in and facilitate the collection of accounts, the proceeds thereof, any other
property constituting security to Lender.

 

4.1.17.           Inspection.
Lender, or any persons designated by it, (i) shall have the right, to call at
Borrower’s place or places of business at any reasonable time and upon one (1)
day prior notice, and without hindrance or delay of the Borrower’s business, to
inspect, audit, check and make extracts from Borrower’s books, records,
journals, orders, receipts and any correspondence and other data relating to
the Borrower’s business or to any other transactions between the parties
hereto, and (ii) shall have the right to make direct verification from the
account debtors with respect to any or all accounts.

 

4.1.18.           Collection
of Accounts. Until such time as the Lender shall notify Borrower of the
revocation of such power and authority, which revocation may occur only after
the occurrence of an Event of Default, Borrower (a) will, at its own expense,
endeavor to collect, as and when due, all amounts due under the Collateral,
including the taking of such action with respect to such collection as the
Lender may reasonably request or, in the absence of such request, as Borrower
may deem advisable,

 

13

 

and (b) may grant, in the ordinary course of
business, to any party obligated on any of the Collateral, any rebate, refund
or allowance to which such party may not otherwise be lawfully entitled.

 

4.1.19.           Subordination.
Any and all present and future debt of the Borrower to any owner or officer of
Borrower or any Guarantor is hereby subordinate to the indebtedness evidenced
by the Loan Documents. Any and all present and future debt of the Guarantor to
the Borrower or any owner or officer of Borrower is hereby subordinate to the
indebtedness evidenced by the Loan Documents.

 

4.1.20.           Tangible Net
Worth. Borrower shall maintain at all times during the term of the Loan a minimum
Tangible Net Worth (as hereinafter defined) of One Million Seven Hundred
Thousand Dollars ($1,700,000.00) as determined quarterly under generally
accepted accounting principals pursuant to Borrower’s management prepared
quarterly financial statements and audited fiscal year end financial
statements. Tangible Net Worth shall mean total assets minus total liabilities.
For purposes of this computation, the aggregate amount of any intangible assets
of Borrower, including without limitation, goodwill, franchises, licenses,
patents, trademarks, tradenames, copyrights, service marks and brandnames,
shall be subtracted from total assets. Liabilities shall mean the sum of total
liabilities, including capitalized leases and all reserves for deferred taxes
and other deferred sums appearing on the liabilities side of the balance sheet,
in accordance with generally accepted accounting principles applied on a
consistent basis.

 

4.1.21.           Renewal of
Indebtedness. Lender extended to Borrower and Transnational Industries,
Inc. a line of credit facility on June 12, 1997, evidenced by that certain Line
of Credit Note executed by Borrower and Transnational Industries, Inc. and
delivered to Lender on June 12, 1997 (the “Line of Credit Note”). The
obligations evidenced by the Line of Credit Note were subsequently modified,
increased, extended and renewed by the following: (i) a Modification Agreement
dated July 7, 2000 (the “First Modification Agreement”);  (ii) a Renewal Line of Credit Note (the
“First Renewal Note”) dated July 7, 2000; (iii) a Second Modification Agreement
dated July 18, 2002 (the “Second Modification Agreement”); a Second Renewal
Line of Credit Note (the “Second Renewal Note”) dated July 18, 2002; (iv) an
Amendment No. 1 to Second Modified Line of Credit Agreement dated as of
September 15, 2003 (“Amendment No .1 to Second Modified Line of Credit
Agreement”); (v) a Third Modification Agreement dated July 14, 2004 (the “Third
Modification Agreement”); and (vi) a Third Renewal Line of Credit Note (the
“Third Renewal Note”) dated July 14, 2004. The Line of Credit Note, the First
Modification Agreement, the First Renewal Note, the Second Modification
Agreement, the Second Renewal Note, Amendment No. 1 to Second Modified Line of
Credit Agreement, Third Modification Agreement and the Third Renewal Note are
herein collectively referred to as the “Existing Line of Credit”. As of the
Closing Date the outstanding principal balance of the Existing Line of Credit
is Two Million Two Hundred Twenty Four Thousand Nine Hundred Eighty Dollars and
Six Cents ($2,224,980.06). The Note is executed and delivered in substitution
and replacement of the Borrower’s obligations under and the indebtedness

