Document:

ex101to8k07319001_08192016.htm

Exhibit 10.1

AEROJET ROCKETDYNE HOLDINGS, INC.

DEFERRED COMPENSATION PLAN

FOR DIRECTORS

(Effective January 1, 1992)

as adopted by the Board of Directors

November 13, 1991

Approved by Shareholders

March 25, 1992

and

as last amended by the

Board of Directors

effective August 17, 2016

 

 

  

  

  

 

AEROJET ROCKETDYNE HOLDINGS, INC.

DEFERRED COMPENSATION PLAN

FOR DIRECTORS

TABLE OF CONTENTS

	
Article

	
Section

	  	
Page

	  	  	  	  
	
1

	
 

	

Establishment of Plan

	1
	  	  	  	  
	
2

	
 

	Definitions and Construction	  
	  	
2.1

	
Definitions

	
1

	  	
2.2

	
Construction

	
4

	  	  	  	  
	
3

	
 

	

Eligibility and Participation

	4
	  	  	  	  
	
4

	
 

	Deferral of Director Pay	  
	  	
4.1

	
Deferral Election

	
4

	  	
4.2

	
Irrevocability

	
6

	  	  	  	  
	
5

	
 

	Investment Programs for Cash Deferrals	  
	  	
5.1

	
Individual Accounts

	
6

	  	
5.2

	
No Trust Fund

	
6

	  	
5.3

	
Description of Investment Programs

	6
	  	
5.4

	
Responsibility for Investment Choices

	8
	
  

	
 

	  	  
	
6

	
 

	Distribution of Deferred Amounts	  
	  	
6.1

	
Distribution

	
8

	  	
6.2

	
Survivor Benefits

	
9

	  	
6.3

	
Change in Control

	
9

	  	
6.4

	
Conversion and Adjustment in Event of Recapitalization

	9
	  	  	  	  
	
7

	
 

	Miscellaneous	  
	  	
7.1

	
Finality of Determinations

	
10

	  	
7.2

	
Plan Administration

	
10

	  	
7.3

	
Amendment, Suspension or Termination of the Plan

	10
	
 

	

7.4

	

Limitations on Transfer

	10
	  	
7.5

	
Governing Law

	
11

	  	
7.6

	
Expenses of Administration

	
11

	  	
7.7

	
Rabbi Trust

	
11

	  	
7.8

	
Internal Revenue Code Section 409A

	
11

 

  

  

  

 

AEROJET ROCKETDYNE HOLDINGS, INC.

DEFERRED COMPENSATION PLAN

FOR DIRECTORS

 

Article 1

Establishment of Plan

Aerojet Rocketdyne Holdings, Inc. (the "Company"), hereby adopts the deferred compensation plan set forth herein, effective as of January 1, 1992, provided that the provisions for the Aerojet Rocketdyne Holdings Stock Fund shall be effective only upon approval by the Company's shareholders.  The purpose of the Plan is to provide the Company's Nonemployee Directors and Executive Chairman with the opportunity to defer the receipt of Director Pay on a pre-tax basis and to earn investment income on the amount of their deferred pay. The Plan predates the effective date of Section 409A of the Internal Revenue Code.  The terms and conditions of the Plan as in effect on October 3, 2004, continue to apply to deferrals that were vested as of December 31, 2004 (and earnings thereon).  For ease of reference, a copy of the Plan, as in effect on that date, is attached hereto as Appendix 1.

 

Article 2

Definitions and Construction

2.1           Definitions.  The following capitalized words and phrases when used in the text of the Plan shall have the meanings set forth below:

	
  

	
(a)

	
"Board" means the Board of Directors of the Company.

	
  

	
(b)

	
"Calendar Year" means each consecutive twelve-month period commencing January 1 and ending December 31.

	
  

	
(c)

	
“Change in Control” means the occurrence of any of the following events:

	
  

	
(1)

	
All or substantially all (meaning having a total gross fair market value at least equal to 50.1% of the total gross fair market value of all of the Company’s assets immediately before such acquisition or acquisitions) of the assets of the Company are acquired by a Person (during a twelve month period ending on the date of the most recent acquisition by such person); or

	
  

	
(2)

	
the Company is merged, consolidated or reorganized into or with another corporation or entity during a twelve-month period with the result that upon the conclusion of the transaction less than 50.1% of the outstanding securities entitled to vote generally in the election of directors or other capital interests of the surviving, resulting or acquiring corporation are beneficially owned (as that term is defined in Rule 13-d 3 under the Exchange Act) by the shareholders of the Company immediately prior to the completion of the transaction.

 

  

-1-

  

 

	
  

	
(d)

	
"Company" means Aerojet Rocketdyne Holdings, Inc.

 

	
  

	
(e)

	
"Deferral Dates" means the dates on which Director payments are normally made, are paid, namely January 15, April 15, July 15 and October 15, as well as any other date on which an equity grant is made to a Nonemployee Director or Executive Chairman.

 

	
  

	
(f)

	
"Director" means a member of the Board.

 

	
  

	
(g)

	
"Director Pay" means (i) in the case of a Nonemployee Director, the aggregate compensation payable by the Company to a Director, including committee chair and membership pay whether payable in cash or Aerojet Rocketdyne Holdings Common Stock, including restricted Aerojet Rocketdyne Holdings Common Stock payable as a matching grant or other stock grants; and (ii) in the case of an Executive Chairman, restricted Aerojet Rocketdyne Holdings Common Stock payable as compensation for his service as Executive Chairman.

	
  

	
(h)

	
"Effective Date" means January 1, 1992 (except the provisions for the Aerojet Rocketdyne Holdings Stock Fund which will become effective upon approval of the Plan by the Company's shareholders).

	
  

	
(i)

	
“Executive Chairman” means a Director who has been appointed by the Board to serve in the role of Executive Chairman as an employee of the Company.

	
  

	
(j)

	
"Market Value" means

 

	
  

	
(1)

	
in the case of shares of Aerojet Rocketdyne Holdings Common Stock (except as otherwise provided in Section 6.3 hereof), the closing price (or if no trading occurs on any trading day, the mean between the closing bid and asked prices) as quoted in the New York Stock Exchange Composite Transactions as published in the Wall Street Journal (or, if not so listed, as quoted on such other exchange on which such securities shall then be listed, or if unlisted, the mean average between the over-the-counter high bid and low asked quotation) on the day for which the determination is to be made, or if such day is not a trading day, the trading day immediately preceding such day, and as used in Section 6.4 hereof, in the event of a Recapitalization, the weighted average of the trading prices on the day (or the weighted average of such trading prices on such trading days) following the occurrence thereof as determined by the Organization & Compensation Committee of the Board in its discretion, or in the event of an issuer tender offer in connection with a Recapitalization, the weighted average of the trading prices on the trading day immediately following the termination date of such issuer tender offer, or any extensions thereof (or the weighted average of such trading prices on the five trading days immediately following such termination date) as determined by the Organization & Compensation Committee in its discretion; and

 

  

-2-

  

 

	 	
(2)

	
in the case of shares of the Designated Equity Fund (i) for a bank commingled fund, the closing price of a share as determined by the trustee of such fund, (ii) for a closed-end fund, the closing price of a share on the New York Stock Exchange, or (iii) for an open-end mutual fund, the net asset value per share of a share as determined by such fund, on the date for which the determination is to be made, or if such date is not a trading day, the trading day immediately preceding such determination date.

 

	
  

	
(k)

	
"Nonemployee Director" means a Director who is not an employee of the Company.

	
  

	
(l)

	
"Participant" means a Nonemployee Director or Executive Chairman who elects to defer all or a portion of his Director Pay in accordance with Article 4.

