Document:

Exhibit 10.13

 

TRADEMARK LICENSE EXTENSION AGREEMENT

 

This
Extension Agreement dated as of June 29, 2010 is by and between Hallmark
Licensing, Inc. (“Hallmark Licensing”) and Crown Media United States, LLC
(“Crown US”).

 

WHEREAS,
Crown US and Hallmark Licensing have previously entered into that certain Amended
and Restated Trademark License Agreement between the parties dated as of March 27,
2001 as extended on November 30, 2002, as of August 28, 2003, as of August 1,
2004, as of August 1, 2005, as of April 10, 2006, as of August 1,
2007, as of August 1, 2008, and as of August 15, 2009 (the “License
Agreement”); and

 

WHEREAS,
the parties desire to further extend the term of the License Agreement;

 

NOW,
THEREFORE, Crown US and Hallmark Licensing hereby agree as follows:

 

The
term of the License Agreement shall be extended for an additional period
terminating on September 1, 2011, subject to any earlier termination
pursuant to the terms of the License Agreement.

 

All
other terms and conditions of the License Agreement will remain unchanged and
in full force and effect.

 

IN
WITNESS WHEREOF, the parties hereto have executed this Extension Agreement as
of the date set forth above.

 

 

	
  HALLMARK LICENSING, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Brian Gardner

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  Vice
  President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CROWN MEDIA UNITED STATES, LLC

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Charles Stanford

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  Vice
  PresidentExhibit 10.14

 

TRADEMARK LICENSE EXTENSION AGREEMENT

 

This
Extension Agreement dated as of June 29, 2010 is by and between Hallmark
Licensing, Inc. (“Hallmark Licensing”) and Crown Media United States, LLC
(“Crown US”).

 

WHEREAS,
Crown US and Hallmark Licensing have previously entered into that certain Movie
Channel Trademark License Agreement between the parties dated as of January 1,
2004, as extended as of August 1, 2004, as of August 1, 2005, as of April 10,
2006, as of August 1, 2007, as of August 1, 2008, and as of August 15,
2009 (the “License Agreement”); and

 

WHEREAS,
the parties desire to further extend the term of the License Agreement;

 

NOW,
THEREFORE, Crown US and Hallmark Licensing hereby agree as follows:

 

The
term of the License Agreement shall be extended for an additional period
terminating on September 1, 2011, subject to any earlier termination
pursuant to the terms of the License Agreement.

 

All
other terms and conditions of the License Agreement will remain unchanged and
in full force and effect.

 

IN
WITNESS WHEREOF, the parties hereto have executed this Extension Agreement as
of the date set forth above.

 

 

	
  HALLMARK LICENSING, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Brian Gardner

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  Vice
  President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  CROWN MEDIA UNITED STATES, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Charles Stanford

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  Vice
  PresidentExhibit 10.6

 

 

THIRD AMENDED AND RESTATED

CREDIT AND SECURITY AGREEMENT

 

BY AND BETWEEN

 

NORTECH SYSTEMS INCORPORATED

 

AND

 

WELLS FARGO BANK, NATIONAL ASSOCIATION

 

 

Acting through its Wells Fargo Business Credit operating division

 

 

May 27, 2010

 

 

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Amount and Terms of the Line of Credit and Term loan

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Restated Credit Agreement; Line of Credit; Limitations on
  Borrowings; Termination Date; Use of Proceeds

  	
  1

  
	
  1.2

  	
  Borrowing Base; Mandatory Prepayment

  	
  2

  
	
  1.3

  	
  Procedures for Line of Credit Advances

  	
  3

  
	
  1.4

  	
  Floating Rate Advances

  	
  4

  
	
  1.5

  	
  Intentionally Deleted

  	
  4

  
	
  1.6

  	
  Collection of Accounts and Application to Revolving Note

  	
  4

  
	
  1.7

  	
  Term Loan

  	
  5

  
	
  1.8

  	
  Interest and Interest Related Matters

  	
  6

  
	
  1.9

  	
  Fees

  	
  7

  
	
  1.10

  	
  Interest Accrual; Principal and Interest Payments;
  Computation

  	
  9

  
	
  1.11

  	
  Termination, Reduction or Non-Renewal of Line of Credit by
  Company; Notice

  	
  10

  
	
  1.12

  	
  Letters of Credit

  	
  11

  
	
  1.13

  	
  Special Account

  	
  12

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Security Interest and Occupancy of Company’s Premises

  	
  12

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Grant of Security Interest

  	
  12

  
	
  2.2

  	
  Notifying Account Debtors and Other Obligors; Collection of
  Collateral

  	
  12

  
	
  2.3

  	
  Assignment of Insurance

  	
  12

  
	
  2.4

  	
  Company’s Premises

  	
  13

  
	
  2.5

  	
  License

  	
  13

  
	
  2.6

  	
  Financing Statements

  	
  14

  
	
  2.7

  	
  Setoff

  	
  14

  
	
  2.8

  	
  Collateral Related Matters

  	
  14

  
	
  2.9

  	
  Notices Regarding Disposition of Collateral

  	
  14

  
	
   

  	
   

  	
   

  
	
  3.

  	
  CONDITIONS PRECEDENT

  	
  15

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Conditions Precedent to Initial Advance and Issuance of
  Initial Letter of Credit

  	
  15

  
	
  3.2

  	
  Additional Conditions Precedent to All Advances and Letters
  of Credit

  	
  15

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Representations and Warranties

  	
  15

  
				

 

 

	
  5.

  	
  Covenants

  	
  15

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Reporting Requirements

  	
  15

  
	
  5.2

  	
  Financial Covenants

  	
  18

  
	
  5.3

  	
  Other Liens and Permitted Liens

  	
  19

  
	
  5.4

  	
  Indebtedness

  	
  19

  
	
  5.5

  	
  Guaranties

  	
  20

  
	
  5.6

  	
  Investments and Subsidiaries

  	
  20

  
	
  5.7

  	
  Dividends and Distributions

  	
  20

  
	
  5.8

  	
  Salaries

  	
  20

  
	
  5.9

  	
  Books and Records; Collateral Examination; Inspection and
  Appraisals

  	
  21

  
	
  5.10

  	
  Account Verification; Payment of Permitted Liens

  	
  21

  
	
  5.11

  	
  Compliance with Laws

  	
  21

  
	
  5.12

  	
  Payment of Taxes and Other Claims

  	
  22

  
	
  5.13

  	
  Maintenance of Collateral and Properties

  	
  22

  
	
  5.14

  	
  Insurance

  	
  23

  
	
  5.15

  	
  Preservation of Existence

  	
  23

  
	
  5.16

  	
  Delivery of Instruments, etc

  	
  23

  
	
  5.17

  	
  Sale or Transfer of Assets; Suspension of Business
  Operations

  	
  23

  
	
  5.18

  	
  Consolidation and Merger; Asset Acquisitions

  	
  23

  
	
  5.19

  	
  Sale and Leaseback

  	
  23

  
	
  5.20

  	
  Restrictions on Nature of Business

  	
  23

  
	
  5.21

  	
  Accounting

  	
  24

  
	
  5.22

  	
  Discounts, etc

  	
  24

  
	
  5.23

  	
  Pension Plans

  	
  24

  
	
  5.24

  	
  Place of Business; Name

  	
  24

  
	
  5.25

  	
  Constituent Documents; S Corporation Status

  	
  24

  
	
  5.26

  	
  Performance by Wells Fargo

  	
  24

  
	
  5.27

  	
  Wells Fargo Appointed as Company’s Attorney in Fact

  	
  24

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Events of Default and Remedies

  	
  24

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Events of Default

  	
  24

  
	
  6.2

  	
  Rights and Remedies

  	
  27

  
	
  6.3

  	
  Immediate Default and Acceleration

  	
  28

  
	
   

  	
   

  	
   

  
	
  7.