 

14

 

evidenced by the Existing Line of Credit and
stands in the place and stead of the documents evidencing the Existing Line of
Credit and is not an additional indebtedness or a satisfaction of the
indebtedness evidenced by the documents executed in connection with the
Existing Line of Credit. The indebtedness and obligations evidenced by the
Existing Line of Credit are continued, renewed, extended and modified by the
Note, and as otherwise modified by this Agreement and the other Loan Documents.
The other Loan Documents are executed and delivered in substitution and
replacement of the documents evidencing the indebtedness and obligations under
Existing Line of Credit and such indebtedness is and shall continue to be
secured by the documents executed in connection with the Existing Line of
Credit as substituted and replaced by the Loan Documents without novation or
interruption.

 

4.1.22.           Declaration
of No Setoff Under the Existing Line of Credit. As of the Closing Date: (i)
no setoff or counterclaim to Borrower’s obligations evidenced by the Existing
Line of Credit exists, (ii) no agreement has been made with any person under
which any deduction or discount may be claimed under the Existing Line of
Credit; and (iii) that to the best of Borrower’s and Guarantor’s knowledge,
information and belief, no event of default under the Existing Line of Credit
has occurred which is continuing and no event has occurred which with the
passage of time or the giving of notice or both, could become an event of default
under the Existing Line of Credit.

 

4.1.23.           Declaration
of No Setoff Under the Term Loan. Borrower and Transnational Industries,
Inc. are currently indebted to Lender under that certain Term Loan (the ‘Term
Loan”) originated on January 14, 2004, and evidenced by, among other things,
that certain Mortgage Note dated January 14, 2004, in the original principal
sum of Three Million Two Hundred Thousand Dollars ($3,200,000.00) (the “Term
Note”) and that certain Loan Agreement dated January 14, 2004 (the “Term Loan
Agreement”). The documents evidencing and securing the Term Loan, including
without limitation the Term Note and Term Loan Agreement, shall remain in full
force and effect, PROVIDED THAT IT IS ACKNOWLEDGED AND AGREED THAT
TRANSNATIONAL SHALL HAVE BEEN RELEASED AS A DEBTOR, GUARANTOR AND/OR OTHERWISE
A PARTY THERETO PURSUANT TO SECTION 7.16 BELOW. As of the Closing Date the
outstanding balance of the Term Loan is Three Million Three Thousand Eight
Hundred Fifty One Dollars and Eight Cents ($3,003,851.08). As of the Closing
Date: (i) no setoff or counterclaim to Borrower’s obligations evidenced by the
Term Loan exists, (ii) no agreement has been made with any person under which
any deduction or discount may be claimed under the Term Loan; and (iii) that to
the best of Borrower’s knowledge, information and belief, no event of default
under the Term Loan has occurred which is continuing and no event has occurred
which with the passage of time or the giving of notice or both, could become an
event of default under the Term Loan.

 

4.2.                            Negative Covenants. Borrower and
Guarantor  (in each case only as to
itself and its properties) covenant and agree that from the date hereof and for
so long as this Agreement shall remain in effect or the indebtedness evidenced
by the Note shall remain outstanding, Borrower and Guarantor shall not:

 

15

 

4.2.1.                  Amendment
or Modification. Materially amend, vary or modify, or permit to be amended,
varied or modified, any agreement, document or instrument assigned to Lender.

 

4.2.2.                  Conveyance.
Without the written approval of Lender and in compliance with the terms and
conditions of the Note and Security Agreement, sell, assign, transfer, convey,
or otherwise dispose of any ownership interest in Borrower, either directly or
indirectly by deed, stock transfer or liquidation, or otherwise permit
ownership of the Borrower to be other than in Guarantor.

 

4.2.3.                  Governing
Documents. Amend, or permit to be amended, the governing documents pursuant
to which Borrower or Guarantor was organized and is operating, provided that
any such amendment to the organizational documents of Guarantor has a Material
Adverse Effect on the Guarantor’s obligations under this Agreement.