	
  

	
(m)

	
"Plan" means the Aerojet Rocketdyne Holdings, Inc. Deferred Compensation Plan for Directors described in this document, as approved by the Board on November 13, 1991 and as amended from time to time; provided further that with respect to deferrals vested prior to January 1, 2005, “Plan” means the Aerojet Rocketdyne Holdings, Inc. Deferred Compensation Plan for Nonemployee Directors as in effect on October 3, 2004 (and including any non-material amendments made thereafter) and attached hereto as Appendix 1.

	
  

	 

	
  

	
(n)

	
"Recapitalization" means a significant change in the capital structure of the Company (which may include an issuer tender offer made to all of the Company's shareholders to purchase outstanding shares of the Company's Common Stock), as determined in the discretion of the Board as constituted immediately prior to the occurrence thereof.

 

  

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2.2           Construction.  Whenever any word is used herein in the singular form, it shall be construed as though it were also used in the plural form in all cases where it would so apply.  Headings of articles and sections are inserted for convenience and reference, and they constitute no part of the Plan.  Except where otherwise indicated by the context, any masculine terminology herein shall include the feminine and neuter.

 

Article 3

Eligibility and Participation

Any Nonemployee Director or Executive Chairman shall be eligible to participate in the Plan.  A Nonemployee Director or Executive Chairman may become a Participant in the Plan by electing to defer all or a portion of his Director Pay in accordance with Article 4.

 

Article 4

Deferral of Director Pay

4.1           Deferral Election.  By written notice to the Secretary of the Company which is either received by the Secretary or postmarked no later than 30 days after a director’s initial appointment or subsequent annual reappointment, any Nonemployee Director may elect to defer all or a portion of the Director Pay which may be payable to him for services rendered during such term and to have such deferred Director Pay held for his benefit under the terms of the Plan.  Notwithstanding the foregoing, if the term of a Nonemployee Director’s appointment exceeds one year, then any deferral of Director Pay for services after the one year term must be received no later than the December 31st of the calendar year preceding the beginning of the subsequent term.  By written notice to the Secretary of the Company which is received by the Secretary or postmarked concurrent with the date of a grant of restricted Aerojet Rocketdyne Holdings Common Stock payable as compensation for his service as Executive Chairman, the Executive Chairman may elect to defer all or a portion of such Director Pay.  Any election made by a Participant pursuant to this Section 4.1 must specify his amount of deferral, investment choice[s] and time and manner of distribution, as described in subsections (a), (b) and (c) below:

	
  

	
(a)

	
Amount of Deferral.  Subject to a minimum annual deferral of $5,000, a Participant must specify the amount of his deferral as

	
  

	 

 

  

-4-

  

 

	
  

	
(1)

	
his total Director Pay for the Calendar Year,

	
  

	
(2)

	
a percentage of his total Director Pay for the Calendar Year, or

	
  

	
(3)

	
a flat annual dollar amount not in excess of his total Director Pay for the Calendar Year;

and, in the case of a Participant serving as the Executive Chairman, the Participant must specify the amount of his deferral as a percentage of any grant of restricted Aerojet Rocketdyne Holdings Common Stock.

If a Participant elects to defer less than 100 percent of his Director Pay, deferrals pursuant to paragraphs (2) or (3) will be deducted by the Company on a pro rata basis from the regular quarterly payments of Director Pay.

	
  

	
(b)

	
Investment Choices.  A Participant must specify the amount or percentage of his deferred Director Pay to be applied to one or more of the following investment programs as further described in Article 5:

	
  

	
(1)

	
Aerojet Rocketdyne Holdings Stock Fund, but only for amounts deferred prior to November 30, 2009 and on or after March 24, 2010;

	
  

	
(2)

	
Designated Equity Fund;

	
  

	
(3)

	
Cash Deposit Fund.

 

	 	
(c)

	
 
Distribution.  A Participant must elect to receive the cash value of his deferred Director Pay, plus earnings thereon,

 

	
  

	
(1)

	
in either (i) a single payment, or (ii) in two or more approximately equal annual installments, not to exceed ten; and

	
  

	
(2)

	
commencing, at his election, (i) 30 days following the date he ceases to be a Director and has a “separation from service” (as defined in Treas. Reg. 1.409A-1(h)), provided that if the Director is then a "specified employee" as defined in Section 409A of the Internal Revenue Code, this shall be the first day of the seventh month following the end of the month in which occurs such separation from service, (ii) on a fixed future date specified in the written election notice, or (iii) upon the Participant's attainment of an age specified by him in the written election notice.

 

  

-5-

  

 

In addition, a Participant may elect to have the cash value of his deferred Director Pay, plus earnings thereon, distributed in the event of his death as a single payment on the first day of the month following the month in which death occurs, notwithstanding any election made by the Participant pursuant to paragraphs (1) and (2) above.

4.2           Irrevocability.  Except to the extent permissible under Code Section 409A and the regulations thereunder, all deferral elections under Section 4.1 shall be irrevocable.

 

Article 5

Investment Programs for Cash Deferrals

5.1           Individual Accounts.  When a Participant has made a cash deferral election pursuant to Section 4.1, the Company shall establish an account on its books in his name and shall, in the case of the investment programs described in Sections 5.3(a) and (b), cause to be credited to such account as of each Deferral Date the number of full and fractional phantom shares which could be purchased with the amount deferred on such Deferral Date and, in the case of the investment program described in Section 5.3(c), cause to be credited to such account as of each Deferral Date the dollar amount deferred on such Deferral Date.

5.2           No Trust Fund.  The Company shall not be required to reserve or otherwise set aside funds for the payment of any amounts credited to any account created hereunder.  In addition, the Company shall not, and shall not be required to, actually purchase any stock, security or mutual fund units described in Sections 5.3 (a) and (b).

5.3           Description of Investment Programs.

	
  

	
(a)

	
Aerojet Rocketdyne Holdings Stock Fund.  Under this investment program, the Participant's account shall be credited with the number of full and fractional phantom shares of Aerojet Rocketdyne Holdings Common Stock which could be purchased at the Market Value on the Deferral Date with the deferred amount designated for this investment program. The provisions of this Section 5.3(a) will not apply to any amounts deferred on or after November 30, 2009 and before March 24, 2010.

 

  

-6-

  

 

	
  

	
(1)

	

In the event that the shares of Aerojet Rocketdyne Holdings Common Stock shall be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, merger, consolidation, recapitalization, stock split-up, combination of shares, stock offerings, spin-off or otherwise, such number of phantom shares of Aerojet Rocketdyne Holdings Common Stock as shall be credited to the account of any Participant as of the record date for such action shall be proportionately or appropriately adjusted as of the payment or effective date to reflect such action.  If any such adjustment shall result in a fractional share, such fractional phantom share shall also be credited to the account of the Participant.

 

	
  

	
(2)

	
The Participant's account shall further be credited with the number of phantom shares, including fractions, which would be purchasable at the Market Value on the date a dividend is paid on Aerojet Rocketdyne Holdings Common Stock, with an aggregate amount equal to any dividend or the value of any other distribution (other than a distribution for which an adjustment in the number of phantom shares in the account is made pursuant to paragraph (1)) paid on that number of shares of Aerojet Rocketdyne Holdings Common Stock which is equivalent to the number of phantom shares credited to the Participant's account on the record date of such dividend or other distribution.

	
  

	
(b)

	
Designated Equity Fund.

	
  

	
(1)

	
The Designated Equity Fund initially shall be the Northern Trust Company’s Collective Daily S&P 500 Equity Index Fund - Lending, which is designed to match the performance of and changes in Standard and Poor's 500 Index.  The Designated Equity Fund may be changed from time to time by action of the Board, except that such change shall be only for future application and shall not affect the phantom shares previously credited to the account of any Participant.