  	
  Miscellaneous

  	
  28

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  No Waiver; Cumulative Remedies

  	
  28

  
	
  7.2

  	
  Amendments; Consents and Waivers; Authentication

  	
  28

  
	
  7.3

  	
  Execution in Counterparts; Delivery of Counterparts

  	
  28

  
	
  7.4

  	
  Notices, Requests, and Communications; Confidentiality

  	
  29

  
	
  7.5

  	
  Company Information Reporting; Confidentiality

  	
  30

  
	
  7.6

  	
  Further Documents

  	
  31

  
	
  7.7

  	
  Costs and Expenses

  	
  31

  
	
  7.8

  	
  Indemnity

  	
  31

  
	
  7.9

  	
  Retention of Company’s Records

  	
  32

  
				

 

 

	
  7.10

  	
  Release

  	
  32

  
	
  7.11

  	
  Binding Effect; Assignment; Complete Agreement

  	
  32

  
	
  7.12

  	
  Sharing of Information

  	
  33

  
	
  7.13

  	
  Severability of Provisions

  	
  33

  
	
  7.14

  	
  Headings

  	
  33

  
	
  7.15

  	
  Definitional Terms and Rules of Interpretation

  	
  33

  
	
  7.16

  	
  Governing Law; Jurisdiction, Venue; Waiver of Jury Trial

  	
  33

  

 

Exhibits

 

	
  A
  — Definitions

  	
   

  	
  A-1

  
	
  B
  — Premises

  	
   

  	
  B-1

  
	
  C
  — Conditions Precedent

  	
   

  	
  C-1

  
	
  D
  — Representations and Warranties

  	
   

  	
  D-1

  
	
  E
  — Compliance Certificate

  	
   

  	
  E-1

  
	
  F
  — Permitted Liens; Indebtedness; and Guaranties

  	
   

  	
  F-1

  

 

 

THIRD AMENDED AND RESTATED 

CREDIT AND SECURITY AGREEMENT

 

THIS THIRD AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT (the “Agreement”) is dated May 27, 2010 and is entered into
between NORTECH SYSTEMS INCORPORATED, a
Minnesota corporation (“Company”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (as more fully
defined in Exhibit A, “Wells Fargo”), acting through its Wells Fargo Business
Credit operating division.

 

RECITALS

 

A.            Company and Wells Fargo
previously entered into that certain Second Amended and Restated Credit and
Security Agreement dated as of August 6, 2009 (as amended, the “Existing Credit Agreement”) pursuant to which the Company
executed and delivered that certain (i) Amended and Restated Revolving
Note dated as of August 6, 2009 made payable to the order of Wells Fargo
in the original principal amount of $12,000,000 (the “Existing
Revolving Note”); and (ii) Amended and Restated Real Estate
Term Note dated as of February 2, 2007 made payable to the order of Wells
Fargo in the original principal amount of $3,348,750 (the “Existing
Term Note,” and together with the Existing Revolving Note, the “Existing Notes”).

 

B.            Company has asked Wells
Fargo to continue to provide it with a $12,000,000 revolving line of credit
(the “Line of Credit”) for working capital
purposes and to facilitate the issuance of letters of credit.  Company has also requested that Wells Fargo
continue to provide the term loan (the “Term Loan”)
currently evidenced by the Existing Term Note. 
Wells Fargo is agreeable to meeting Company’s request, provided that
Company agrees to the terms and conditions of this Agreement.

 

C.            The parties wish to
completely amend and restate the Existing Credit Agreement.

 

D.            For purposes of this
Agreement, capitalized terms not otherwise defined in the Agreement shall have
the meaning given them in Exhibit A.

 

1.             AMOUNT AND
TERMS OF THE LINE OF CREDIT AND TERM LOAN

 

1.1          Restated Credit Agreement; Line of Credit; Limitations on Borrowings;
Termination Date; Use of Proceeds.

 

(a)           Restated Credit Agreement; Existing Advances.  Wells Fargo has made various
revolving advances to the Borrower (the “Existing
Advances”) as evidenced by the Existing Credit Agreement and the
Existing Revolving Note.  As of May 24,
2010, the outstanding principal balance of the Existing Advances was
$5,406,607.41.  On the effective date of
this Agreement, (i) the Existing Credit Agreement shall be amended,
restated and superseded in its entirety by this Agreement; (ii) the
Existing Advances shall be deemed to be Advances made pursuant to Section 1.1(b) and
shall be evidenced by and repayable in accordance with the Existing Revolving
Note (as renewed, amended, substituted or replaced 

 

 

from
time to time, the “Revolving Note”);
and (iii) all other existing Loan Documents shall continue in full force
and effect except as expressly modified by this Agreement or in connection with
any other document or agreement delivered to Wells Fargo in connection with
this Agreement.

 

(b)           Line of Credit and Limitations on Borrowing.  Wells Fargo shall make Advances
to Company under the Line of Credit that, together with the L/C Amount,  shall not at any time exceed in the
aggregate the lesser of (i) $12,000,000 (the “Maximum Line Amount”), or (ii) the Borrowing Base
limitations described in Section 1.2. 
Within these limits, Company may periodically borrow, prepay in whole or
in part, and reborrow.  Wells Fargo has no obligation to make an Advance
during a Default Period or at any time Wells Fargo believes that an Advance
would result in an Event of Default.

 

(c)           Maturity and Termination Dates.  Company may request Line of Credit Advances
from the date that the conditions set forth in Section 3 are satisfied
until the earlier of: (i) the Maturity Date, (ii) the date Company
terminates the Line of Credit, or (iii) the date Wells Fargo terminates
the Line of Credit following an Event of Default. (The earliest of these dates
is the “Termination Date.”)

 

(d)           Use of Line of Credit Proceeds.  Company shall use the proceeds of each Line
of Credit Advance and each Letter of Credit for ordinary working capital
purposes.

 

(e)           Revolving Note.  Company’s obligation to repay Line of Credit
Advances, regardless of how initiated under Section 1.3, shall be
evidenced by the Revolving Note.

 

1.2          Borrowing Base; Mandatory Prepayment.

 

(a)           Borrowing Base.  The borrowing base (the “Borrowing Base”) is an amount equal to:

 

(i)            80% or such lesser percentage of Eligible Accounts as Wells Fargo in its
sole discretion may deem appropriate; provided that this rate may be reduced at
any time by Wells Fargo’s in its sole discretion by one (1) percent for
each percentage point by which Dilution on the date of determination is in
excess of five percent (5.0%), plus

 

(ii)           the lesser of $3,000,000 or the sum of:

 

(1)           30% or such lesser percentage of Eligible
Finished Goods Inventory as Wells Fargo in its sole discretion may deem
appropriate, plus

 

(2)           the lesser of $2,000,000, or 20% or such
lesser percentage of Eligible Raw Materials Inventory as Wells Fargo in its
sole discretion may deem appropriate; less

 

2

 

(iii)          the Availability Reserve; less

 

(iv)          the Borrowing Base Reserve, less

 

(v)           the L/C Amount, less

 

(vi)          Indebtedness (other than the L/C Amount and Indebtedness evidenced by the
Term Note and/or the Reimbursement Agreement) that Company owes Wells Fargo
that has not been advanced on the Revolving Note, less

 

(vii)         Indebtedness
(other than the L/C Amount and Indebtedness evidenced by the Term Note and/or
the Reimbursement Agreement) that is not otherwise described in Section 1,
including Indebtedness that Wells Fargo in its sole discretion finds on the
date of determination to be equal to Wells Fargo’s net credit exposure with
respect to any Rate Hedge Agreement, derivative, foreign exchange, deposit,
treasury management or similar transaction or arrangement extended to Company
by Wells Fargo.

 

(b)           Mandatory Prepayment; Overadvances.  If unreimbursed Line of Credit Advances
evidenced by the Revolving Note plus the L/C Amount exceed the Borrowing Base
or the Maximum Line Amount at any time, then Company shall immediately prepay
the Revolving Note in an amount sufficient to eliminate the excess, and if
payment in full of the Revolving Note is insufficient to eliminate this excess
and the L/C Amount continues to exceed the Borrowing Base, then Company shall
deliver cash to Wells Fargo in an amount equal to the remaining excess for
deposit to the Special Account,  unless
in each case, Wells Fargo has delivered to Company an Authenticated Record
consenting to the Overadvance prior
to its occurrence, in which event the Overadvance shall be temporarily
permitted on such terms and conditions as Wells Fargo in its sole discretion
may deem appropriate, including the payment of additional fees or interest, or
both.

 

1.3          Procedures for Line of Credit Advances.

 

(a)           Advances Credited to Operating Account.  All Advances shall accrue interest at the
Floating Rate (“Floating Rate Advances”) and shall
be credited to Company’s demand deposit account maintained with Wells Fargo
(the “Operating Account”), unless
the parties agree in an Authenticated Record to disburse to another account.