 

4.2.4.                  Encumbrances.
Create by pledge, assignment, security agreement or otherwise, or suffer to
exist, any security interest, pledge, lien, charge or other encumbrance upon
the Collateral or any portion thereof, except the Permitted Liens and liens in
favor of Lender.

 

4.3                               Other Borrowing and Guaranties. Borrower will
not borrow money from any person, or assume, guaranty, endorse or otherwise
become contingently liable upon, or responsible for, the obligation of any
person other than as expressly provided in the Loan Documents, if to do so in
the reasonable judgment of Lender would have a Material Adverse Effect on the
financial condition or status of Borrower and/or Guarantor.

 

5.                                      EVENTS OF DEFAULT AND REMEDIES.

 

5.1.                            Events of Default. The occurrence of any one
or more of the following shall constitute an “Event of Default” hereunder:

 

5.1.1.                  After the expiration of any
applicable notice and cure periods, if any, the occurrence of an event of
default under the Note or any other Loan Document.

 

5.1.2.                  The issuance or service of any levy,
writ of process or execution, garnishment or attachment against Borrower or
Guarantor or any property or assets of Borrower or Guarantor, including without
imitation the Collateral which is not discharged within thirty (30) days or
which is being contested by Borrower or Guarantor in good faith and due
diligence in appropriate proceedings.

 

5.1.3.                  The entry or filing of any judgment,
lien, encumbrance, notice of lien, attachment, levy or any other adverse charge
against Borrower or Guarantor which is not discharged within thirty (30) days
or which is being contested by Borrower or

 

16

 

Guarantor in good faith and due diligence in
appropriate proceedings with the approval of Lender, which approval shall not
be unreasonably withheld, a bond or escrow having been posted with Lender for
the full amount of such contested lien.

 

5.1.4.                  The failure of Borrower or Guarantor
to maintain any insurance or policy of insurance required by this Agreement for
a period in excess of ten (10) days from the date of written notice from Lender
of the lapse or absence of any such insurance or policy of insurance.

 

5.1.5.                  The failure of Borrower or Guarantor
to provide or furnish to Lender within thirty (30) days of written request,
certificate of any insurance or policy of insurance required by this Agreement.

 

5.1.6.                  The failure of Borrower or Guarantor
to provide or furnish to Lender within ten (10) days of written request, any
financial statement or tax return or other information required to be delivered
to Lender pursuant to this Agreement or any other Loan Document.

 

5.1.7.                  The making by Borrower of any
amendment to or modification to any document, instrument or item which has been
approved by Lender, in writing, in accordance with the provisions hereof.

 

5.1.8.                  The failure by Borrower to pursue
promptly and with due diligence and in good faith any remedy under any contract
or agreement with respect to the Collateral available as the result of any
material default by the other party thereto.

 

5.1.9.                  After the expiration of any
applicable notice and cure period, the failure of Borrower or Guarantor to
perform or comply with any of the terms, conditions, provisions, agreements and
covenants contained herein.

 

5.1.10.           The failure to cure any default by Borrower
or Guarantor, under any other loans or indebtedness between Lender and Borrower
or Lender and Guarantor, including without limitation the Term Loan within any
applicable cure period.

 

5.1.11.           The falsity or incorrectness, regarded by
Lender as material, of any representation or warranty made to Lender, or any
financial statement given to Lender by Borrower or Guarantor in connection with
the Loan, this Agreement or any of the Loan Documents.

 

5.1.12.           A material adverse change in the financial
condition or creditworthiness of Borrower or Guarantor.

 

5.1.13.           The institution by or against Borrower or
Guarantor of any bankruptcy, insolvency, reorganization, arrangement, debt
adjustment, receivership, liquidation or dissolution proceeding which, if
instituted against any such party, is consented to by such party or remains not
dismissed for sixty (60) days.

 

17

 

5.1.14.           The adjudication of Borrower or Guarantor as
a bankrupt or the appointment of a trustee or receiver for all or any part of
Borrower’s or Guarantor’s property.