	
  

	
(2)

	
Under this program, the Participant's account is credited with the number of full and fractional phantom shares of the Designated Equity Fund, which could be purchased at the Market Value on the Deferral Date with the deferred amount designated for this investment program.

	
  

	 

	
  

	
(3)

	
If and when any dividend is declared and paid, the Participant's account shall further be credited with the number of phantom shares, including fractions, which could be purchased at the Market Value on the dividend payment date with an aggregate amount equal to any ordinary or capital cash dividend paid on that number of shares of the Designated Equity Fund which is equivalent to the number of phantom shares credited to the Participant's account on the dividend record date.

 

  

-7-

  

 

	
  

	
(c)

	
Cash Deposit Fund.  Under this program, the Participant's account is credited on the Deferral Date with that deferred dollar amount designated for this investment program.  After the end of each Calendar Year quarter, there shall further be credited to each Participant's account an amount equal to three months' interest on the average balance credited to such account during such quarter computed at the prime interest rate payable by the Company at the beginning of each such quarter as determined by the Treasurer of the Company.

5.4           Responsibility For Investment Choices.  Each Nonemployee Director is solely responsible for his decision to participate in the Plan and accepts all investment risks entailed by his participation and/or selection of an investment program, including the risk of loss of and a decrease in the value of his deferred Director Pay.

Article 6

Distribution of Deferred Amounts

 

6.1           Distribution.  Subject to the terms of Sections 6.2, 6.3, 6.4 and 6.5, a Participant's interests in the Plan shall be distributed to him in accordance with his elections made pursuant to Section 4.1(c).  All amounts shall be distributed in cash.

In the case of phantom shares credited to a Participant's account in the Aerojet Rocketdyne Holdings Stock Fund or Designated Equity Fund of the Plan, the value of a Participant's interest on any distribution date elected by a Participant, whether such distribution is to be made in a single payment or in annual installments, will be the product of the pro rata portion of the Participant's phantom shares which is to be distributed on such date multiplied by the Market Value of Aerojet Rocketdyne Holdings Common Stock or shares of the Designated Equity Fund, as the case may be, on such distribution date.  In the case of annual installments, the value of a Participant's interest on each annual distribution date after the initial distribution will be calculated in a like manner based upon the applicable Market Value on each subsequent distribution date.

In the case of the Cash Deposit Fund, if a single payment has been elected, the entire cash value of a Participant's account on the distribution date will be paid in a single payment.  Where annual installments have been elected, the cash value of the pro rata portion of the Participant's account balance to be distributed on such date (plus accrued interest thereon), shall be paid to the Participant on each annual installment distribution date.

 

  

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6.2           Survivor Benefits.  If a Participant dies before all or any portion of his interests under the Plan have been distributed to him, the interests remaining to be paid shall be distributed, on the date or dates and in the manner specified in such Participant's written deferral elections, to such beneficiary or beneficiaries as the Participant may have designated in writing to the Company or, in the absence of any such designation to his estate or to, or as directed by, his legal representatives.

6.3           Change in Control.

	
  

	
(a)

	
Notwithstanding any other provisions of the Plan, in the event of a Change in Control, such Participant shall be immediately paid in a single payment, the sum of (1) the Cash Value of his Aerojet Rocketdyne Holdings Stock Fund account (excluding Aerojet Rocketdyne Holdings shares that are held in a rabbi trust in accordance with Section 7.7), (2) the Market Value of his Designated Equity Fund account and (3) the cash value of his Cash Deposit Fund account.

	
  

	
(b)

	
For purposes of this Section 6.3, the Cash Value of a Participant's Aerojet Rocketdyne Holdings Stock Fund account shall be determined using as a conversion price the greater of (1) the tender offer or exchange offer price (if any), or (2) the highest market value of Aerojet Rocketdyne Holdings Common Stock (or other security for which Aerojet Rocketdyne Holdings Common Stock may have been exchanged pursuant to Section 5.3(a)(1)) during the ninety-day period preceding the Change in Control.

6.4           Conversion and Adjustment in Event of Recapitalization.

Notwithstanding any other provisions of the Plan, upon the occurrence of a Recapitalization, all shares credited to the Participant's account in the Aerojet Rocketdyne Holdings Stock Fund ("Shares") shall first be adjusted to a Cash Value either (x) in the event of a Recapitalization not occurring in connection with an issuer tender offer, by multiplying the aggregate number of Shares by an amount, on a per share basis, equal to the prorated value as determined by the Organization & Compensation Committee of the Board of the (A) Cash and Market Value of any security or property distributed to shareholders in connection with the Recapitalization, (B) Cash and Market Value of any security or property paid to shareholders in exchange for Aerojet Rocketdyne Holdings Common Stock in connection with the Recapitalization, and (C) Market Value of Aerojet Rocketdyne Holdings Common Stock (or its successor), or (y) in the event of a Recapitalization occurring in connection with an issuer tender offer, by determining the sum of A + B obtained pursuant to the following calculations:

 

  

-9-

  

 

	 	
 

	 	 	 	 	  	  	  	 
	 	
 

Aggregate Shares

	
 

X

	 	
Tender Offer 

Proration 

Rate

	
 

X

	
 

	
 

Tender Offer Price

	
 

= A

	 
	 	  	 	 	  	 	  	  	  	 
	 	  	 	 	
 

	 	and	  	  	 
	 	
 

	 	 	 	 	  	  	  	 
	 	
 

Aggregate Shares

	
 

X

	
 

one -

	
Tender Offer 

Proration 

Rate

	
 

X

	
 

	
 

Market Value

	
 

= B

	 
	 	
 

	 	 	
 

	 	
 

	 	  	 

For purposes of the foregoing calculations, the term Tender Offer Proration Rate shall mean the ratio (excluding consideration of any odd lot shares tendered or repurchased) of the number of shares repurchased by the Company in an issuer tender offer to the number of shares tendered to the Company in connection with such offer.

 

Article 7

Miscellaneous

 

7.1           Finality of Determinations.  Authority to determine contested issues or claims arising under the Plan shall be vested in the Aerojet Rocketdyne Holdings Administrative Committee, and any determination by the Administrative Committee pursuant to such authority shall be final and binding for all purposes and upon all interested persons and their heirs, successors, and personal representatives.

7.2           Plan Administration.  Authority and responsibility for administration of the Plan, including maintenance of Participants' accounts hereunder and preparation and delivery of individual annual account statements to Participants, shall be vested in the Aerojet Rocketdyne Holdings Organization & Compensation Committee.  Responsibility for oversight of investment programs, and reporting on the performance thereof to the Board, shall be vested in the Aerojet Rocketdyne Holdings Benefits Management Committee.

7.3           Amendment, Suspension or Termination of the Plan.  The Board may amend, suspend or terminate the Plan in whole or in part at any time, provided that such amendment, suspension or termination shall not adversely affect rights or obligations with respect to funds or interests previously credited to the account of any Participant.

7.4           Limitations on Transfer.  Participants shall have no rights to any funds or interests credited to their accounts except as set forth in this Plan.  Such rights may not be anticipated, assigned, alienated or transferred, except in writing to a designated beneficiary or beneficiaries or by will or by the laws of descent and distribution.  Any attempt to alienate, sell, exchange, transfer, assign, pledge, hypothecate or otherwise encumber or dispose of any such funds or interests by a Participant shall be void and of no effect.  The foregoing limitations shall apply with equal force and effect to any beneficiary or beneficiaries designated by a Participant hereunder.

 

  

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7.5           Governing Law.  The Plan shall be governed by the laws of the State of Delaware.  The Plan is not governed by the Employee Retirement Income Security Act of 1974.

