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Exhibit 10.5    
    

 
 

FIRST AMENDMENT
  TO
  LOAN AND SECURITY AGREEMENT    
    

        This First Amendment to Loan and Security Agreement is entered into as of July 17, 2002 by and between COMERICA BANK-CALIFORNIA ("Bank") and
SPY OPTIC, INC., a California corporation ("Borrower"). 

RECITALS  

        Borrower and Bank are parties to that certain Loan and Security Agreement dated as of October 5, 2001, as amended from time to time (the "Agreement"). The
parties desire to amend the Agreement in accordance with the terms of this Amendment. 

        NOW,
THEREFORE, the parties agree as follows: 

        1.     The
following defined terms in Exhibit A to the Agreement hereby are amended to read as follows: 

        "Credit
Extension" means each Advance, Facility B Advance, or any other extension of credit by Bank for the benefit of Borrower hereunder. 

        "Letter
of Credit" means a commercial or standby letter of credit or similar undertaking issued by Bank at Borrower's request in accordance with Section 2.1(d). 

        "Letter
of Credit Sublimit" means a sublimit under the Committed Revolving Line and the Facility B Revolving Line not to exceed in the aggregate Two Million Dollars ($2,000,000), for
Letters of Credit. 

        1.1    The
following defined terms hereby are added in their entirety as follows: 

        "Facility
B Revolving Line" means a Credit extension of up to One Million Three Hundred Thousand Dollars ($1,300,000); provided, however, that the maximum amount of the Facility B
Revolving Line shall be reduced by the amount that the maximum amount of the Committed Revolving Line is increased as a result of equity invested in or Subordinated Debt received by Borrower after
July 17, 2002. 

        "Facility
B Advance" or "Facility B Advances" means a cash advance or cash advances under Facility B. 

        "Facility
B" means the facility under which Borrower may request Bank to issue Facility B Advances, as specified in Section 2.1(c) hereof. 

        "Facility
B Maturity Date" means October 17, 2003. 

        2.     Section 2.1(c)
hereby is added to the Agreement to read as follows: 

        (c)    Facility B.

        (i)    Amount.    Subject to and upon the terms and conditions of this Agreement, only at such time as there is no
availability under the Committed Revolving Line, Borrower may request Facility B Advances in an aggregate outstanding amount not to exceed the lesser of (A) the Facility B Revolving Line or
(B) if Borrower's Leverage is greater than 1.50:1.00, the Borrowing Base, less any amounts outstanding under the Committed Revolving Line and the Letter of Credit Sublimit. Any amounts borrowed
pursuant to this Section 2.1(c) may be repaid and reborrowed at any time prior to the Facility B Maturity Date, at which time all Facility B Advances under this Section 2.1
(c) shall be immediately due and payable; provided, however, that any Facility B Advances
outstanding at such time as Borrower requests Advances under the Committed Revolving Line, shall 

be
immediately repaid to the extent of the availability under the Committed Revolving Line. Borrower may prepay any Facility B Advances without penalty or premium. 

        (ii)    Form of Request.    Whenever Borrower desires a Facility B Advance, Borrower will notify Bank by facsimile
transmission or telephone no later than 3:00 p.m. Pacific time, on the Business Day that the Facility B Advance is to be made. Each such notification shall be promptly confirmed by a
Payment/Advance Form in substantially the form of Exhibit C. Bank is authorized to make Facility B Advances under this Agreement, based upon instructions received from a Responsible Officer or
a designee of a Responsible Officer, or without instructions if in Bank's discretion such Facility B Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall be
entitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any
damages or loss suffered by Bank as a result of such reliance, except as the result of Bank's gross negligence or willful misconduct. Bank will credit the amount of Facility B Advances made under this
Section 2. l(c) to Borrower's deposit account. 