 

5.1.15.           The making by Borrower or Guarantor of an
assignment for the benefit of creditors.

 

5.1.16.           The admission by Borrower or Guarantor of an
inability to pay his/her/its or their debts as they become due.

 

5.1.17.           The failure of Borrower to maintain the
minimum Tangible Net Worth as herein set forth

 

5.1.18.           The failure of Borrower to maintain the
minimum Compensating Balance as herein set forth.

 

5.2. Remedies.
Upon the occurrence of any Event of Default, Lender may exercise as it may deem
necessary or appropriate, any one or more of the following rights and remedies:

 

5.2.1.                  Declare immediately due and payable
all sums under the Note which are then unpaid, together with all accrued
interest.

 

5.2.2.                  Refuse to make any further advances
under the Loan.

 

5.2.3.                  Set-off any monies deposited in
accounts of any nature maintained in and with Lender by Borrower or Guarantor.

 

5.2.4.                  Demand, collect, receive payment of,
receipt for and give discharges and releases of all or any of Borrower’s
accounts receivable and moneys to become due in respect thereof; (ii) settle,
compromise, compound or adjust all or any of Borrower’s accounts receivable;
(iii) commence and prosecute any and all suits, actions or proceedings in law
or in equity in any court of competent jurisdiction to collect or otherwise
realize on all or any of Borrower’s accounts receivable or to enforce any
rights in respect thereof; (iv) settle, compromise, compound, adjust or defend
any actions, suits or proceedings relating or pertaining to all or any of the
accounts receivable; (v) file any claim or take any other action or proceeding
which Lender may deem necessary or appropriate to protect and preserve and
realize upon the security interest of Lender in the accounts receivable and the
proceeds thereof; and (vi) generally sell, assign, transfer, make any agreement
with respect to or otherwise deal with all or any of the Collateral as fully
and completely as though the Lender were the absolute owner thereof for all
purposes. Upon request of Lender, Borrower will, at Borrower’s sole cost and
expense, notify account debtors to make payment to the Lender of any amounts
due or to become due thereunder. Contemporaneous with making demand on any
account debtor, Lender will give notice to Borrower of the making of such
demand.

 

18

 

5.2.5.                  If, following an execution sale by
Lender on all or any portion of any real estate against which execution is
made, Lender files a petition to fix the fair market value of the real estate
sold at such execution sale (the “Petition”), Borrower shall, within ten (10)
days of Lender’s written request, select an appraiser from Lender’s list of
approved appraisers. If Borrower fails to timely select an appraiser, Lender
may make such selection on Borrower’s behalf. The selected appraiser shall
issue an appraisal report (the “Appraisal Report”) of the real estate which is
the subject matter of the Petition. Lender and Borrower agree and shall execute
a stipulation to the effect that for purposes of the Petition, the fair market
value determined by the Appraisal Report shall constitute the fair market value
of the real estate which is the subject matter of the Petition.

 

5.2.6.                  Exercise any other right or remedy
provided herein, in any of the Loan Documents, at law or in equity.

 

5.3.                            Verification of Amounts Due/Declaration of No
Set-Off. In any action or proceeding for recovery of any sums expended by
Lender in connection with the Loan or otherwise due to Lender pursuant to the
terms hereof, a statement of such expenditures, verified by the affidavit of an
officer of Lender, shall be prima facie evidence of the amounts so expended and
of the propriety of and necessity for such expenditures, and the burden of
proving the contrary shall be upon Borrower. Within ten (10) days after being
requested to do so by Lender, Borrower and Guarantor shall furnish to Lender or
to any assignee of the Note, a written statement in form and substance
satisfactory to Lender stating the entire outstanding amount of the
indebtedness evidenced by the Note and stating either that Borrower and
Guarantor (as the case may be), has no offsets, recoupments, counterclaims or defenses
or, if such offsets, recoupments, counterclaims or defenses are alleged to
exist, the nature and extent thereof. In the event Borrower or Guarantor fails
to furnish to Lender a written statement within ten (10) days after being
requested to do so, or if such statement does not contain all of the
information required, then except to the extent set forth in Borrower’s or
Guarantor’s timely delivered written statement, Borrower and Guarantor shall be
deemed to accept and concur with Lender’s statement of the entire outstanding
amount of the indebtedness evidenced by the Note and agree that Borrower and
Guarantor, as the case may be, has no offsets, recoupments, counterclaims or
defenses.