 

(b)           Advances upon Company’s Request.  Company may request one or more Advances on
any Business Day.  Each request shall be
deemed a request for a Floating Rate Advance. 
No request for an Advance will be deemed received until Wells Fargo
acknowledges receipt, and Company, if requested by Wells Fargo, confirms the
request in an Authenticated Record. 
Company shall repay all Advances, even if the Person requesting the
Advance on behalf of Company lacked authorization.

 

3

 

(c)           Advances through Loan Manager.  If Wells Fargo has separately agreed that
Company may use the Wells Fargo Loan Manager service (“Loan Manager”), Line of Credit Advances
will be initiated by Wells Fargo and credited to the Operating Account as Floating
Rate Advances as of the end of each Business Day in an amount sufficient to
maintain an agreed upon ledger balance in the Operating Account, subject only
to Line of Credit availability as provided in Section 1.1(a).  If Wells Fargo terminates Company’s access to
Loan Manager, Company may continue to request Line of Credit Advances as
provided in Section 1.3(b).  Wells
Fargo shall have no obligation to make an Advance through Loan Manager during a
Default Period, or in an amount in excess of Line of Credit availability, and
may terminate Loan Manager at any time in its sole discretion.

 

(d)           Protective Advances; Advances to Pay Indebtedness Due.  Wells Fargo may initiate a
Floating Rate Advance on the Line of Credit in its sole discretion for any
reason at any time, without Company’s compliance with any of the conditions of
this Agreement, and (i) disburse the proceeds directly to third Persons in
order to protect Wells Fargo’s interest in Collateral or to perform any of
Company’s obligations under this Agreement, or (ii) apply the proceeds to
the amount of any Indebtedness then due and payable to Wells Fargo.

 

1.4          Floating Rate Advances.  Company may request an Advance at the
Floating Rate no later than 11:00 a.m. Central Time on the Business Day on
which Company wants the Floating Rate Advance to be funded.  Rate Hedges may not be used with respect to
any Advance that utilizes the Floating Rate.

 

1.5          Intentionally Deleted.

 

1.6          Collection of Accounts and Application to
Revolving Note.

 

(a)           The Collection Account.  Company has granted a security interest to
Wells Fargo in the Collateral, including without limitation, all Accounts.
Except as otherwise agreed by both parties in an Authenticated Record, all
Proceeds of Accounts and other Collateral, upon receipt or collection, shall be
deposited each Business Day into the Collection Account. Funds so deposited (“Account Funds”) are the property of Wells
Fargo, and may only be withdrawn from the Collection Account by Wells Fargo.

 

(b)           Payment of Accounts by Company’s Account Debtors.  Company shall instruct all
account debtors to make payments either directly to the Lockbox for deposit by
Wells Fargo directly to the Collection Account, or instruct them to deliver
such payments to Wells Fargo by wire transfer, ACH, or other means as Wells
Fargo may direct for deposit to the Collection Account or for direct
application to the Line of Credit. If Company receives a payment or the
Proceeds of Collateral directly, Company will promptly deposit the payment or
Proceeds into the Collection Account. Until deposited, it will hold all such
payments and Proceeds in trust for Wells Fargo without commingling with other
funds or property.  All 

 

4

 

deposits
held in the Collection Account shall constitute Proceeds of Collateral and
shall not constitute the payment of Indebtedness.

 

(c)           Application of Payments to Revolving Note.  Wells Fargo will withdraw Account Funds
deposited to the Collection Account and pay down borrowings on the Line of
Credit by applying them to the Revolving Note on the first Business Day
following the Business Day of deposit to the Collection Account, or, if
payments are received by Wells Fargo that are not first deposited to the
Collection Account pursuant to any treasury management service provided to
Company by Wells Fargo, such payments shall be applied to the Revolving Note as
provided in the Master Agreement for Treasury Management Services and the
relevant service description.

 

1.7          Term Loan.

 

(a)           Existing Term Loan.  Wells Fargo previously extended the Term Loan to the Company as evidenced
by the Existing Term Note, repayable in accordance with the terms set forth
therein and in this Agreement.  As of the
date hereof, the outstanding principal balance under the Existing Term Note is
$2,484,796.82.

 

(b)           Term Note.  Company’s obligation to repay the Term Loan
and each Term Loan Advance (if any) shall be evidenced by the Existing Term
Note (as renewed, amended, substituted or replaced from time to time, the “Term Note”).

 

(c)           Payments and Adjustments to Payments.  The outstanding principal balance of the Term
Note shall be due and payable as specifically set forth in the Term Note and
shall accrue interest at the rate set forth in Section 1.8, below.  Notwithstanding the foregoing, the entire
unpaid principal balance of the Term Note, and all unpaid interest accrued
thereon, shall in any event be due and payable on the Termination Date.

 

(d)           Prepayments and Mandatory Prepayments; Use of Tax Refund Proceeds.

 

(i)            Prepayments.  Company may prepay the Term Loan at any time.

 

(ii)           Mandatory Prepayments.  If, at any time Wells Fargo obtains an
appraisal of the real estate subject to the Mortgages reflecting that the then
current loan-to-value ratio with respect to (a) the aggregate real estate
encumbered by, and described in, the Mortgages, and (b) the sum of (i) the
aggregate principal amount of the Term Loan and all other term loans
outstanding under this Agreement and secured by the Mortgages, (ii) the
unpaid “Obligation of Reimbursement” under the Reimbursement Agreement, and (iii) the
undrawn Available Amount of the Letter of Credit under the Reimbursement
Agreement, is greater than 50%, then Company shall immediately make a
prepayment of the term loans under this Agreement and/or an optional redemption
of the Bonds secured by the Reimbursement Agreement (as contemplated in the
Reimbursement 

 

5

 

Agreement)
in an amount sufficient to reduce the aggregate loan-to value ratio to 50%.

 

(iii)          Tax Refund Proceeds. On or before August 31,
2010, the Company shall (A) receive cash proceeds from a tax refund of not
less that $2,250,000; and (B) make a prepayment of Indebtedness
outstanding under the Term Note of not less that $1,000,000.

 

(e)           Collection of Prepayments and Related Fees.  All Term Loan prepayments, including
mandatory prepayments and prepayments due on the Termination Date, must be
accompanied by any prepayment payable under this Agreement, which will be
applied to the most remote principal installments then due and payable.  Any prepayments of principal shall be
collected by Wells Fargo through a debit to the Term Note and a simultaneous
Line of Credit Advance in the same amount, or by such other method as the parties
may agree.

 

1.8          Interest and Interest Related Matters.

 

(a)           Interest Rates Applicable to Line of Credit and Term Loan.  Except as otherwise provided in
this Agreement, the unpaid principal amount of each Line of Credit Advance
evidenced by the Revolving Note, and the unpaid principal balance of the Term
Loan evidenced by the Term Note, shall accrue interest at an annual interest
rate calculated as follows:

 

Floating Rate Pricing

 

(i)            The “Floating Rate” for Line of Credit Advances = An interest rate equal
to Daily Three Month LIBOR plus four percent (4.0%), which interest rate shall
change whenever Daily Three Month LIBOR changes;

 

(ii)           The “Floating Rate” for the Term Loan = An interest rate equal to Daily
Three Month LIBOR plus four and one-half of one percent (4.5%), which interest
rate shall change whenever Daily Three Month LIBOR changes;

 

(b)           Minimum Interest Charge.  Notwithstanding the other terms
of Section 1.8 to the contrary, and except as limited by the usury savings
provision of Section 1.8(e), Company shall pay Wells Fargo at least
$200,000 consisting of (i) interest, 
(ii) Letter of Credit Fees under Section 1.9(h), and (iii) Commissions
under Section 1.8(a) of the Reimbursement Agreement; each year or
portion of a year following the initial Advance (the “Minimum Interest Charge”) during the term
of this Agreement, and Company shall pay any deficiency between the Minimum
Interest Charge and the amount of interest otherwise payable on the anniversary
of the initial Advance and on the Termination Date.  When calculating this deficiency, the Default
Rate set forth in Section 1.8(c), if applicable, shall be disregarded.

 

(c)           Default Interest Rate.  Commencing on the day an Event
of Default occurs, through and including the date identified by Wells Fargo in
a Record as the date

 

6

 

that
the Event of Default has been cured or waived (each such period a “Default Period”), or during a time period
specified in Section 1.10, or at any time following the Termination Date,
in Wells Fargo’s sole discretion and without waiving any of its other rights or
remedies, the principal amount of the Revolving Note and the Term Note shall
bear interest at a rate that is three percent (3.0%)  above the contractual rate set forth in Section 1.8(a) (the
“Default Rate”), or any lesser
rate that Wells Fargo may deem appropriate, starting on the first day of the
month in which the Default Period begins through the last day of that Default
Period, or any shorter time period to which Wells Fargo may agree in an
Authenticated Record.