        3.     Section 2.1(b)(iii) of
the Agreement hereby is renumbered as Section 2. l(d) and is amended in its entirety to read as follows: 

        "(d)    Letter of Credit Sublimit.    Subject to the availability under the Committed Revolving Line and the Facility
B Revolving Line, and in reliance on the representations and warranties of Borrower set forth herein, at any time and from time to time from the date hereof through the Business Day immediately prior
to the Revolving Maturity Date, Bank shall issue for the account of Borrower such Letters of Credit as Borrower may request by delivering to Bank a duly executed letter of credit application on Bank's
standard form; provided, however, that the outstanding and undrawn amounts under all such Letters of Credit (i) shall not at any time exceed the Letter of Credit Sublimit, and (ii) shall
be deemed to constitute Advances and/or Facility B Advances for the purpose of calculating availability under the Committed Revolving Line and the Facility B Revolving Line, as appropriate. Any drawn
but unreimbursed amounts under any Letters of Credit shall be charged as Advances and/or Facility B Advances against the Committed Revolving Line or the Facility B Revolving Line, as appropriate.
Unless Borrower shall have deposited with Bank cash collateral in an amount sufficient to cover all undrawn amounts under each such Letter of Credit and Bank shall have agreed in writing, no Letter of
Credit shall have an expiration date that is later than the Revolving Maturity Date. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject
to the terms and conditions of Bank's form application and letter of credit agreement. Borrower will pay any standard issuance and other fees that Bank notifies Borrower will be charged for issuing
and processing Letters of Credit." 

        4.     Section 2.2
of the Agreement hereby is amended in its entirety to read as follows: 

        "2.2    Overadvances.    If the aggregate amount of the outstanding Advances
(plus the Facility B Advances, if any) exceeds the lesser of the Committed Revolving Line (plus the
Facility B Revolving Line to the extent of availability thereunder, but, together with the Committed Revolving Line, not to exceed $5,000,000) or, if Borrower's Leverage is greater than 1.50:1.00, the
Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess." 

        5.     Section 2.3(a)
of the Agreement hereby is amended in its entirety to read as follows: 

        (a)    Interest Rates.

        (i)    Advances.    Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding
daily balance thereof, at a variable rate equal to one percent (1%) above the Prime Rate. 

        (ii)    Facility B Advances.    Except as set forth in Section 2.3(b), the Facility B Advances shall bear
interest, on the outstanding daily balance thereof, at a variable rate equal to three percent (3%) above the Prime Rate. 

        6.     Section 6.8
of the Agreement hereby is amended in its entirety to read as follows: 

        "6.8    Out of Debt Provision.    Between January 1, 2003 and April 30, 2003, there shall be no
outstanding obligations under the Facility B Revolving Line for a period of 30 consecutive days." 

        7.     Exhibit D
Borrowing Base Certificate of the Agreement shall be replaced in its entirety by the Exhibit D Borrowing Base Certificate attached hereto. 

        8.     The
Exhibit E Compliance Certificate of the Agreement shall be replaced in its entirety by the Exhibit E Compliance Certificate attached hereto. 

        9.     Unless
otherwise defined, all capitalized terms in this Amendment shall be as defined in the Agreement. Except as amended, the Agreement remains in full force and effect. 

        10.   Borrower
represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no
Event of Default has occurred and is continuing. 

        11.   This
Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 

        12.   As
a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following: 

        (a)   this
Amendment, duly executed by Borrower; 

        (b)   Corporate
Resolutions to Borrow; 

        (c)   an
agreement to provide insurance; 

        (d)   disbursement
instructions; 

        (e)   a
facility fee equal to $15,000; 

        (f)    an
amount equal to all Bank Expenses incurred to date; and 

        (g)   such
other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. 

        IN
WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written. 

	 	 	SPY OPTIC, INC.
	

 	
 	

By:	

/s/ BARRY BUCHHOLTZ

	 	 	Title:	President

	

 	
 	

COMERICA BANK-CALIFORNIA
	

 	
 	

By:	

/s/ RICHMOND C. BOYCE

	 	 	Title:	AVP

EXHIBIT D  

 BORROWING BASE CERTIFICATE  

	

	Borrower: SPY OPTIC, INC.	 	Lender: COMERICA BANK-CALIFORNIA
	 	 	 

	Commitment Amount:	 	$	3,000,000	 	(Committed Revolving Line—subject to increase up to total of $5,000,000)
	 	 	$	1,300.000	 	(Facility B—subject to terms of Loan Agreement)
	 	 	