 

5.4.                            Borrower’s Property. As security for the Loan
and for the obligation and liabilities of Borrower and Guarantor hereunder and
under each of the Loan Documents, Lender is hereby given a lien upon and a
security interest in all funds and property of Borrower and/or Guarantor which
may hereafter be deposited with or come into the possession of Lender, and for
such purpose this Agreement shall constitute a security agreement under the
Pennsylvania Uniform Commercial Code and upon the occurrence of an Event of
Default, Lender shall have all rights and may exercise all of the remedies of a
secured party under the applicable provisions of the Pennsylvania Uniform
Commercial Codes with respect to such funds and property of Borrower and/or
Guarantor.

 

19

 

5.5.                            Remedies Cumulative. The rights and remedies
of Lender provided for in this Agreement, in any of the other Loan Documents
and in any other instrument, document or agreement given by or on behalf of
Borrower and/or Guarantor in connection with the Loan, shall be cumulative and
concurrent and shall not be exclusive of any right or remedy provided by law,
in equity or otherwise. Said rights and remedies may, at the sole and exclusive
discretion of Lender, be pursued singly, successively or together, and may be
exercised as often as occasion therefore shall arise. No grace period,
qualification or condition stated with respect to any Event of Default shall
change, modify, amend or extend, or will be construed as an undertaking by
Lender to change, modify, amend or extend the time for making any installment
due under the Note or the Maturity Date, which time for making any installment
or and Maturity Date remain always of the essence of this Agreement.

 

5.6.                            Lender’s Right to Remedy Defaults. If Borrower
or Guarantor fails to pay when due any sum required to be paid by Borrower or
Guarantor or fail to perform any obligation of Borrower or Guarantor hereunder,
Lender, at its option, shall have the right, but not the obligation, to pay any
such sum and to perform any such obligation and Lender shall have the right,
but not the obligation, to pay any sum or to take any action which Lender deems
necessary or advisable to protect the security for the Loan, all without
prejudice to any of Lender’s rights or remedies available hereunder or under
any of the Loan Documents or under any other documents or instrument given by
or on behalf of Borrower or Guarantor in connection with the Loan, at law, or
in equity. The amount of all payments so made by Lender, together with all
costs so incurred by Lender, shall immediately be due and payable from Borrower
and Guarantor to Lender, together with interest at the rate set forth in the
Note in the event of a default. All such amounts, together with interest as
aforesaid, shall be added to and evidenced by the Note and be secured by the
Security Agreement and the Guaranty, and Lender may charge all such amounts and
interest as advances of the Loan and may deduct such amounts and interest as
advances of the Loan thereafter to be advanced hereunder from any funds or
property deposited by Borrower or Guarantor with Lender.

 

6.                                      INSURANCE.

 

6.1.                            Coverage. Borrower and Guarantor shall, from
and after the date hereof and at all times while this Agreement is in effect or
the Note remains outstanding, maintain at Borrower’s and Guarantor’s sole
expense, insurance in amounts, with deductibles satisfactory to Lender written
by stock or nonassessable mutual carriers licensed in Pennsylvania and
acceptable to Lender. Without limiting the generality of the foregoing, Borrower
and Guarantor shall maintain the following minimum coverages, unless otherwise
agreed to in writing by Lender:

 

6.1.1.                  All risk, fire, hazard and extended
coverage insurance with vandalism and malicious mischief endorsements on the
Collateral to the extent of one hundred percent (100%) of the replacement value
thereof pursuant to full replacement

 

20

 

value endorsements naming Lender as
additional insured and lien holder pursuant to a standard lien holder loss
payable clause containing a non-contribution provision reasonably acceptable to
Lender’s and Borrower’s counsel which excludes the Lender from the operation of
any coinsurance clause in such policy; and

 

6.1.2.                  Commercial general public liability
insurance covering all operations of Borrower and the Collateral, with
contractual liability endorsement, naming Lender from time to time, as
additional insured, with a combined single of not less than: (i) bodily injury:
$3,000,000. for each occurrence, and (ii) property damage: $1,000,000. for each
occurrence, and $3,000,000. in the aggregate; and

 

6.1.3.                  Business income/interruption
insurance in an amount sufficient to cover debt service on the Loan for one (1)
year.