7.6           Expenses of Administration.  All costs and expenses incurred in the operation and administration of this Plan shall be borne by the Company.

7.7           Rabbi Trust.  In the case of a Aerojet Rocketdyne Holdings Common Stock deferral, and notwithstanding Section 5.2 herein, the Board may, in its sole discretion, cause the Company to establish one or more so-called “rabbi trusts” (as described in Revenue Procedure 92-64, I.R.B. 1992-33, 11, as modified by Notice 2000-56), to which shares of Aerojet Rocketdyne Holdings Common Stock shall, to the extent permissible under Code Section 409A(b)(3), be contributed with respect to such Participant.  In such event, references to “phantom stock” herein shall refer to Aerojet Rocketdyne Holdings Common Stock so transferred to the rabbi trust.  Distributions of deferred amounts shall be payable solely in shares of Aerojet Rocketdyne Holdings Common Stock (notwithstanding Section 4.1(c) herein), subject to any limitations set forth in the rabbi trust agreement, in addition to the provisions set forth in Article 6 herein, and in the case of any inconsistency, the terms set forth in the rabbi trust agreement shall apply.  Each Participant is solely responsible for his decision to defer shares of Aerojet Rocketdyne Holdings Common Stock into a rabbi trust and accepts all risks entailed by his participation in investment.

7.8           Internal Revenue Code Section 409A.  Notwithstanding any other provision in this Plan, to extent any deferrals and/or any amounts payable are subject to Internal Revenue Code section 409A, it is the intention of the Company that the Plan will be administered in order to be in compliance with Code section 409A.  If the time or form of any payment cannot be modified in such a way as to be in compliance with Code section 409A, then the payment will be made as otherwise provided in this Plan.  While the Plan is intended to comply with Code section 409A and will be construed accordingly, the Company will not be liable to any Participant or beneficiary with respect to any adverse tax consequences arising under section 409A or other provision of the Code.

 

  

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Appendix 1

 

Appendix 1 is the Aerojet Rocketdyne Holdings, Inc. Deferred Compensation Plan for Nonemployee Directors as in effect on October 3, 2004 (and including any non-material amendments made thereafter).  A copy of Appendix 1 will be provided by the Company upon request.

 

  

-12-Exhibit

EXHIBIT 10.1

THIS CREDIT AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO THE FEDERAL ARBITRATION ACT AND/OR §15-48-10 OF THE SOUTH CAROLINA CODE OF LAWS (1976), AS AMENDED.

AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is entered into as of August 18, 2016, by and between Vicon Industries, Inc., a New York corporation ("Borrower"), and NIL Funding Corporation, a Delaware corporation ("Lender").

RECITALS

Borrower and Lender executed that certain Credit Agreement, dated as of March 4, 2016 (the "Original Credit Agreement").

Borrower and Lender desire to amend and restate the Original Credit Agreement in its entirety. 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Original Credit Agreement is hereby amended and restated in its entirety with the following:

ARTICLE I
CREDIT TERMS

SECTION 1.1.    FACILITY A LINE OF CREDIT.

(a)    Line of Credit A.  Subject to the terms and conditions of this Agreement, Lender hereby agrees to make advances to Borrower from time to time, but in no event after October 2, 2018, not to exceed at any time the aggregate principal amount of Four Million and No/100 Dollars ($4,000,000.00) ("Facility A Line of Credit"), the proceeds of which shall be used for working capital purposes.  Borrower's obligation to repay advances under the Facility A Line of Credit shall be evidenced by an amended and restated promissory note of even date herewith ("Facility A Line of Credit Note"), all terms of which are incorporated herein by this reference.
    
(b)    Limitation on Facility A Borrowings.  Outstanding borrowings under the Facility A Line of Credit, to a maximum of the principal amount set forth above, shall not at any time exceed an aggregate of Eighty Five and No/100 percent (85.0%) of Borrower's eligible accounts receivable that are less than sixty (60) days old, plus Sixty and No/100 percent (60.0%) of Borrower's eligible accounts receivable that are between sixty (60) and ninety (90) days old, plus Fifty and No/100 percent (50.0%) of any of Borrower’s eligible accounts receivable which represent an obligation of any state or municipal government or of the United States government or any political subdivision thereof that are less than ninety (90) days old, plus Fifty and No/100 percent (50.0%) of any of Borrower’s eligible accounts receivable which represent an obligation of an account debtor located in a foreign country that are less than ninety (90) days old.   All of the foregoing shall be determined by Lender upon receipt and review of all collateral reports required hereunder and such other documents and collateral information as Lender may from time to time reasonably require.  Borrower acknowledges that said borrowing base was established by Lender with the understanding that, among other items, the aggregate of all returns, rebates, discounts, credits and allowances for the immediately preceding three (3) months at all times shall be less than five percent (5%) of Borrower's gross sales for said period.  If such dilution of Borrower's accounts for the immediately preceding three (3) months at any time exceeds five percent (5%) of Borrower's gross sales for said period, or if there at any time exists any other matters, events, conditions or contingencies which Lender reasonably believes may affect payment of any portion of Borrower's accounts, Lender, in its sole discretion, may reduce the foregoing advance rate against eligible accounts receivable to a percentage 

appropriate to reflect such additional dilution and/or establish additional reserves against Borrower's eligible accounts receivable.

As used herein, "eligible accounts receivable" shall consist solely of trade accounts created in the ordinary course of Borrower's business, upon which Borrower's right to receive payment is absolute and not contingent upon the fulfillment of any condition whatsoever, and in which Lender has a perfected security interest of first priority, and shall not include:

(i)    any account that has been outstanding more than 90 days from the date of the invoice;

(ii)    that portion of any account for which there exists any right of setoff, defense or discount (except regular discounts allowed in the ordinary course of business to promote prompt payment) or for which any defense or counterclaim has been asserted;

(iii)    [Intentionally Left Blank];

(iv)    [Intentionally Left Blank];

(v)    any account which arises from the sale or lease to or performance of services for, or represents an obligation of, an employee, affiliate, partner, member, parent or subsidiary of Borrower;

(vi)    that portion of any account, which represents interim or progress billings or retention rights on the part of the account debtor;

(vii)    any account which represents an obligation of any account debtor when twenty percent (20%) or more of Borrower's accounts from such account debtor are not eligible pursuant to (i) above;

(viii)    that portion of any account from an account debtor which represents the amount by which Borrower's total accounts from said account debtor exceeds twenty-five percent (25%) of Borrower's total accounts;

(ix)    any account deemed ineligible by Lender when Lender, in its sole discretion, deems the creditworthiness or financial condition of the account debtor, or the industry in which the account debtor is engaged, to be unsatisfactory.

(c)    Borrowing and Repayment.  Borrower may from time to time during the term of the Facility A Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow, subject to all of the limitations, terms and conditions contained herein or in the Facility A Line of Credit Note; provided however, that the total outstanding borrowings under the Facility A Line of Credit shall not at any time exceed the maximum principal amount available thereunder, as set forth above. 

(c)    Original Credit Agreement.  Borrower and Lender acknowledge and agree that outstanding advances made prior to the date hereof under the Original Credit Agreement shall constitute advances under the Facility A Line of Credit and shall be evidenced by the Facility A Line of Credit Note.

SECTION 1.2.    FACILITY A INTEREST/FEES.

(a)    Interest.  The outstanding principal balance of the Facility A Line of Credit shall bear interest at the rate of Six and 95/100 percent (6.95%) per annum.

(b)    Commitment Fee.  Borrower shall pay to Lender a non-refundable commitment fee for the Facility A Line of Credit equal to Forty Thousand and No/100 Dollars ($40,000.00), which fee shall be due and payable in full on the date hereof.