	 	 
	 	NOT TO EXCEED	 	$	5,000,000	 	 
	 	 	 	 	 	 

	DOMESTIC ACCOUNTS RECEIVABLE	 	 	 	 
	 	1.	 	Accounts Receivable Book Value as of             	 	 	 	$

	 	2.	 	Additions (please explain on reverse)	 	 	 	$

	 	3.	 	TOTAL ACCOUNTS RECEIVABLE	 	 	 	$

	

DOMESTIC ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)	
 	

 	
 	

 
	 	4.	 	Amounts over 60 days due/90 days invoice	 	 	 	$

	 	5.	 	Balance of 20% over 60 days past due accounts	 	 	 	$

	 	6.	 	Concentration Limits	 	 	 	 
	 	7.	 	Governmental Accounts	 	 	 	$

	 	8.	 	Contra Accounts	 	 	 	$

	 	9.	 	Demo Accounts	 	 	 	$

	 	10.	 	Intercompany/Employee Accounts	 	 	 	$

	 	11.	 	Other (please explain on reverse)	 	 	 	$

	 	12.	 	TOTAL DOMESTIC ACCOUNTS RECEIVABLE DEDUCTIONS	 	 	 	$

	 	13.	 	Eligible Accounts (#3 minus #12)	 	 	 	$

	 	14.	 	LOAN VALUE OF DOMESTIC ACCOUNTS (70% of #14)	 	 	 	$

	

FOREIGN ACCOUNTS RECEIVABLE	
 	

 	
 	

 
	 	15.	 	Eligible Foreign Accounts	 	 	 	$

	 	16	 	LOAN VALUE OF FOREIGN ACCOUNTS (90% of 15)	 	 	 	$

	

INVENTORY	
 	

 	
 	

 
	 	17.	 	Eligible Domestic Inventory	 	 	 	$

	 	18.	 	LOAN VALUE OF DOMESTIC INVENTORY (lesser of 40% of 17, or $2,000,000)	 	 	 	$

	

BALANCES	
 	

 	
 	

 
	 	19.	 	Maximum Loan Amount	 	$
	 	 
	 	20.	 	Total Funds Available [Lesser of #19 or (#l4 + #l6 + #l8)	 	$
	 	 
	 	21.	 	Present balance owing on Line of Credit	 	$
	 	 
	 	22.	 	Present amount available under Facility B	 	$
	 	 
	 	23.	 	Outstanding under Sublimits	 	$
	 	 
	 	24.	 	RESERVE POSITION (#20 minus #21, #22 and #23)	 	$
	 	 

The undersigned represents and warrants that the foregoing is true, complete and correct in all material respects, and that the information reflected in this
Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and Comerica
Bank-California.

SPY
OPTIC, INC. 

	By:	 	 	 	 
	 	 	
 Authorized Signer	 	 

EXHIBIT E  

 COMPLIANCE CERTIFICATE  

	TO:	 	COMERICA BANK-CALIFORNIA
	FROM:	 	SPY OPTIC, INC.

        The
undersigned authorized officer of SPY OPTIC, INC. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending                        with all required
covenants, except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. 

        Please indicate compliance status by circling Yes/No under "Complies" column.

	Reporting Covenant
 
	 	Required
	 	Complies

	Monthly financial statements	 	Monthly within 30 days	 	Yes	 	No
	Annual (CPA Audited)	 	FYE within 120 days	 	Yes	 	No
	10K and 10Q	 	(as applicable)	 	Yes	 	No
	A/R & A/P Agings, Borrowing Base Cert.	 	Monthly within 30 days (if required)	 	Yes	 	No
	
Financial Covenant
 
	
 	

Required
	
 	

Actual
	
 	

Complies

	Maintain on a Monthly Basis:	 	 	 	 	 	 	 	 
	 	Minimum Current Ratio	 	1.25:1.00	 	        :1.00	 	Yes	 	No
	 	Maximum Debt-TNW	 	2.00:1.00	 	        :1.00	 	Yes	 	No
	 	Minimum Tangible Net Worth	 	$6,500,000*	 	$                	 	Yes	 	No
	Profitability	 	$1.00	 	$                	 	Yes	 	No
	Out of Debt**	 	 	 	 	 	Yes	 	No