 

6.2.                            Certificates; Notices.

 

6.2.1.                  Borrower and Guarantor shall furnish
to Lender one duplicate original of policies of insurance or, if acceptable to
Lender, certificates certifying to the insurance required by Paragraphs 6.1,
(as Lender may request) and expressly granting Lender the same protections as
if Lender held the original policies, (i) on or before the closing date, (ii)
no fewer than twenty (20) days prior to the renewal or replacement of existing
coverage or the obtaining of additional coverage, and (iii) at any other time
upon the request of Lender.

 

6.2.2.                  Each insurance policy of Borrower and
Guarantor shall contain a provision (i) requiring the insurer to notify Lender,
in writing and at least thirty (30) days in advance of any cancellation,
expiration or material change in the policy, and (ii) stating that any loss
otherwise payable thereunder shall be payable notwithstanding any act or
neglect of the insured and notwithstanding any provision of the policy
relieving the insurer thereunder of liability for any loss by reason of the
existence of other policies of insurance covering the Collateral against the
peril involved, whether or not collectible, provided such coverage is available
to Borrower or Guarantor at reasonable cost.

 

6.2.3.                  If the insurance, or any part
thereof, shall expire, or be withdrawn, by reason of Borrower’s or Guarantor’s
breach of any condition thereof, or become void or unsafe, in the opinion of
Lender, by reason of the failure or impairment of the capital of any company
issuing such policy, Borrower and Guarantor shall place new insurance in
accordance with this Agreement. All renewal policies, with premiums paid, shall
be delivered to Lender at least thirty (30) days prior to the expiration of the
existing policies.

 

6.2.4.                  The insurance described in Paragraph
6.1 hereof shall not provide for deductibles in excess of amounts approved by
Lender and, though obtained, maintained and paid for by Borrower and Guarantor,
shall provide that loss thereunder shall be payable to Lender under a standard
loss payee clause.

 

21

 

6.3.                            Lender May Provide Insurance. In any instance
where insurance is not provided by Borrower or Guarantor as required hereunder,
Lender may at its option, but shall not be required to, secure such insurance
as Lender deems appropriate to cover Lender’s interests, without obligation to
insure Borrower’s or Guarantor’s interests, and charge the cost of the same to
Borrower, to be secured by the Loan Documents.

 

7.                                      MISCELLANEOUS.

 

7.1.                            Lender’s Discretion. If any condition of this
Agreement requires the submission of evidence of the existence or non-existence
of a specified fact or facts, or implies as a condition the existence or
non-existence of such fact or facts, Lender will, at all times, be free independently
to establish to its satisfaction and in its discretion (unless otherwise
specified) such existence or non-existence. Where any matter herein requires
the approval or consent of the Lender, the decision to give or refuse to give
such approval or consent shall be within Lender’s discretion unless otherwise
specified.

 

7.2.                            No Third-Party Beneficiary. The parties do not
intend the benefits of this Agreement to inure to any third party or any of
their respective creditors for debts or claims accruing to any such persons
against Borrower or Guarantor; provided however, that Transnational shall be an
intended third-party beneficiary in connection with the release provided to
Transnational in Section 7.16. Lender shall not be liable for the manner in which
any advance may be applied by Borrower. Notwithstanding anything contained
herein or in any of the other Loan Documents, or any conduct or course of
conduct by or among Borrower, Guarantor and Lender before or after the
execution of this Agreement, this Agreement shall not be construed as creating
any right, claim or cause of action against Lender or any of its officers,
directors, agents or employees, in favor of any other person other than
Borrower. Without limiting the generality of the foregoing, any advances made
to any insurer, contractor, subcontractor or supplier of labor or materials or
other creditor of Borrower, whether or not such advances are approved by
Lender, shall not be deemed a recognition by Lender of third party beneficiary
status of any such person. No undiscussed part of the Loan will be at any time
subject or liable to attachment or levy at the suit of any creditor of
Borrower, or of any contractor, subcontractor or supplier of labor, materials
or services, or any of their respective creditors, and regardless of any other
term, condition or provision hereof, no such third party will have any status,
right or entitlement hereunder.