(c)    Unused Commitment Fee.  Borrower shall pay to Lender a fee equal to Zero and 50/100 percent (0.5%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the daily unused amount of the Facility A Line of Credit, which fee shall be calculated on a monthly basis by Lender and shall be due and payable by Borrower in arrears on the 1st day of each month, commencing on September 1, 2016. 

SECTION 1.3.    FACILITY B LINE OF CREDIT.  Subject to the terms and conditions of this Agreement, Lender hereby agrees to make advances to Borrower from time to time, but in no event after October 2, 2018, not to exceed at any time the aggregate principal amount of Two Million and No/100 Dollars ($2,000,000.00) ("Facility B Line of Credit"), the proceeds of which shall be used for working capital purposes.  Borrower's obligation to repay advances under the Facility B Line of Credit shall be evidenced by a promissory note of even date herewith ("Facility B Line of Credit Note"), all terms of which are incorporated herein by this reference.

SECTION 1.4.    FACILITY B INTEREST/FEES.

(a)    Interest.  The outstanding principal balance of the Facility B Line of Credit shall bear interest at the rate of Eight and 25/100 percent (8.25%) per annum.

(b)    Commitment Fee.  Borrower shall pay to Lender a non-refundable commitment fee for the Facility B Line of Credit equal to Twenty Thousand and No/100 Dollars ($20,000.00), which fee shall be due and payable in full on the date hereof.

(c)    Unused Commitment Fee.  Borrower shall pay to Lender a fee equal to Zero and 50/100 percent (0.5%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the daily unused amount of the Facility B Line of Credit, which fee shall be calculated on a monthly basis by Lender and shall be due and payable by Borrower in arrears on the 1st day of each month, commencing on September 1, 2016. 

SECTION 1.5.    COLLATERAL.    As security for all indebtedness and other obligations of Borrower to Lender, Borrower hereby grants to Lender security interests of first priority in all Borrower's personal property.

All of the foregoing shall be evidenced by and subject to the terms of such security agreements, financing statements, and other documents as Lender shall reasonably require, all in form and substance satisfactory to Lender.  Borrower shall pay to Lender immediately upon demand the full amount of all charges, costs and expenses (to include fees paid to third parties), expended or incurred by Lender in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance.

SECTION 1.6    GUARANTIES.  The payment and performance of all indebtedness and other obligations of Borrower to Lender arising under the Facility A Line of Credit, the Facility B Line of Credit, and this Agreement shall be guaranteed jointly and severally by IQin Vision, Inc. ("IQin") and any other subsidiary of Borrower that is organized or incorporated in a jurisdiction in the United States of America.

ARTICLE II
REPRESENTATIONS AND WARRANTIES

Borrower makes the following representations and warranties to Lender, which representations and warranties shall survive the execution of this Agreement and shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of Borrower to Lender subject to this Agreement.

SECTION 2.1.    LEGAL STATUS.  Borrower is a corporation, duly organized and existing and in good standing under the laws of New York, and is qualified or licensed to do business (and is in good standing as a foreign corporation, if applicable) in all jurisdictions in which such qualification or licensing is required except where the failure to so qualify or to be so licensed would not have a material adverse effect on Borrower.

SECTION 2.2.    AUTHORIZATION AND VALIDITY.  This Agreement and each promissory note, contract, guaranty, instrument and other document required hereby or at any time hereafter delivered to Lender in connection herewith (collectively, the "Loan Documents") have been duly authorized, and upon their execution and delivery in accordance with the provisions hereof will constitute legal, valid and binding agreements and obligations of Borrower or the party which executes the same, enforceable in accordance with their respective terms.

SECTION 2.3.    NO VIOLATION.  The execution, delivery and performance by Borrower of each of the Loan Documents do not violate any provision of any law or regulation, or contravene any provision of the Articles of Incorporation or By-Laws of Borrower, or result in any breach of or default under any contract, obligation, indenture or other instrument to which Borrower is a party or by which Borrower may be bound, except for any such violation, breach or default which would not have a material adverse effect on Borrower.

SECTION 2.4.    LITIGATION.  There are no pending, or to the best of Borrower's knowledge threatened, actions, claims, investigations, suits or proceedings by or before any governmental authority, arbitrator, court or administrative agency which could have a material adverse effect on the financial condition or operation of Borrower other than those disclosed by Borrower to Lender in writing prior to the date hereof.

SECTION 2.5.    CORRECTNESS OF FINANCIAL STATEMENT.  The annual financial statements of Borrower for the year ended September 30, 2015, and all interim financial statements delivered to Lender since said date, true copies of which have been delivered or made available by Borrower to Lender prior to the date hereof, (a) are complete and correct and present fairly the financial condition of Borrower, (b) disclose all liabilities of Borrower that are required to be reflected or reserved against under generally accepted accounting principles, whether liquidated or unliquidated, fixed or contingent, and (c) have been prepared in accordance with generally accepted accounting principles consistently applied.  Since the dates of such financial statements there has been no material adverse change in the financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in or otherwise encumbered any of its assets or properties except in favor of Lender or as otherwise permitted by Lender in writing.

SECTION 2.6.    INCOME TAX RETURNS.  Borrower has no knowledge of any pending assessments or adjustments of its income tax payable with respect to any year.

SECTION 2.7.    NO SUBORDINATION.  There is no agreement, indenture, contract or instrument to which Borrower is a party or by which Borrower may be bound that requires the subordination in right of payment of any of Borrower's obligations subject to this Agreement to any other obligation of Borrower.

SECTION 2.8.    PERMITS, FRANCHISES.  Borrower possesses, and will hereafter possess, all material permits, consents, approvals, franchises and licenses required and rights to all trademarks, trade names, patents, and fictitious names, if any, necessary to enable it to conduct the business in which it is now engaged in compliance with applicable law.

SECTION 2.9.    ERISA.  Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time ("ERISA"); Borrower has not violated any provision of any defined employee pension benefit plan (as defined in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower; Borrower has met its minimum funding requirements under ERISA with respect to each Plan; and each Plan will be able to fulfill its benefit obligations as they come due in accordance with the Plan documents and under generally accepted accounting principles.

SECTION 2.10.    OTHER OBLIGATIONS.  Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation.

SECTION 2.11.    ENVIRONMENTAL MATTERS.  Borrower is in compliance in all material respects with all applicable federal or state environmental, hazardous waste, health and safety statutes, and any rules or regulations adopted pursuant thereto, which govern or affect any of Borrower's operations and/or properties, including without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Superfund 

Amendments and Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of the same may be amended, modified or supplemented from time to time.  None of the operations of Borrower is the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any toxic or hazardous waste or substance into the environment.  Borrower has no material contingent liability in connection with any release of any toxic or hazardous waste or substance into the environment.

ARTICLE III
CONDITIONS

SECTION 3.1.    CONDITIONS OF INITIAL EXTENSION OF CREDIT.  The obligation of Lender to extend any credit contemplated by this Agreement is subject to the fulfillment to Lender's satisfaction of all of the following conditions:

(a)    Approval of Lender Counsel.  All legal matters incidental to the extension of credit by Lender shall be satisfactory to Lender's counsel.