 

(d)                                 Interest Accrual on Payments Applied to Revolving Note.  Payments received by Wells Fargo
shall be applied to the Revolving Note as provided in Section 1.6(c), but
the principal amount paid down shall continue to accrue interest through the
end of the first Business Day following the Business Day that the payment was
applied to the Revolving Note.

 

(e)                                  Usury.  No interest rate shall be effective which
would result in a rate greater than the highest rate permitted by law.  Payments in the nature of interest and other
charges made under any Loan Documents or any other document or agreement
described in or related to this Agreement that are later determined to be in
excess of the limits imposed by applicable usury law will be deemed to be a
payment of principal, and the Indebtedness shall be reduced by that amount so
that such payments will not be deemed usurious.

 

1.9          Fees.

 

(a)                                  Origination Fee.  Company shall pay Wells Fargo a one time
origination fee of $35,000, which
shall be fully earned and payable upon the execution of this Agreement.

 

(b)                                 Unused Line Fee.  Company
shall pay Wells Fargo an annual unused line fee of one-half of one percent
(0.50%) of the daily average of the Maximum Line Amount reduced by outstanding
Advances and the L/C Amount (the “Unused
Amount”), from the date of this Agreement to and including the
Termination Date, which unused line fee shall be payable monthly in arrears on
the first day of each month and on the Termination Date.

 

(c)                                  Collateral Exam Fees.  Company shall pay Wells Fargo fees in
connection with any collateral exams, audits or inspections conducted by or on
behalf of Wells Fargo at the current rates established from time to time by
Wells Fargo as its collateral exam fees (which fees are currently $125 per hour
per collateral examiner) together with all actual out-of-pocket costs and
expenses incurred in conducting any collateral examination or inspection.

 

(d)                                 Collateral Monitoring Fees.  Company shall pay Wells Fargo a fee at the
rates established from time to time by Wells Fargo as its Collateral monitoring
fees 

 

7

 

(which
fees are currently $150 per month), due and payable monthly in arrears  on the first day of the month and on the
Termination Date.

 

(e)                                  Line of Credit Termination
and/or Reduction Fees.  If (i) Wells Fargo terminates the Line of Credit during a Default
Period, or if (ii) Company terminates the Line of Credit on a date prior
to the Maturity Date, or if (iii) Company and Wells Fargo agree to reduce
the Maximum Line Amount, then Company shall pay Wells Fargo as liquidated
damages a termination or reduction fee in an amount equal to a percentage of
the Maximum Line Amount (or the reduction of the Maximum Line Amount, as the
case may be) calculated as follows: (A) three percent (3.0%) if the
termination or reduction occurs on or before the first anniversary of the first
Line of Credit Advance; (B) two 
percent (2.0%) if the termination or reduction occurs after the first
anniversary of the first Line of Credit Advance, but on or before the second
anniversary of the first Line of Credit Advance; and (C) one percent
(1.0%) if the termination or reduction occurs after the second anniversary of
the first Line of Credit Advance.

 

(f)                                    Overadvance Fees.  Company shall pay an Overadvance fee for each
day that an Overadvance exists which was not agreed to by Wells Fargo in an
Authenticated Record prior to its occurrence; provided that Wells Fargo’s
acceptance of the payment of such fees shall not constitute either consent to
the Overadvance or waiver of the resulting Event of Default.  Company shall pay additional Overadvance fees
and interest in such amounts and on such terms as Wells Fargo in its sole
discretion may consider appropriate for any Overadvance to which Wells Fargo
has specifically consented in an Authenticated Record prior to its occurrence.

 

(g)                                 Treasury Management Fees.  Company will pay service fees to Wells Fargo
for treasury management services provided pursuant to the Master Agreement for
Treasury Management Services or any other agreement entered into by the
parties, in the amount prescribed in Wells Fargo’s current service fee
schedule.

 

(h)                                 Letter of Credit Fees.  Company shall pay a fee with respect to each Letter of Credit issued by
Wells Fargo of three percent (3.0%) of the aggregate undrawn amount of the
Letter of Credit (the “Aggregate Face Amount”)
accruing daily from and including the date the Letter of Credit is issued until
the date that it either expires or is returned, which shall be payable monthly
in arrears on the first day of each month and on the date that the Letter of
Credit either expires or is returned; and following an Event of Default, this
fee shall increase to three percent (3.0%) of the Aggregate Face Amount,
commencing on the first day of the month in which the Default Period begins and
continuing through the last day of such Default Period, or any shorter time
period that Wells Fargo in its sole discretion may deem appropriate, without
waiving any of its other rights and remedies.

 

(i)                                     Letter of Credit Administrative Fees.  Company shall pay all administrative fees
charged by Wells Fargo in connection with the honoring of drafts under any 

 

8

 

Letter
of Credit, and any amendments to or transfers of any Letter of Credit, and any
other activity with respect to the Letters of Credit at the current rates
published by Wells Fargo for such services rendered on behalf of its customers
generally.

 

(j)                                     Other Fees and Charges.  Wells Fargo may impose additional fees and charges during a Default
Period for (i) waiving an Event of Default, or for (ii) the
administration of Collateral by Wells Fargo. All such fees and charges shall be
imposed at Wells Fargo’s sole discretion following oral notice to Company on
either an hourly, periodic, or flat fee basis, and in lieu of or in addition to
imposing interest at the Default Rate, and Company’s request for an Advance
following such notice shall constitute Company’s agreement to pay such fees and
charges.

 

(k)                                  Termination and Prepayment Fees Following Transfer Between Wells Fargo
Operating Divisions.  If the Loan Documents, following Company’s request and the consent of
Wells Fargo Business Credit (which consent may be withheld by Wells Fargo
Business Credit in its sole discretion), are transferred to an operating
division of Wells Fargo other than Wells Fargo Business Credit on or after the
date that is eighteen months after the date of this Agreement, the transfer
will not be deemed a termination or prepayment resulting in the payment of
termination and/or prepayment fees, provided that Company agrees, at the time
of transfer, to the payment of comparable fees in an amount not less than that
set forth in this Agreement, in the event that any facilities extended under
this Agreement are terminated early or prepaid after the transfer.

 

(l)                                     Term Loan Prepayment Fees.  Company may prepay the principal amount of
the Term Note at any time in any amount, whether voluntarily, or by
acceleration, or as otherwise required by this Agreement, provided that it
concurrently pays with the prepayment a prepayment fee in an amount equal to
(i) three percent (3.0%) of the amount prepaid, if prepayment occurs on or
before the first anniversary of the date of this Agreement; (ii) two percent
(2.0%) of the amount prepaid, if prepayment occurs after the first anniversary
of the date of this Agreement but on or before the second anniversary of the
date of this Agreement; and (iii) one percent (1.0%) of the amount
prepaid, if prepayment occurs after the second anniversary of the date of this
Agreement  Notwithstanding the foregoing,
the Company shall not be required to pay a prepayment fee in conjunction with
the $1,000,000 prepayment required under Section 1.7(d)(iii), above.

 

1.10        Interest Accrual; Principal and Interest
Payments; Computation.

 

(a)                                  Interest Payments and Interest Accrual.  Accrued and unpaid interest under the
Revolving Note and the Term Note on Floating Rate Advances shall be due and
payable on the first day of each month (each an “Interest Payment Date”) and on the Termination Date, and shall
be paid in the manner provided in Section 1.6(c) and Section 1.7(d).  Interest shall accrue from the most recent
date to which 

 

9

 

interest
has been paid or, if no interest has been paid, from the date of Advance to the
Interest Payment Date.

 

(b)                                 Payment of Revolving Note and Term Note Principal.  The principal amount of the
Revolving Note and the Term Note shall be paid from time to time as provided in
this Agreement, and shall be fully due and payable on the Termination Date.

 

(c)                                  Payments Due on Non-Business Days.  If an
Interest Payment Date or the Termination Date falls on a day which is not a
Business Day, payment shall be made on the next Business Day, and interest
shall continue to accrue during that time period.