* plus (i) fifty percent (50%) of Borrower's aggregate net income per fiscal quarter, and (ii) one
hundred percent (100%) of capital infusions, including Subordinated Debt 

** annually, 30 consecutive days between January 1 and April 30. 

	 	 	

	Comments Regarding Exceptions: See Attached.	 	BANK USE ONLY
	

Sincerely,	
 	

Received by:	
 	

 
	 	 	 	 	

	 	 	AUTHORIZED SIGNER
	 	 	 	 	 
	 	 	Date:	 	 
	
 SIGNATURE	 	 	 	

	

 	
 	

Verified:	
 	

 
	 	 	 	 	

	 	 	AUTHORIZED SIGNER
	 	 	 	 	 
	
 TITLE	 	Date:	 	 
	 	 	 	 	

	 	 	 	 	 
	
 DATE	 	Compliance Status                Yes    No
	 	 	

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Exhibit 10.5

FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENTQuickLinks
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Exhibit 10.6    
    

 
 

SECOND AMENDMENT
  TO
  LOAN AND SECURITY AGREEMENT    
    

        This Second Amendment to Loan and Security Agreement is entered into as of March 21, 2003 by and between COMERICA BANK-CALIFORNIA ("Bank") and
SPY OPTIC, INC., a California corporation ("Borrower"). 

RECITALS  

        Borrower and Bank are parties to that certain Loan and Security Agreement dated as of October 5, 2001, as amended from time to time, including but not
limited to that certain First Amendment to Loan and Security Agreement dated as of July 17, 2002 (the "Agreement"). The parties desire to amend the Agreement in accordance with the terms of
this Amendment. 

        NOW,
THEREFORE, the parties agree as follows: 

        1.     The
following defined terms in Exhibit A to the Agreement hereby are amended to read, or added, as follows: 

        "Committed
Revolving Line" means a Credit Extension of up to Six Million Dollars ($6,000,000) (inclusive of any amounts outstanding under the Letter of Credit Sublimit). 

        "Credit
Extension" means each Advance, Term Loan, or any other extension of credit by Bank for the benefit of Borrower hereunder. 

        "Revolving
Maturity Date" means June 5, 2005. 

        "Term
Loan" means the facility under which Borrower may request Bank to issue a term loan, as specified in Section 2.1(e) hereof. 

        "Term
Loan Maturity Date" means March 21, 2007. 

        2.     Section 2.1(c)
of the Agreement hereby is amended in its entirety to read as follows: 

        (c)    Intentionally Omitted.

        3.     Section 2.1(e)
hereby is added to the Agreement to read as follows: 

        "(e)    Term Loan.

        (i)    Subject
to and upon the terms and conditions of this Agreement, on the date of this Amendment, Bank agrees to make one term loan to Borrower in an aggregate amount of
Five Hundred Thousand Dollars ($500,000) (the "Term Loan") which amount shall be used to finance the acquisition of certain vehicles, and to retire a portion of the Obligations owing Bank. 

        (ii)    Interest
shall accrue from the date of the funding of the Term Loan at the rate specified in Section 2.3(a)(ii). The Term Loan shall be payable in forty-eight
(48) equal monthly installments of principal, plus all accrued interest, beginning on May 1, 2003, and continuing on the same day of each month thereafter through the Term Loan Maturity
Date, at which time all amounts due under this Section 2.1(e) shall be immediately due and payable. The Term Loan, once repaid, may not be reborrowed. Borrower may prepay The Term Loan without
penalty or premium." 

        4.     Section 2.2
of the Agreement hereby is amended in its entirety to read as follows: 

        "2.2    Overadvances.    If the aggregate amount of the outstanding Advances exceeds the lesser of the Committed
Revolving Line or, if Borrower's Leverage is greater than 1.50:1.00, the 

Borrowing
Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess." 

        5.     Section 2.3(a)(ii) of
the Agreement hereby is amended in its entirety to read as follows: 

        "(ii)    Term Loan.    Except as set forth in Section 2.3(b), the Term Loan shall bear interest, on the
outstanding daily balance thereof, at a variable rate equal to one and one half percent (1.50%) above the Prime Rate." 