(b)    Documentation.  Lender shall have received, in form and substance satisfactory to Lender, each of the following, duly executed:

(i)    This Agreement and each promissory note or other instrument or document required hereby.
(ii)    The Amendment to Security Agreement;
(iii)    A Guaranty Agreement executed by IQin;
(iv)    (A) a certificate of the Secretary of Borrower certifying the current Articles of Incorporation and Bylaws of Borrower; (B) a true and complete copy of resolutions adopted by the Board of Directors of Borrower; and (C) a certificate executed by the Secretary of Borrower certifying as to the incumbency and genuineness of the signature of each officer of the Borrower;
(v)    (A) a certificate of the Secretary of IQin certifying the current Articles of Incorporation and Bylaws of IQin; (B) a true and complete copy of resolutions adopted by the Board of Directors of IQin; and (C) a certificate executed by the Secretary of IQin, certifying as to the incumbency and genuineness of the signature of each officer of IQin;
(vi)    The Lender shall have received certificates as of a recent date of the Borrower's good standing under the laws of each state where the Borrower is incorporated and authorized to transact business;
(vii)    The Lender shall have received certificates as of a recent date of IQin’s good standing under the laws of each state where IQin is incorporated and authorized to transact business;
(viii)    An opinion of counsel to Borrower and IQin, in form and content reasonably satisfactory to Lender and its counsel; and
(ix)    Such other documents as Lender may reasonably require.

(c)    Financial Condition.  There shall have been no material adverse change, as determined by Lender, in the financial condition or business of Borrower or any of its subsidiaries, nor any material decline, as determined by Lender, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower or any of its subsidiaries.

SECTION 3.2.    CONDITIONS OF EACH EXTENSION OF CREDIT.  The obligation of Lender to make each extension of credit requested by Borrower hereunder shall be subject to the fulfillment to Lender's satisfaction of each of the following conditions:

(a)    Compliance.  The representations and warranties contained herein and in each of the other Loan Documents shall be true in all material respects on and as of the date of the signing of this Agreement and on the date of each extension of credit by Lender pursuant hereto, with the same effect as though such representations and warranties had been made on and as of each such date, and on each such date, no Event of Default as defined herein, and no 

condition, event or act which with the giving of notice or the passage of time or both would constitute such an Event of Default, shall have occurred and be continuing or shall exist.

(b)    Documentation.  Lender shall have received all additional documents which may be required in connection with such extension of credit.
       
ARTICLE IV
AFFIRMATIVE COVENANTS

Borrower covenants that so long as Lender remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Lender under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, Borrower shall, unless Lender otherwise consents in writing:

SECTION 4.1.    PUNCTUAL PAYMENTS.  Punctually pay all principal, interest, fees or other liabilities due under any of the Loan Documents at the times and place and in the manner specified therein, and immediately upon demand by Lender, the amount by which the outstanding principal balance of any credit subject hereto at any time exceeds any limitation on borrowings applicable thereto.

SECTION 4.2.    ACCOUNTING RECORDS.  Maintain adequate books and records in accordance with generally accepted accounting principles consistently applied, and permit any representative of Lender, at any reasonable time, to inspect, audit and examine such books and records, to make copies of the same, and to inspect the properties of Borrower.

SECTION 4.3.    FINANCIAL STATEMENTS.  Provide to Lender all of the following, in form and detail satisfactory to Lender:

(a)    not later than thirty (30) days after and as of the end of each fiscal quarter of Borrower, a financial statement of Borrower, prepared by Borrower, to include balance sheet, income statement and statement of cash flows and sources;

(b)    not later than ten (10) days after and as of the end of each month, a borrowing base certificate, in the form attached hereto as Exhibit A, an aged listing of accounts receivable and accounts payable, and a reconciliation of accounts, and immediately upon each request from Lender, a list of the names and addresses of all Borrower's account debtors; and

(c)    not later than thirty (30) days after and as of the end of each fiscal quarter of Borrower, a compliance certificate, signed by an officer of Borrower, certifying and evidencing compliance with the financial covenant contained in Section 4.9 below.

SECTION 4.4.    COMPLIANCE.  Preserve and maintain all material licenses, permits, governmental approvals, rights, privileges and franchises necessary for the conduct of its business; and comply in all material respects with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence and with the requirements of all laws, rules, regulations and orders of any governmental authority applicable to Borrower and/or its business.

SECTION 4.5.    INSURANCE.  Maintain and keep in force, for each business in which Borrower is engaged, insurance of the types and in amounts customarily carried in similar lines of business, including but not limited to fire, extended coverage, public liability, flood, and, if required, seismic property damage and workers' compensation, with all such insurance carried with companies and in amounts satisfactory to Lender, and deliver to Lender from time to time at Lender's request schedules setting forth all insurance then in effect, together with a lender’s loss payee endorsement for all such insurance naming Lender as a lender loss payee. 

SECTION 4.6.    FACILITIES.  Keep all properties useful or necessary to Borrower's business in good repair and condition, and from time to time make necessary repairs, renewals and replacements thereto so that such properties shall be fully and efficiently preserved and maintained.

SECTION 4.7.    TAXES AND OTHER LIABILITIES.  Pay and discharge when due any and all indebtedness, obligations, assessments and taxes, both real or personal, including without limitation federal and state income taxes and state and local property taxes and assessments, except (a) such as Borrower may in good faith contest or as to which a bona fide dispute may arise, and (b) for which Borrower has made provision, to Lender's satisfaction, for eventual payment thereof in the event Borrower is obligated to make such payment.

SECTION 4.8.    LITIGATION.  Promptly give notice in writing to Lender of any litigation pending or threatened against Borrower with a claim in excess of Ten Thousand and No/100 Dollars ($10,000.00).

SECTION 4.9.    MINIMUM TANGIBLE NET WORTH. Borrower shall maintain on a consolidated basis a Minimum Tangible Net Worth equal to at least Five Million and No/100 Dollars ($5,000,000.00).  “Minimum Tangible Net Worth” means the value of total assets (on the basis of the lower of cost or market) (including leaseholds and leasehold improvements and reserves against assets but excluding goodwill, patents, trademarks, trade names, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors, employees, shareholders, members or managers) less total liabilities, including but not limited to accrued and deferred income taxes, but excluding the non-current portion of Subordinated Liabilities.  “Subordinated Liabilities” means liabilities subordinated to the Borrower’s obligations to the Lender in a manner acceptable to the Lender in its sole discretion.

SECTION 4.10.    NOTICE TO LENDER.  Promptly (but in no event more than five (5) days after the occurrence of each such event or matter) give written notice to Lender in reasonable detail of:  (a) the occurrence of any Event of Default, or any condition, event or act which with the giving of notice or the passage of time or both would constitute an Event of Default; (b) any change in the name or the organizational structure of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan; or (d) any termination or cancellation of any insurance policy which Borrower is required to maintain, or any uninsured or partially uninsured loss through liability or property damage, or through fire, theft or any other cause affecting Borrower's property in excess of an aggregate of Thirty Five Thousand and No/100 Dollars ($35,000.00).
    
ARTICLE V
NEGATIVE COVENANTS

Borrower further covenants that so long as Lender remains committed to extend credit to Borrower pursuant hereto, or any liabilities (whether direct or contingent, liquidated or unliquidated) of Borrower to Lender under any of the Loan Documents remain outstanding, and until payment in full of all obligations of Borrower subject hereto, neither Borrower nor any of Borrower’s subsidiaries, will without Lender's prior written consent, which may be withheld in Lender’s sole and absolute discretion:

SECTION 5.1.    USE OF FUNDS.  Use any of the proceeds of any credit extended hereunder except for the purposes stated in Article I hereof.

SECTION 5.2.    CAPITAL EXPENDITURES.  Make any additional investment in fixed assets in any calendar year in excess of an aggregate of Four Hundred Thousand and No/100 Dollars ($400,000.00).

SECTION 5.3.    LEASE EXPENDITURES.  Incur operating lease expense in any calendar year in excess of an aggregate of Eight Hundred Thousand and No/100 Dollars ($800,000.00)

SECTION 5.4.    OTHER INDEBTEDNESS.  Create, incur, assume or permit to exist any indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Lender, (b) any other liabilities of 

Borrower existing as of, and disclosed to Lender prior to, the date hereof, and (c) unsecured indebtedness of Borrower subordinated to Borrower’s indebtedness to Lender on terms acceptable to Lender in its sole and absolute discretion.