 

7.3.                            Reliance on Representations and Warranties. Lender
shall be entitled to rely upon the representations and warranties of Borrower
and Guarantor set forth in any of the Loan Documents without any investigation
by Lender and notwithstanding any investigation conducted by Lender or on its
behalf before or after the date hereof.

 

22

 

7.4.                            Assignment.

 

7.4.1.                  The rights of Borrower hereunder and
under any other Loan Document shall not be assignable in any respect without
the prior written consent of Lender, which consent may be granted or withheld
in Lender’s sole discretion. In any case, Borrower and Guarantor shall remain
liable for repayment of all sums advanced hereunder before and after such
assignment.

 

7.4.2.                  All or any portion of the Loan
Documents may be endorsed, assigned or transferred in whole or in part by
Lender, and any such holder or assignee thereof shall succeed to and be
possessed of the rights of Lender under the Loan Documents to the extent so
endorsed, transferred or assigned.

 

7.4.3.                  Subject to the foregoing, this
Agreement shall be binding upon, and shall inure to the benefit of, Borrower,
Guarantor and Lender and his/her/its/their respective personal representatives,
heirs, successors and assigns.

 

7.5.                            Communications. All communications required or
permitted by this Agreement shall be in writing and shall be deemed to have
been given or made when hand delivered or delivered by guaranteed overnight
delivery, or upon deposit in the United States mail, postage prepaid, certified
or registered mail, return receipt requested, addressed as follows:

 

7.5.1.                  If to Lender:

 

First Keystone Bank

22 West State Street

Media, Pennsylvania  19063

Attention: 
Robert E. Latshaw, Lending

 

With a required copy to:

 

Donn L. Guthrie, Esquire

10 Beatty Road

Media, Pennsylvania  19063

 

7.5.2.                  If to Borrower:

 

SPITZ, INC.

P.O. Box 198, Route 1

Chadds Ford, Pennsylvania   19317

 

23

 

7.5.3.                  If to Guarantor:

 

EVANS & SUTHERLAND COMPUTER CORPORATION

Attention: David H. Bateman

600 Komas Drive

Salt Lake City, UT  84108

 

With a required copy to:

 

POWELL GOLDSTEIN LLP

Attention: J. Christopher Rodgers

901 New York Avenue, 3rd Floor

Washington, D.C. 20001

 

or in any case to such other address as
either party may designate from time to time by notice to the other in the
manner set forth herein.

 

7.6.                            Headings. The headings preceding the text of
the sections and subsections of this Agreement are used solely for convenience
of reference and shall not affect the meaning or interpretation of this
Agreement.

 

7.7.                            Time of the Essence. All dates and times for
performance set forth herein or in any of the other Loan Documents (whether or
not elsewhere so stated), are of the essence.

 

7.8.                            No Brokers. Borrower and Guarantor represent
and warrant that neither Borrower nor Guarantor have taken any action which
would or might render it liable for payment of any brokerage or placement fees
or commissions on account of the transactions contemplated by the Loan
Documents, and Borrower and Guarantor will indemnify, defend and hold harmless
Lender from any claims made in connection therewith.

 

7.9.                            Governing Law. The Agreement and all questions
relating to its validity, interpretation, performance and enforcement
(including, without limitation, provisions concerning limitations of actions),
shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania, notwithstanding any conflict-of-laws doctrines of
such state or other jurisdiction to the contrary, and without the aid of any
canon, custom or rule of law requiring construction against the draftsman.

 

7.10.                     Severability.
Any provision in any of the Loan Documents which is determined to be
unenforceable or invalid shall be ineffective to the extent of such
unenforceability or invalidity without affecting the remaining provisions
thereof.

 

24

 

7.11.                     Survival.
All agreements, representations and warranties made in this Agreement shall
survive the closing hereunder and the making of all advances hereunder.