        6.     Section 6.7(c)
of the Agreement hereby is amended in its entirety to read as follows: 

        "(c)    Tangible Net Worth.    Commencing March 31, 2003, a Tangible Net Worth of not less than $9,000,000,  plus (but not to be decreased by)
(i) fifty percent (50%) of Borrower's aggregate net income per fiscal quarter, and (ii) one hundred
percent (100%) of capital infusions, including Subordinated Debt." 

        7.     Section 6.7(d)
of the Agreement hereby is amended in its entirety to read as follows: 

        "(d)    Profitability.    Annual minimum profit (net income after taxes) of Five Hundred Thousand Dollars ($500,000)." 

        8.     Section 6.8
of the Agreement hereby is amended in its entirety to read as follows: 

        "6.8    Intentionally Omitted." 

        9.     The
Exhibit D Borrowing Base Certificate of the Agreement shall be replaced in its entirety by the Exhibit D Borrowing Base Certificate attached hereto. 

        10.   The
Exhibit E Compliance Certificate of the Agreement shall be replaced in its entirety by the Exhibit E Compliance Certificate attached hereto. 

        11.   Unless
otherwise defined, all capitalized terms in this Amendment shall be as defined in the Agreement. Except as amended, the Agreement remains in full force and
effect. 

        12.   Borrower
represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no
Event of Default has occurred and is continuing. 

        13.   This
Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 

        14.   As
a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following: 

        (a)   this
Amendment, duly executed by Borrower; 

        (b)   Corporate
Resolutions to Borrow; 

        (c)   an
agreement to provide insurance; 

        (d)   disbursement
instructions; 

        (e)   a
facility fee equal to (i) $35,000 on account of the Term Loan, and (ii) $0 (zero) on account of the Committed Revolving Line, which fee shall be fully
earned and nonrefundable on the date hereof, and may be debited from any of Borrower's accounts with Bank; 

        (f)    a
documentation fee equal to $750.00, which fee shall be fully earned and nonrefundable on the date hereof, and may be debited from any of Borrower's accounts with Bank; 

        (g)   an
amount equal to all Bank Expenses incurred to date, which may be debited from any of Borrower's accounts with Bank; and 

        (h)   an
audit of the Collateral, with results satisfactory to Bank; 

        (i)    receipt
and review of audited financial statements for Borrower's year ended December 31, 2002, which shall reflect no material changes from the company-prepared
financial statements prepared and delivered to Bank with respect to the same period; and 

        (j)    such
other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. 

        IN
WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written. 

	 	 	SPY OPTIC, INC.
	

 	
 	

By:	

/s/ BARRY BUCHHOLTZ

	 	 	Title:	President

	

 	
 	

COMERICA BANK-CALIFORNIA
	

 	
 	

By:	

/s/ RICHMOND C. BOYCE

	 	 	Title:	VP

EXHIBIT D  

 BORROWING BASE CERTIFICATE  

	

	Borrower: SPY OPTIC, INC.	 	Lender: COMERICA BANK-CALIFORNIA

Commitment
Amount: $6,000,000 

	DOMESTIC ACCOUNTS RECEIVABLE	 	 	 	 
	 	1.	 	Accounts Receivable Book Value as of             	 	 	 	$

	 	2.	 	Additions (please explain on reverse)	 	 	 	$

	 	3.	 	TOTAL ACCOUNTS RECEIVABLE	 	 	 	$

	

DOMESTIC ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)	
 	

 	
 	

 
	 	4.	 	Amounts over 60 days due/90 days invoice	 	 	 	$

	 	5.	 	Balance of 20% over 60 days past due accounts	 	 	 	$

	 	6.	 	Concentration Limits	 	 	 	 
	 	7.	 	Governmental Accounts	 	 	 	$

	 	8.	 	Contra Accounts	 	 	 	$

	 	9.	 	Demo Accounts	 	 	 	$

	 	10.	 	Intercompany/Employee Accounts	 	 	 	$

	 	11.	 	Other (please explain on reverse)	 	 	 	$

	 	12.	 	TOTAL DOMESTIC ACCOUNTS RECEIVABLE DEDUCTIONS	 	 	 	$

	 	13.	 	Eligible Accounts (#3 minus #12)	 	 	 	$

	 	14.	 	LOAN VALUE OF DOMESTIC ACCOUNTS (70% of #14)	 	 	 	$

	