 

(d)                                 Computation of Interest and Fees.  Interest accruing on the unpaid principal
amount of the Revolving Note and the Term Note and fees payable under this
Agreement shall be computed on the basis of the actual number of days elapsed
in a year of 360 days.

 

(e)                                  Liability Records.  Wells Fargo shall maintain accounting and
bookkeeping records of all Advances and payments with respect to the
Indebtedness in such form and content as Wells Fargo in its sole discretion
deems appropriate.  Wells Fargo’s
calculation of the amount of the Indebtedness shall be presumed correct unless
proven otherwise by Company.  Upon
request, Company will admit and certify to Wells Fargo in a Record the exact unpaid
principal amount of Indebtedness that Company then believes to be due and
payable to Wells Fargo.  Any billing
statement or accounting provided by Wells Fargo shall be conclusive and binding
unless Company notifies Wells Fargo in a detailed Record of its intention to
dispute the billing statement or accounting within 30 days of receipt.

 

1.11        Termination, Reduction or Non-Renewal of Line
of Credit by Company; Notice.

 

(a)                                  Termination or Reduction by Company after Advance Notice.  Company may terminate or reduce
the Line of Credit at any time prior to the Maturity Date, if it
(i) delivers an Authenticated Record notifying Wells Fargo of its
intentions at least 90 days prior to the proposed Termination Date,
(ii) pays Wells Fargo the termination fee set forth in Section 1.9(e),
and (iii) pays the Indebtedness in full or down to the reduced Maximum
Line Amount.  Any reduction in the
Maximum Line Amount shall be in multiples of $100,000, with a minimum reduction
of at least $500,000.

 

(b)                                 Termination or Reduction by Company without Advance Notice.  If Company fails to deliver
Wells Fargo timely notice of its intention to terminate the Line of Credit or
reduce the Maximum Line Amount as provided in Section 1.11(a), Company may
nevertheless terminate the Line of Credit or reduce the Maximum Line Amount and
pay the Indebtedness in full or down to the reduced Maximum Line Amount if it (i) pays
the termination fee set forth in Section 1.9(e), and (ii) pays the
Default Rate on the Revolving Note commencing on the 90th day prior to 

 

10

 

the
Termination Date or reduction date, and continuing through the date that Wells
Fargo receives delivery of an Authenticated Record giving it actual notice of
Company’s intention to terminate or reduce the Line of Credit.

 

(c)                                  Non-Renewal by Company; Notice.  If Company does not wish Wells Fargo to
consider renewal of the Line of Credit on the next Maturity Date, Company shall
deliver an Authenticated Record to Wells Fargo at least 90 days prior to the
Maturity Date notifying Wells Fargo of its intention not to renew. If Company
fails to deliver to Wells Fargo such timely notice, then the Revolving Note
shall accrue interest at the Default Rate commencing on the 90th day prior to the Maturity Date and
continuing through the date that Wells Fargo receives delivery of an
Authenticated Record giving it actual notice of Company’s intention not to
renew.

 

1.12        Letters of Credit.

 

(a)                                  Issuance of Letters of Credit; Amount.  Wells Fargo, subject to the terms and
conditions of this Agreement, shall issue, on or after the date that Wells
Fargo is obligated to make its first Advance under this Agreement and prior to
the Termination Date, one or more irrevocable letters of credit (each, a “Letter of Credit”, and collectively, “Letters of Credit”) for Company’s
account.  Wells Fargo will not issue any
Letter of Credit if the face amount of the Letter of Credit would exceed the
lesser of: (i) $1,000,000 less the L/C Amount, or (ii) the Borrowing
Base, less an amount equal to aggregate unreimbursed Line of Credit Advances
plus the L/C Amount.

 

(b)                                 Additional Letter of Credit Documentation.  Prior to requesting issuance of a Letter of
Credit, Company shall first execute and deliver to Wells Fargo a an L/C
Application, and any other documents that Wells Fargo may request, which shall
govern the issuance of the Letter of Credit and Company’s obligation to
reimburse Wells Fargo for any related Letter of Credit draws (the “Obligation of Reimbursement”).

 

(c)                                  Expiration.  No Letter of Credit shall be issued that has
an expiry date that is later than one (1) year from the date of issuance,
or the Maturity Date in effect on the date of issuance, whichever is earlier.

 

(d)                                 Obligation of Reimbursement During Default Periods.  If Company is unable, due to the
existence of a Default Period or for any other reason, to obtain an Advance to
pay any Obligation of Reimbursement, Company shall pay Wells Fargo on demand
and in immediately available funds, the amount of the Obligation of
Reimbursement together with interest, accrued from the date presentment of the
underlying draft until reimbursement in full at the Default Rate.  Wells Fargo is authorized, alternatively and
in its sole discretion, to make an Advance in an amount sufficient to discharge
the Obligation of Reimbursement and pay all accrued but unpaid interest and
fees with respect to the Obligation of Reimbursement.

 

11

 

(e)                                  Bond Letter of Credit.  For purposes of clarity, the provisions of this Section 1.12 do not
apply to the Reimbursement Agreement or the letter of credit issued thereunder.

 

1.13        Special Account.  If the Line of Credit is terminated for any
reason while a Letter of Credit is outstanding, or if after prepayment of the
Revolving Note the L/C Amount continues to exceed the Borrowing Base, then
Company shall promptly pay Wells Fargo in immediately available funds for
deposit to the Special Account, an amount equal, as the case may be, to either (a) the
L/C Amount plus any anticipated fees and costs, or (b) the amount by which
the L/C Amount exceeds the Borrowing Base. 
If Company fails to pay these amounts promptly, then Wells Fargo may in
its sole discretion make an Advance to pay these amounts and deposit the
proceeds to the Special Account.  The
Special Account shall be an account maintained with Wells Fargo or any other
financial institution acceptable to Wells Fargo.  Wells Fargo may in its sole discretion apply
amounts on deposit in the Special Account to the Indebtedness.  Company may not withdraw amounts deposited to
the Special Account until the Line of Credit has been terminated and all
outstanding Letters of Credit have either been returned to Wells Fargo or have
expired and the Indebtedness has been fully paid.

 

2.             SECURITY
INTEREST AND OCCUPANCY OF COMPANY’S PREMISES

 

2.1          Grant of Security Interest. Company
hereby pledges, assigns and grants to Wells Fargo  a
Lien and security interest (collectively referred to as the “Security Interest”) in the Collateral, as security for the
payment and performance of all Indebtedness. Following request by Wells Fargo,
Company shall grant Wells Fargo a Lien and security interest in all commercial
tort claims that it may have against any Person.

 

2.2          Notifying Account Debtors and Other Obligors;
Collection of Collateral.  Wells Fargo may
at any time (whether or not a Default Period then exists) deliver a Record
giving an account debtor or other Person obligated to pay an Account, a General
Intangible, or other amount due, notice that the Account, General Intangible,
or other amount due has been assigned to Wells Fargo for security and must be
paid directly to Wells Fargo.  Company
shall join in giving such notice and shall Authenticate any Record giving such
notice upon Wells Fargo’s request.  After
Company or Wells Fargo gives such notice, Wells Fargo may, but need not, in
Wells Fargo’s or in Company’s name, demand, sue for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
such Account, General Intangible, or other amount due, or grant any extension
to, make any compromise or settlement with or otherwise agree to waive, modify,
amend or change the obligations (including collateral obligations) of any
account debtor or other obligor.  Wells
Fargo may, in Wells Fargo’s name or in Company’s name, as Company’s agent and
attorney-in-fact, notify the United States Postal Service to change the address
for delivery of Company’s mail to any address designated by Wells Fargo,
otherwise intercept Company’s mail, and receive, open and dispose of Company’s
mail, applying all Collateral as permitted under this Agreement and holding all
other mail for Company’s account or forwarding such mail to Company’s last
known address.

 

2.3          Assignment of Insurance.  As additional security for
the Indebtedness, Company hereby assigns to Wells Fargo all rights of Company
under every policy of insurance covering the Collateral and all business
records and other documents relating to it, and all monies (including proceeds
and refunds) that may be payable under any policy, and Company hereby directs
the 

 

12

 

issuer of each policy to pay all such monies
directly to Wells Fargo.  At any time,
whether or not a Default Period then exists, Wells Fargo may (but need not), in
Wells Fargo’s or Company’s name, execute and deliver proofs of claim, receive
payment of proceeds and endorse checks and other instruments representing
payment of the policy of insurance, and adjust, litigate, compromise or release
claims against the issuer of any policy. 
Any monies received under any insurance policy assigned to Wells Fargo,
other than liability insurance policies, or received as payment of any award or
compensation for condemnation or taking by eminent domain, shall be paid to
Wells Fargo and, as determined by Wells Fargo in its sole discretion, either be
applied to prepayment of the Indebtedness or disbursed to Company under staged
payment terms reasonably satisfactory to Wells Fargo for application to the
cost of repairs, replacements, or restorations which shall be effected with
reasonable promptness and shall be of a value at least equal to the value of
the items or property destroyed.