 

7.12.                     Entire
Agreement; Controlling Document; Amendment. This Agreement, together with
the exhibits hereto, which are incorporated herein by reference, and the other
Loan Documents embody the entire agreement and understanding between Borrower,
Guarantor and Lender with respect to the subject matter hereof and supersede
all prior commitments, agreements and understandings relating to the subject
matter hereof. The provisions of this Agreement (including the exhibits
attached hereto), shall be deemed complementary to the provisions of the other
Loan Documents, but in the event of conflict, the provisions hereof shall be
deemed to modify and supersede the conflicting provisions in such other Loan
Documents and to control to the extent enforceable under applicable law. Neither
this Agreement nor any of the other Loan Documents may be modified or amended
except by a written agreement executed by the party against which enforcement
is sought.

 

7.13.                     Indulgences,
Etc. Neither the failure nor any delay on the part of either party to
exercise any right, remedy, power or privilege under this Agreement (a “Right”)
shall operate as a waiver thereof, nor shall any single or partial exercise of
any Right preclude any other or further exercise of the same or of any other
Right, nor shall any waiver of any Right with respect to any occurrence be
construed as a waiver of such Right with respect to any other occurrence. No
waiver shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.

 

7.14                        Counterparts. This Agreement may be executed
in one or more counterparts, via facsimile transmission or otherwise, each of
which will be deemed an original, but all of which together will constitute one
and the same instrument.

 

7.15.                     Joint
and Several. The obligations and liabilities hereunder of the entities
referred to as Borrower and Guarantor shall be joint and several.

 

7.16.                     Release
of Transnational Industries, Inc. Transnational Industries, Inc.
(“Transnational”) is hereby released as a co-borrower and/or guarantor under
the Existing Line of Credit and the Term Loan and related agreements and shall
have no further obligations or liabilities under this Agreement or the other
Loan Documents. Lender shall execute and deliver to Transnational, as may be
reasonably requested by Transnational, any Uniform Commercial Code termination
statements, lien releases and other similar discharge or release documents as
are necessary or appropriate to release and cancel of record any and all
security interests granted by Transnational to the Lender pursuant to the
Existing Line of Credit, the Term Loan and related agreements

 

7.17.                     TRIAL
BY JURY. BORROWER, GUARANTOR AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY

 

25

 

LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE NOTE, SECURITY AGREEMENT, ANY
OTHER DOCUMENT OR INSTRUMENT RELATING HERETO OR THERETO, ANY OTHER TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE LENDER, GUARANTOR OR
BORROWER IN CONNECTION HEREWITH OR THEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE LENDER TO MAKE THE LOAN EVIDENCED BY THE NOTE.

 

IN WITNESS WHEREOF, and intending to be
legally bound hereby, Borrower , Guarantor and Lender have caused this
Agreement to be duly executed under seal as of the date first above written.

 

LENDER:

FIRST KEYSTONE BANK

 

 

	
   

  	
  BY:

  	
  /s/ Robert
  Latshaw

  	
   

  
	
   

  	
   

  
	
  Signed, sealed and delivered

  	
  BORROWER:

  
	
  in the presence of:

  	
   

  	
  SPITZ, INC.

  
	
   

  	
   

  	
  A Delaware Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Donn L.
  Guthrie

  	
   

  	
  BY:

  	
  /s/ Jonathan
  Shaw

  	
   

  
	
  (As to Both)
  Witness

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
  ATTEST:

  	
  /s/ Paul L.
  Dailey

  	
   

  
	
  Witness

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [Corporate Seal]

  	
   

  
										

 

26

 

	
   

  	
   

  	
  GUARANTOR:

  
	
   

  	
   

  	
  EVANS & SUTHERLAND COMPUTER

  CORPORATION, a Utah Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Analisa Marquardt

  	
   

  	
  BY:  

  	
  /s/ David H.
  Bateman

  	
   

  
	
  Witness

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Analisa Marquardt

  	
  ATTEST:  

  	
  /s/  Lance
  Sessions

  	
   

  
	
  Witness

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [Corporate Seal]

  	
   

  
								

 

27

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