FOREIGN ACCOUNTS RECEIVABLE	
 	

 	
 	

 
	 	15.	 	Eligible Foreign Accounts	 	 	 	$

	 	16	 	LOAN VALUE OF FOREIGN ACCOUNTS (90% of 15)	 	 	 	$

	

INVENTORY	
 	

 	
 	

 
	 	17.	 	Eligible Domestic Inventory	 	 	 	$

	 	18.	 	LOAN VALUE OF DOMESTIC INVENTORY (lesser of 40% of 17, or $2,000,000)	 	 	 	$

	

BALANCES	
 	

 	
 	

 
	 	19.	 	Maximum Loan Amount	 	$
	 	 
	 	20.	 	Total Funds Available [Lesser of #19 or (#l4 + #l6 + #l8)	 	$
	 	 
	 	21.	 	Present balance owing on Line of Credit	 	$
	 	 
	 	22.	 	[Intentionally Omitted]	 	$
	 	 
	 	23.	 	Outstanding under Sublimits	 	$
	 	 
	 	24.	 	RESERVE POSITION (#20 minus #21, #22 and #23)	 	$
	 	 

The undersigned represents and warrants that the foregoing is true, complete and correct in all material respects, and that the information reflected in this
Borrowing Base Certificate complies with the representations and warranties set forth in the Loan and Security Agreement between the undersigned and Comerica
Bank-California.

SPY
OPTIC, INC. 

	By:	 	 	 	 
	 	 	
 Authorized Signer	 	 

EXHIBIT E  

 COMPLIANCE CERTIFICATE  

	TO:	 	COMERICA BANK-CALIFORNIA
	FROM:	 	SPY OPTIC, INC.

        The
undersigned authorized officer of SPY OPTIC, INC. hereby certifies that in accordance with the terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the "Agreement"), (i) Borrower is in complete compliance for the period ending                        with all required
covenants, except as noted below and (ii) all representations and
warranties of Borrower stated in the Agreement are true and correct in all material respects as of the date hereof. Attached herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP) and are consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. 

        Please indicate compliance status by circling Yes/No under "Complies" column.

	Reporting Covenant
 
	 	Required
	 	Complies

	Monthly financial statements	 	Monthly within 30 days	 	Yes	 	No
	Annual (CPA Audited)	 	FYE within 120 days	 	Yes	 	No
	10K and 10Q	 	(as applicable)	 	Yes	 	No
	A/R & A/P Agings, Borrowing Base Cert.	 	Monthly within 30 days (if required)	 	Yes	 	No
	
Financial Covenant
 
	
 	

Required
	
 	

Actual
	
 	

Complies

	Maintain on a Monthly Basis:	 	 	 	 	 	 	 	 
	 	Minimum Current Ratio	 	1.25:1.00	 	        :1.00	 	Yes	 	No
	 	Maximum Debt-TNW	 	2.00:1.00	 	        :1.00	 	Yes	 	No
	 	Minimum Tangible Net Worth	 	$9,000,000*	 	$                	 	Yes	 	No
	Profitability	 	$500,000	 	$                	 	Yes	 	No

* plus (i) fifty percent (50%) of Borrower's aggregate net income per fiscal quarter, and (ii) one
hundred percent (100%) of capital infusions, including Subordinated Debt 

	 	 	

	Comments Regarding Exceptions: See Attached.	 	BANK USE ONLY
	

Sincerely,	
 	

Received by:	
 	

 
	 	 	 	 	

	 	 	AUTHORIZED SIGNER
	 	 	 	 	 
	 	 	Date:	 	 
	
 SIGNATURE	 	 	 	

	

 	
 	

Verified:	
 	

 
	 	 	 	 	

	 	 	AUTHORIZED SIGNER
	 	 	 	 	 
	
 TITLE	 	Date:	 	 
	 	 	 	 	

	 	 	 	 	 
	
 DATE	 	Compliance Status                Yes    No
	 	 	

QuickLinks

Exhibit 10.6

SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT

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