 

2.4          Company’s Premises.

 

(a)                                  Wells Fargo’s Right to Occupy Company’s Premises.  Company hereby grants to Wells
Fargo the right, at any time during a Default Period and without notice or
consent, to take exclusive possession of all locations where Company conducts
its business or has any rights of possession, including without limitation the
locations described on Exhibit B
(the “Premises”), until the
earlier of (i) payment in full and discharge of all Indebtedness and
termination of the Line of Credit, or (ii) final sale or disposition of
all items constituting Collateral and delivery of those items to purchasers.

 

(b)                                 Wells Fargo’s Use of Company’s Premises.  Wells Fargo may use the Premises to store,
process, manufacture, sell, use, and liquidate or otherwise dispose of items
that are Collateral, and for any other incidental purposes deemed appropriate
by Wells Fargo in good faith.

 

(c)                                  Company’s Obligation to Reimburse Wells Fargo.  Wells Fargo shall not be
obligated to pay rent or other compensation for the possession or use of any
Premises, but if Wells Fargo elects to pay rent or other compensation to the
owner of any Premises in order to have access to the Premises, then Company
shall promptly reimburse Wells Fargo all such amounts, as well as all taxes,
fees, charges and other expenses at any time payable by Wells Fargo with
respect to the Premises by reason of the execution, delivery, recordation,
performance or enforcement of any terms of this Agreement.

 

2.5          License. 
Without limiting the generality of any other Security Document, Company
hereby grants to Wells Fargo a non-exclusive, worldwide and royalty-free
license to use or otherwise exploit all Intellectual Property Rights of Company
for the purpose of: (a) completing the manufacture of any in-process
materials during any Default Period so that such materials become saleable
Inventory, all in accordance with the same quality standards previously adopted
by Company for its own manufacturing and subject to Company’s reasonable
exercise of quality control; and (b) selling, leasing or otherwise
disposing of any or all Collateral during any Default Period.

 

13

 

2.6          Financing Statements.

 

(a)                                  Authorization to File.  Company authorizes Wells Fargo to file
financing statements describing Collateral to perfect Wells Fargo’s Security
Interest in the Collateral, and Wells Fargo may describe the Collateral as “all
personal property” or “all assets” or describe specific items of Collateral
including without limitation any commercial tort claims.  All financing statements filed before the
date of this Agreement to perfect the Security Interest were authorized by
Company and are hereby re-authorized.

 

(b)                                 Termination.  Wells Fargo shall, at Company’s expense,
release or terminate any filings or other agreements that perfect the Security
Interest, provided that there are no suits, actions, proceedings or claims
pending or threatened against any Indemnitee under this Agreement with respect
to any Indemnified Liabilities, upon Wells Fargo’s receipt of the following, in
form and content satisfactory to Wells Fargo: (i) cash payment in full of
all Indebtedness and a completed performance by Company with respect to its
other obligations under this Agreement, (ii) evidence that the commitment
of Wells Fargo to make Advances under the Line of Credit or under any other
facility with Company has been terminated, (iii) a release of all claims
against Wells Fargo by Company relating to Wells Fargo’s performance and
obligations under the Loan Documents, and (iv) an agreement by Company or
any Guarantor and any new lender to Company to indemnify Wells Fargo for any
payments received by Wells Fargo that are applied to the Indebtedness as a
final payoff that may subsequently be returned or otherwise not paid for any
reason.

 

2.7          Setoff.  Wells Fargo may at any time, in its sole
discretion and without demand or notice to anyone, setoff any liability owed to
Company by Wells Fargo against any Indebtedness, whether or not due.

 

2.8          Collateral Related Matters.  This Agreement does not contemplate a sale of
Accounts or chattel paper, and, as provided by law, Company is entitled to any
surplus and shall remain liable for any deficiency.  Wells Fargo’s duty of care with respect to
Collateral in its possession (as imposed by law) will be deemed fulfilled if it
exercises reasonable care in physically keeping such Collateral, or in the case
of Collateral in the custody or possession of a bailee or other third Person,
exercises reasonable care in the selection of the bailee or third Person, and
Wells Fargo need not otherwise preserve, protect, insure or care for such
Collateral.  Wells Fargo shall not be
obligated to preserve rights Company may have against prior parties, to
liquidate the Collateral at all or in any particular manner or order or apply
the Proceeds of the Collateral in any particular order of application.  Wells Fargo has no obligation to clean-up or
prepare Collateral for sale.  Company
waives any right it may have to require Wells Fargo to pursue any third Person
for any of the Indebtedness.

 

2.9          Notices Regarding Disposition of Collateral.  If notice to Company of any intended
disposition of Collateral or any other intended action is required by
applicable law in a particular situation, such notice will be deemed
commercially reasonable if given in the manner specified in Section 7.4 at
least ten calendar days before the date of intended disposition or other
action.

 

14

 

3.             CONDITIONS
PRECEDENT

 

3.1          Conditions Precedent to Agreement, Initial
Advance and Issuance of Initial Letter of Credit.  The legal effectiveness of
this Agreement and Wells Fargo’s obligation to make the initial Advance or
issue the first Letter of Credit  shall be
subject to the condition that Wells Fargo shall have received this Agreement
and each of the Loan Documents, and any document, agreement, or other item
described in or related to this Agreement, and all fees and information
described in Exhibit C, executed and
in form and content satisfactory to Wells Fargo.

 

3.2          Additional Conditions Precedent to All
Advances and Letters of Credit. 
Wells Fargo’s obligation to make any Advance (including the initial
Advance) or issue any Letter of Credit shall be subject to the further
additional conditions: (a) that the representations and warranties
described in Exhibit D are correct on
the date of the Advance or the issuance of the Letter of Credit, except to the
extent that such representations and warranties relate solely to an earlier
date; and (b) that no event has occurred and is continuing, or would
result from the requested Advance or issuance of the Letter of Credit that
would result in an Event of Default.

 

4.             REPRESENTATIONS
AND WARRANTIES

 

To
induce Wells Fargo to enter into this Agreement, Company makes the
representations and warranties described in Exhibit D.  Any request for an Advance will be deemed a
representation by Company that all representations and warranties described in Exhibit D
are true, correct and complete as of the time of the request, unless they
relate exclusively to an earlier date. Company shall promptly deliver a Record
notifying Wells Fargo of any change in circumstance that would affect the
accuracy of any representation or warranty, unless the representation and warranty
specifically relates to an earlier date.

 

5.             COVENANTS

 

So
long as the Indebtedness remains unpaid, or the Line of Credit has not been
terminated, Company shall comply with each of the following covenants, unless
Wells Fargo shall consent otherwise in an Authenticated Record delivered to
Company.

 

5.1          Reporting Requirements.  Company shall deliver to
Wells Fargo the following information, compiled where applicable using GAAP
consistently applied, in form and content acceptable to Wells Fargo:

 

(a)                                  Annual Financial Statements.  As soon as available and in any event within
120 days after Company’s fiscal year end, Company’s audited financial
statements prepared by an independent certified public accountant acceptable to
Wells Fargo, which shall include Company’s balance sheet, income statement, and
statement of  retained earnings and cash
flows prepared, if requested by Wells Fargo, on a consolidated and
consolidating basis to include Company’s Affiliates.  The annual financial statements shall be
accompanied by the unqualified opinion of such accountant and a certificate
(the “Compliance Certificate”) in
the form of Exhibit E
that is signed by Company’s chief financial officer.

 

15

 

Each
Compliance Certificate that accompanies an annual financial statement shall
also be accompanied by (i) copies of all management letters prepared by
Company’s accountants; and (ii) a report signed by the accountant stating
that in making the investigations necessary to render the opinion, the
accountant obtained no knowledge, except as specifically stated, of any Event
of Default under the Agreement, and a detailed statement, including
computations, demonstrating whether or not Company is in compliance with the
financial covenants of this Agreement.