SECTION 5.5.    MERGER, CONSOLIDATION, TRANSFER OF ASSETS.  Merge into or consolidate with any other entity; make any substantial change in the nature of business as conducted as of the date hereof; acquire all or substantially all of the assets of any other entity; nor sell, lease, transfer or otherwise dispose of all or a substantial or material portion of assets except in the ordinary course of its business; provided however, that any subsidiary of Borrower may merge into, or transfer its assets to, Borrower or any other subsidiary of Borrower.

SECTION 5.6.    GUARANTIES.  Guarantee or become liable in any way as surety, endorser (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor pledge or hypothecate any assets as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Lender.

SECTION 5.7.    LOANS, ADVANCES, INVESTMENTS.  Make any loans or advances to or investments in any person or entity other than to any direct or indirect subsidiary of Borrower.

SECTION 5.8.    PLEDGE OF ASSETS.  Mortgage, pledge, grant or permit to exist a security interest in, or lien upon, all or any portion of assets now owned or hereafter acquired, except any of the foregoing in favor of Lender or which is existing as of, and disclosed to Lender in writing prior to, the date hereof. 

SECTION 5.9    SUBSIDIARY DIVESTITURE.  Sell, pledge, encumber, or otherwise assign any shares of stock or other interest in any subsidiary.

ARTICLE VI
EVENTS OF DEFAULT

SECTION 6.1.    The occurrence of any of the following shall constitute an "Event of Default" under this Agreement:

(a)    Borrower shall fail to pay within three (3) business days when due any principal, interest, fees or other amounts payable under any of the Loan Documents. 

(b)    Any financial statement or certificate furnished to Lender in connection with, or any representation or warranty made by Borrower or any other party under this Agreement or any other Loan Document shall prove to be incorrect, false or misleading in any material respect when furnished or made. 

(c)    Any default in the performance of or compliance with any obligation, agreement or other provision contained herein or in any other Loan Document (other than those specifically described as an “Event of Default” in this section 6.1) which is not cured within ten (10) business days following notice from Lender of such default, except for any default in the performance of or compliance with any obligation contained in Section 1.1(b) hereof, which must be cured immediately. 

(d)    Any default in the payment or performance of any obligation in excess of $100,000, or any defined event of default, under the terms of any contract, instrument or document (other than any of the Loan Documents) pursuant to which Borrower has incurred any debt or other liability in excess of $100,000 to any person or entity, including Lender. 

(e)    Borrower shall become insolvent, or shall suffer or consent to or apply for the appointment of a receiver, trustee, custodian or liquidator of itself or any of its property, or shall generally fail to pay its debts as they become due, or shall make a general assignment for the benefit of creditors; Borrower shall file a voluntary petition in bankruptcy, or seeking reorganization, in order to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time ("Bankruptcy Code"), or under any state or federal law granting relief to debtors, whether now or hereafter in effect; or Borrower 

shall file an answer admitting the jurisdiction of the court and the material allegations of any involuntary petition; or Borrower shall be adjudicated a bankrupt, or an order for relief shall be entered against Borrower by any court of competent jurisdiction under the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors.

(f)    The filing of a notice of judgment lien in excess of $100,000 against Borrower; or the recording of any abstract of judgment in excess of $100,000 against Borrower in any county in which Borrower has an interest in real property; or the service of a notice of levy and/or of a writ of attachment or execution, or other like process, against the assets of Borrower; or the entry of a judgment against Borrower in excess of $100,000; or any involuntary petition or proceeding pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors is filed or commenced against Borrower, in each case, which is not lifted or discharged within 60 days of filing. 

(g)    The dissolution or liquidation of Borrower or any of its subsidiaries, or any of its directors, stockholders or members, shall take action seeking to effect the dissolution or liquidation of Borrower. 

SECTION 6.2.    REMEDIES.  Upon the occurrence of any Event of Default:  (a) all indebtedness of Borrower under each of the Loan Documents, any term thereof to the contrary notwithstanding, shall at Lender's option and without notice become immediately due and payable without presentment, demand, protest or notice of dishonor, all of which are hereby expressly waived by Borrower; (b) the obligation, if any, of Lender to extend any further credit under any of the Loan Documents shall immediately cease and terminate; and (c) Lender shall have all rights, powers and remedies available under each of the Loan Documents, or accorded by law, including without limitation the right to resort to any or all security for any credit subject hereto and to exercise any or all of the rights of a beneficiary or secured party pursuant to applicable law.  All rights, powers and remedies of Lender may be exercised at any time by Lender and from time to time after the occurrence of an Event of Default, are cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies provided by law or equity.

ARTICLE VII
MISCELLANEOUS

SECTION 7.1.    NO WAIVER.  No delay, failure or discontinuance of Lender in exercising any right, power or remedy under any of the Loan Documents shall affect or operate as a waiver of such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect any other or further exercise thereof or the exercise of any other right, power or remedy.  Any waiver, permit, consent or approval of any kind by Lender of any breach of or default under any of the Loan Documents must be in writing and shall be effective only to the extent set forth in such writing.

SECTION 7.2.    NOTICES.  All notices, requests and demands which any party is required or may desire to give to any other party under any provision of this Agreement must be in writing delivered to each party at the following address:

BORROWER:        
Vicon Industries, Inc.
135 Fell Court
Hauppauge, New York 11788
Attention: John M. Badke
jbadke@vicon-security.com

LENDER:        
NIL Funding Corporation
4838 Jenkins Avenue
North Charleston, South Carolina 29405
Attention: Michael Bender, Esq.
(843) 202-4325
benderm@intertechsc.com

or to such other address as any party may designate by written notice to all other parties.  Each such notice, request and demand shall be deemed given or made as follows:  (a) if sent by hand delivery, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy, upon receipt.

SECTION 7.3.    COSTS, EXPENSES AND ATTORNEYS' FEES.  Borrower shall pay to Lender immediately upon demand the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside and in-house counsel fees), expended or incurred by Lender in connection with (a) the negotiation and preparation of this Agreement and the other Loan Documents, Lender's continued administration hereof and thereof, and the preparation of any amendments and waivers hereto and thereto, (b) the enforcement of Lender's rights and/or the collection of any amounts which become due to Lender under any of the Loan Documents, and (c) the prosecution or defense of any action in any way related to any of the Loan Documents, including without limitation, any action for declaratory relief, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Lender or any other person) relating to Borrower or any other person or entity.

SECTION 7.4.    SUCCESSORS, ASSIGNMENT.  This Agreement shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties; provided however, that Borrower may not assign or transfer its interests or rights hereunder without Lender's prior written consent.  Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lender's rights and benefits under each of the Loan Documents.  In connection therewith, Lender may disclose all documents and information which Lender now has or may hereafter acquire relating to any credit subject hereto, Borrower or its business, any guarantor hereunder or the business of such guarantor, if any, or any collateral required hereunder.

SECTION 7.5.    ENTIRE AGREEMENT; AMENDMENT.  This Agreement and the other Loan Documents constitute the entire agreement between Borrower and Lender with respect to each credit subject hereto and supersede all prior negotiations, communications, discussions and correspondence concerning the subject matter hereof.  This Agreement may be amended or modified only in writing signed by each party hereto.

SECTION 7.6.    NO THIRD PARTY BENEFICIARIES.  This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their respective permitted successors and assigns, and no other person or entity shall be a third party beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any other of the Loan Documents to which it is not a party.

SECTION 7.7.    TIME.  Time is of the essence of each and every provision of this Agreement and each other of the Loan Documents.

SECTION 7.8.    SEVERABILITY OF PROVISIONS.  If any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or any remaining provisions of this Agreement.