 

(b)                                 Monthly Financial Statements.  As soon as available and in any event within
30 days after the end of each month, a Company prepared balance sheet, income
statement, and statement of retained earnings prepared for that month and for the
year—to-date period then ended, prepared, if requested by Wells Fargo, on a
consolidated and consolidating basis to include Company’s Affiliates, and
stating in comparative form the figures for the corresponding date and periods
in the prior fiscal year, subject to year-end adjustments.  The financial statements shall be accompanied
by a Compliance Certificate in the form of Exhibit E that is signed by Company’s chief
financial officer.

 

(c)                                  Collateral Reports.  No later than 15 days after each month end
(or more frequently if Wells Fargo shall request it), detailed agings of
Company’s accounts receivable and accounts payable, a detailed inventory report, an inventory certification
report, and a calculation of Company’s Accounts, Eligible Accounts, Inventory
and Eligible Inventory as of the end of that month or shorter time period
requested by Wells Fargo.

 

(d)                                 Projections.  No later than 30  days prior to each fiscal year end, Company’s projected
balance sheet and income statement and statement of cash flows  for each month of the next fiscal year,
certified as accurate by Company’s chief financial officer and accompanied by a
statement of assumptions and supporting schedules and information.

 

(e)                                  Supplemental Reports.  Weekly, or more frequently if Wells Fargo
requests, a completed Wells Fargo standard form “daily collateral report”,
together with receivables schedules, collection reports, and copies of
invoices, shipment documents and delivery receipts for goods sold to account
debtors.

 

(f)                                    Litigation.  No later than three days after discovery, a
Record notifying Wells Fargo of any litigation or other proceeding before any
court or governmental agency which seeks a monetary recovery against Company in
excess of $50,000.

 

(g)                                 Intellectual Property.  (i) No later than 30 days before it
acquires material Intellectual Property Rights, a Record notifying Wells Fargo
of Company’s intention to acquire such rights; (ii) except for transfers
permitted under Section 5.17, no later than 30 days before it disposes of
material Intellectual Property Rights, a Record notifying Wells Fargo of
Company’s intention to dispose of such rights, along with copies of all
proposed documents and agreements concerning

 

16

 

the
disposal of such rights as requested by Wells Fargo; (iii) promptly upon
discovery, a Record notifying Wells Fargo of (A) any Infringement of
Company’s Intellectual Property Rights by any Person, (B) claims that
Company is Infringing another Person’s Intellectual Property Rights and (C) any
threatened cancellation, termination or material limitation of Company’s
Intellectual Property Rights; and (iv) promptly upon receipt, copies of
all registrations and filings with respect to Company’s Intellectual Property
Rights.

 

(h)                                 Defaults.  No later than three days after learning of
the probable occurrence of any Event of Default, a Record notifying Wells Fargo
of the Event of Default and the steps being taken by Company to cure the Event
of Default.

 

(i)                                     Disputes.  Promptly upon discovery, of (i) any
disputes or claims by Company’s customers exceeding $25,000 individually or
$50,000 in the aggregate during any fiscal year; (ii) credit memos not previously reported in Section 5.1(e);
and (iii) any goods returned to or recovered by Company outside of the
ordinary course of business.

 

(j)                                     Changes in Officers and Directors.  Promptly following occurrence, a Record
notifying Wells Fargo of any change in the persons constituting Company’s
Officers and Directors.

 

(k)                                  Collateral.  Promptly upon discovery, a Record notifying
Wells Fargo of any loss of or material damage to any Collateral or of any
substantial adverse change in any Collateral or the prospect of its payment.

 

(l)                                     Commercial Tort Claims.  Promptly upon discovery, a Record notifying
Wells Fargo of any commercial tort claims brought by Company against any
Person, including the name and address of each defendant, a summary of the
facts, an estimate of Company’s damages, copies of any complaint or demand
letter submitted by Company, and such other information as Wells Fargo may
request.

 

(m)                               Reports to Owners.  Promptly upon distribution, copies of all
financial statements, reports and proxy statements which Company shall have
sent to its Owners.

 

(n)                                 Tax Returns of Company.  No later than five days after they are
required to be filed, copies of Company’s signed and dated state and federal
income tax returns and all related schedules, and copies of any extension
requests.

 

(o)                                 Tax Returns and Personal Financial Statements of Guarantor(s).  No later than April 30th of
each year,  the current personal
financial statement and signed and dated state and federal income tax returns
and related schedules of  each
Guarantor (if any), and copies of any extension requests.

 

(p)                                 Violations of Law.  No later than three days after discovery of
any violation, a Record notifying Wells Fargo of Company’s violation of any
law, rule or 

 

17

 

regulation,
the non-compliance with which could have a Material Adverse Effect on Company.

 

(q)                                 Pension Plans.  (i) Promptly upon discovery, and in any
event within 30 days after Company knows or has reason to know that any
Reportable Event with respect to any Pension Plan has occurred, a Record authenticated
by Company’s chief financial officer notifying Wells Fargo of the Reportable
Event in detail and the actions which Company proposes to take to correct the
deficiency, together with a copy of any related notice sent to the Pension
Benefit Guaranty Corporation; (ii) promptly upon discovery, and in any
event within 10 days after Company fails to make a required quarterly
Pension Plan contribution under Section 412(m) of the IRC, a Record
authenticated by Company’s chief financial officer notifying Wells Fargo of the
failure in detail and the actions that Company will take to cure the failure,
together with a copy of any related notice sent to the Pension Benefit Guaranty
Corporation; and (iii) promptly upon discovery, and in any event within 10
days after Company knows or has reason to know that it may be liable or may be
reasonably expected to have liability for any withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan under Sections 4201
or 4243 of ERISA, a Record authenticated by Company’s chief financial officer
notifying Wells Fargo of the details of the event and the actions that Company
proposes to take in response.

 

(r)                                    Other Reports.  From time to time, with reasonable
promptness, all customer lists receivables schedules, inventory reports,
collection reports, deposit records, equipment schedules, invoices to account
debtors, shipment documents and delivery receipts for goods sold, and such
other materials, reports, records or information as Wells Fargo may request.

 

5.2          Financial Covenants.  Company agrees to comply
with the financial covenants described below, which shall be calculated using
GAAP consistently applied, except as they may be otherwise modified by the
following capitalized definitions:

 

(a)                                  Minimum Earnings Before Taxes.  Company shall achieve, during each period
described below, Earnings Before Taxes of not less than the amount set forth
for each such period (numbers appearing between “< >“ are negative):

 

	
  Period

  	
   

  	
  Min. Earnings Before Taxes

  	
   

  
	
  Through June 30, 2010

  	
   

  	
  $

  	
  0

  	
   

  
	
  Through September 30,
  2010

  	
   

  	
  $

  	
  0

  	
   

  
	
  Through December 31,
  2010

  	
   

  	
  $

  	
  0

  	
   

  

 

18

 

(b)                                 Minimum Debt Service Coverage Ratio.  Company shall maintain, during each period
described below, a Debt Service Coverage Ratio, determined as at the end of
each fiscal quarter, of not less than the ratio set forth for each such period:

 

	
  Period

  	
   

  	
  Min. Debt Service

  Coverage Ratio

  	
   

  
	
  Through June 30,
  2010*

  	
   

  	
  1.20 to 1.00

  	
   

  
	
  Through June 30, 2010

  	
   

  	
  0.80 to 1.00

  	
   

  
	
  Through September 30,
  2010

  	
   

  	
  1.20 to 1.00

  	
   

  
	
  Through December 31,
  2010

  	
   

  	
  1.20 to 1.00

  	
   

  

 

*
As adjusted for anticipated $2,250,000 tax refund, expected to be received in June 2010.

 

(c)                                  Capital Expenditures.  Company shall not incur or contract to incur
Capital Expenditures of more than (i) $1,400,000 in the aggregate during
Company’s fiscal year ending December 31, 2010, and (ii) zero for
each subsequent year until Company and Wells Fargo agree on limits on Capital
Expenditures for subsequent periods based on Company’s projections for such
periods.

 

(d)                                 Stop Loss.  Company shall not, during any single month,
suffer a pre-tax Net Loss in excess of $250,000.00, commencing with the month
of May 2010.