SECTION 7.9.    COUNTERPARTS.  This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original, and all of which when taken together shall constitute one and the same Agreement.

SECTION 7.10.    GOVERNING LAW.  This Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina.

SECTION 7.11.    ARBITRATION.

(a)    Arbitration.  The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise in any way arising out of or relating to (i) any credit subject hereto, or any of the Loan Documents, and their negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.  In the event of a court ordered arbitration, the party requesting arbitration shall be responsible for timely filing the demand for arbitration and paying the appropriate filing fee within 30 days of the abatement order or the time specified by the court.  Failure to timely file the demand for arbitration as ordered by the court will result in that party’s right to demand arbitration being automatically terminated.

(b)    Governing Rules.  Any arbitration proceeding will (i) proceed in a location in South Carolina selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to herein, as applicable, as the “Rules”).  If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control.  Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute.  Nothing contained herein shall be deemed to be a waiver by any party that is a lender of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c)    No Waiver of Provisional Remedies, Self-Help and Foreclosure.  The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before, during or after the pendency of any arbitration proceeding.  This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d)    Arbitrator Qualifications and Powers.  Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00.  Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations.  The arbitrator will be a neutral attorney licensed in the State of South Carolina or a neutral retired judge of the state or federal judiciary of South Carolina, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated.  The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim.  In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator's discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication.  The arbitrator shall resolve all disputes in accordance with the substantive law of South Carolina and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award.  The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the South Carolina Rules of Civil Procedure or other applicable law.  Judgment upon the award rendered by the arbitrator may be entered in any 

court having jurisdiction.  The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e)    Discovery.  In any arbitration proceeding, discovery will be permitted in accordance with the Rules.  All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date.  Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party's presentation and that no alternative means for obtaining information is available.

(f)    Class Proceedings and Consolidations.  No party hereto shall be entitled to join or consolidate disputes by or against others in any arbitration, except parties who have executed any Loan Document, or to include in any arbitration any dispute as a representative or member of a class, or to act in any arbitration in the interest of the general public or in a private attorney general capacity. 

(g)    Payment Of Arbitration Costs And Fees.  The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h)    Miscellaneous.  To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA.  No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation.  If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control.  This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

(i)    Small Claims Court.  Notwithstanding anything herein to the contrary, each party retains the right to pursue in Small Claims Court any dispute within that court’s jurisdiction.  Further, this arbitration provision shall apply only to disputes in which either party seeks to recover an amount of money (excluding attorneys’ fees and costs) that exceeds the jurisdictional limit of the Small Claims Court.

SECTION 7.12        WAIVER OF JURY TRIAL.    WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO ARBITRATE ANY DISPUTE AS SET FORTH HEREIN, TO THE EXTENT ANY DISPUTE IS NOT SUBMITTED TO ARBITRATION OR IS DEEMED BY THE ARBITRATOR OR BY ANY COURT WITH JURISDICTION TO BE NOT ARBITRABLE OR NOT REQUIRED TO BE ARBITRATED, BORROWER AND LENDER WAIVE TRIAL BY JURY IN RESPECT OF ANY SUCH DISPUTE AND ANY ACTION ON SUCH DISPUTE.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER AND LENDER, AND BORROWER AND LENDER HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  BORROWER AND LENDER ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  BORROWER FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, with the intention that it constitute an instrument under seal, as of the day and year first written above.

Vicon Industries, Inc.

By:  /s/ John M. Badke       
Name: John M. Badke
Its:CFO

NIL Funding Corporation

By:  /s/ Michael Bender        
Name: Michael Bender
Its: Secretary

Exhibit A

	
							
	Borrowing Base Certificate
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	Lender
	 
	NIL Funding Corporation
	 
	 
	 
	 

	Borrower:
	Vicon Industries, Inc.
	 
	 
	 
	 

	Credit Agreement Date
	 
	 
	 
	 

	Facility A Line of Credit 
	$4,000,000 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	For the Month ending
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	Dilution
	 
	 
	 
	 

	 
	Gross Sales (preceding 3 months)
	 
	 
	1
	 

	 
	 
	 
	 
	 
	 
	 

	 
	Sales reductions (preceding 3 months)
	 
	 
	 
	 

	 
	 
	Returns
	a
	 
	 
	 

	 
	 
	Rebates
	b
	 
	 
	 

	 
	 
	Discounts
	c
	 
	 
	 

	 
	 
	Credits
	d
	 
	 
	 

	 
	 
	Allowances
	e
	 
	 
	 

	 
	 
	 
	 
	 
	2
	0

	 
	 
	 
	 
	 
	 
	 

	 
	Dilution as a % of sales. Should not exceed 5%
	 
	 
	3
	 

	 
	 
	 
	 
	 
	 
	 

	 
	Accounts Receivable
	 
	 
	 
	 

	 
	Gross Accounts Receivable:
	 
	 
	4
	 

	 
	 
	(net of distribution channel contractual rebates)
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	Ineligibles, as defined in Section 1.1 (b)
	 
	 
	 
	 

	 
	i.
	Accounts over 90 days
	a
	 
	 
	 

	 
	ii.
	Setoff, defense or discounts
	b
	 
	 
	 

	 
	iii.
	U.S. Government accounts (50% ineligible)
	c
	 
	 
	 

	 
	iv.
	Foreign Accounts Receivable (50% ineligible)
	d
	 
	 
	 

	 
	v.
	Related affiliate/Employee
	e
	 
	 
	 

	 
	vi.
	Interim or progress billings
	f
	 
	 
	 

	 
	vii.
	Cross aging 90 days over 20%
	g
	 
	 
	 

	 
	viii.
	Excess 25% concentration
	h
	 
	 
	 

	 
	ix.
	Deemed ineligible by lender
	i
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	Total ineligibles
	 
	 
	5
	0

	 
	 
	 
	 
	 
	 
	 

	 
	Total Eligible Accounts Receivable, as defined in Section 1.1 (b)
	 
	6
	0

	 
	 
	 
	 
	 
	 
	 

	 
	Funds available
	 
	 
	 
	 

	 
	Eligible Accounts Receivable less than 60 days old
	a
	 
	 
	 

	 
	 
	 
	 
	85%
	7
	0

	 
	 
	 
	 
	 
	 
	 

	 
	Eligible Accounts Receivable between 60 and 90 days old
	b
	 
	 
	 

	 
	 
	 
	 
	60%
	8
	0

	 
	 
	 
	 
	 
	 
	 

	 
	US Government Receivables less than 90 days (50% eligible)
	 
	 
	 
	 

	 
	 
	 
	c
	50%
	9
	0

	 
	 
	 
	 
	 
	 
	 

	 
	Receivables from foreign accounts less than 90 days (50% eligible)
	 
	 
	 

	 
	 
	 
	d
	50%
	10
	0

	 
	 
	 
	 
	 
	 
	 

	 
	Total Eligible for borrowing
	 
	 
	11
	0

	
							
	 
	Maximum borrowing (not to exceed $4,000,000)
	 
	 
	12
	0

	 
	 
	 
	 
	 
	 
	 

	 
	Facility A Line of credit outstanding
	 
	 
	13
	 

	 
	Borrowing availability (Facility A Line of Credit)
	 
	 
	14
	0

	 
	 
	 
	 
	 
	 
	 

	 
	Additional borrowing Requested (not to exceed line 14)
	 
	 
	15
	0

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	Tangible Net Worth as of month end date (minimum $5,000,000)
	16
	 

	 
	Covenant met?
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	For purposes of securitizing credit from NIL Funding Corporation, we hereby certify that the above schedules are complete and correct.  

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 

	 
	Signature
	 
	Date

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