 

5.3          Other Liens and Permitted Liens.

 

(a)                                  Other Liens; Permitted Liens.  Company
shall not create, incur or suffer to exist any Lien upon any of its assets, now
owned or later acquired, as security for any indebtedness, with the exception
of the following (each a “Permitted Lien”;
collectively, “Permitted Liens”): (i) In
the case of real property, covenants, restrictions, rights, easements and minor
irregularities in title which do not materially interfere with Company’s
business or operations as presently conducted; (ii) Liens in existence on
the date of this Agreement that are described in Exhibit F and secure indebtedness for borrowed
money permitted under Section 5.4; (iii) The Security Interest and
Liens created by the Security Documents; and (iv) Purchase money Liens
relating to the acquisition of Equipment not exceeding the lesser of cost or
fair market value and so long as no Default Period is then in existence and
none would exist immediately after such acquisition.

 

(b)                                 Financing Statements.  Company shall not authorize the filing of any
financing statement by any Person as Secured Party with respect to any of
Company’s assets, other than Wells Fargo. 
Company shall not amend any financing statement filed by Wells Fargo as
Secured Party except as permitted by law.

 

5.4          Indebtedness.  Company shall not incur, create,
assume or permit to exist any indebtedness or liability on account of deposits
or letters of credit issued on Company’s behalf, or advances or any
indebtedness for borrowed money of any kind, whether or not evidenced by an
instrument, except: (a) Indebtedness described in this Agreement; (b) indebtedness
of Company described in Exhibit F;
and (c) indebtedness secured by Permitted Liens.

 

19

 

5.5          Guaranties.  Company shall not assume,
guarantee, endorse or otherwise become directly or contingently liable for the
obligations of any Person, except: (a) the endorsement of negotiable
instruments by Company for deposit or collection or similar transactions in the
ordinary course of business; and (b) guaranties, endorsements and other
direct or contingent liabilities in connection with the obligations of other
Persons in existence on the date of this Agreement and described in Exhibit F.

 

5.6          Investments and Subsidiaries.  Company shall not make or
permit to exist any loans or advances to, or make any investment or acquire any
interest whatsoever in, any Person or Affiliate, including without limitation
any partnership or joint venture, nor purchase or hold beneficially any stock
or other securities or evidence of indebtedness of any Person or Affiliate,
except:

 

(a)                                  Investments in direct obligations of the United States of America or any
of its political subdivisions whose obligations constitute the full faith and
credit obligations of the United States of America and have a maturity of one
year or less, commercial paper issued by U.S. corporations rated “A-1” or “A-2”
by Standard & Poor’s Ratings Services or “P-1” or “P-2” by Moody’s
Investors Service or certificates of deposit or bankers’ acceptances having a maturity
of one year or less issued by members of the Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of deposit or bankers’
acceptances are fully insured by the Federal Deposit Insurance Corporation);

 

(b)                                 Travel advances or loans to Company’s Officers and employees not
exceeding at any one time an aggregate of $50,000;

 

(c)                                  Prepaid rent not exceeding one month or security deposits;

 

(d)                                 Affiliate loans or advances to Manufacturing & Assembly
Solutions of Monterrey S DE RL DE CV not to exceed $10,700,000 in the aggregate
outstanding at any time up to and through December 30, 2010 and
$10,300,000 at all times thereafter (including the fiscal year end measurement
made at December 31, 2010); and

 

(e)                                  Current investments in those Subsidiaries in existence on the date of
this Agreement which are identified on Exhibit D.

 

5.7          Dividends and Distributions.  Company shall not declare or
pay any dividends (other than dividends payable solely in stock of Company) on
any class of its stock, or make any payment on account of the purchase,
redemption or retirement of any shares of its stock, or other securities or
evidence of its indebtedness or make any distribution regarding its stock,
either directly or indirectly.

 

5.8          Salaries. 
Company shall not pay excessive or unreasonable salaries, bonuses,
commissions, consultant fees or other compensation to any Director, Officer or
consultant, or any member of their families.

 

20

 

5.9          Books and Records; Collateral Examination;
Inspection and Appraisals.

 

(a)                                  Books and Records; Inspection.  Company shall keep complete and accurate
books and records with respect to the Collateral and Company’s business and
financial condition and any other matters that Wells Fargo may request, in
accordance with GAAP. Company shall permit any employee, attorney, accountant
or other agent of Wells Fargo to audit, review, make extracts from and copy any
of its books and records at any time during ordinary business hours, and to
discuss Company’s affairs with any of its Directors, Officers, employees,
Owners or agents.

 

(b)                                 Authorization to Company’s Agents to Make Disclosures to Wells Fargo.  Company authorizes all
accountants and other Persons acting as its agent to disclose and deliver to
Wells Fargo’s employees, accountants, attorneys and other Persons acting as its
agent, at Company’s expense, all financial information, books and records, work
papers, management reports and other information in their possession regarding
Company.

 

(c)                                  Collateral Exams and Inspections.  Company shall permit Wells Fargo’s employees,
accountants, attorneys or other Persons acting as its agent, to examine and
inspect any Collateral or any other property of Company at any time during
ordinary business hours.

 

(d)                                 Collateral Appraisals.  Wells Fargo may also obtain, from time to
time, at Company’s expense, an
appraisal of Company’s Inventory, Equipment and/or the real estate subject to
the Mortgages, by an appraiser acceptable to Wells Fargo in its sole
discretion.

 

5.10        Account Verification; Payment of Permitted
Liens.

 

(a)                                  Account Verification.  Wells Fargo or its agents may (i) contact
account debtors and other obligors at any time to verify Company’s Accounts;
and (ii) require Company to send requests for verification of Accounts or
send notices of assignment of Accounts to account debtors and other obligors.

 

(b)                                 Covenant to Pay Permitted Liens.  Company shall pay when due each account
payable due to any Person holding a Permitted Lien (as a result of such
payable) on any Collateral.

 

5.11        Compliance with Laws.

 

(a)                                  General Compliance with Applicable Law; Use of Collateral.  Company shall (i) comply,
and cause each Subsidiary to comply, with the requirements of applicable laws
and regulations, the non-compliance with which would have a Material Adverse
Effect on its business or its financial condition and (ii) use and keep
the Collateral, and require that others use and keep the Collateral, only for
lawful purposes, without violation of any federal, state or local law, statute
or ordinance.

 

21

 

(b)                                 Compliance with Federal Regulatory Laws.  Company shall (i) prohibit, and cause
each Subsidiary to prohibit, any Person that is an Owner  or Officer from being listed on the
Specially Designated Nationals and Blocked Person List or other similar lists
maintained by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or included in any
Executive Orders, (ii) not permit the proceeds of the Line of Credit or
any other financial accommodation extended by Wells Fargo to be used in any way
that violates any foreign asset control regulations of OFAC or other applicable
law, (iii) comply, and cause each Subsidiary to comply, with all applicable
Bank Secrecy Act laws and regulations, as amended from time to time, and (iv) otherwise
comply with the USA Patriot Act and Wells Fargo’s related policies and
procedures.

 

(c)                                  Compliance with Environmental Laws.  Company shall (i) comply, and cause each
Subsidiary to comply, with the requirements of applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by them, and (ii) not generate, use, transport, treat, store or dispose of
any Hazardous Substances in such a manner as to create any material liability
or obligation under the common law of any jurisdiction or any Environmental
Law.

 

5.12        Payment of Taxes and Other Claims.  Company shall pay or
discharge, when due, and cause each Subsidiary to pay or discharge, when due,
(a) all taxes, assessments and governmental charges levied or imposed upon
it or upon its income or profits, upon any properties belonging to it
(including without limitation the Collateral) or upon or against the creation,
perfection or continuance of the Security Interest, prior to the date on which
penalties attach, (b) all federal, state and local taxes required to be
withheld by it, and (c) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien upon any properties of
Company, although Company shall not be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which proper reserves
have been made.

 

5.13        Maintenance of Collateral and Properties.

 

(a)                                  Company shall keep and maintain the Collateral and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time
replace or repair any worn, defective or broken parts, although Company may
discontinue the operation and maintenance of any properties if Company believes
that such discontinuance is desirable to the conduct of its business and not
disadvantageous in any material respect to Wells Fargo.  Company shall take all commercially
reasonable steps necessary to protect and maintain its Intellectual Property
Rights.

 

(b)                                 Company shall  defend the
Collateral against all Liens, claims and demands of all third Persons claiming
any interest in the Collateral. Company shall keep all Collateral free and
clear of all Liens except Permitted Liens. Company shall take all commercially
reasonable steps necessary to prosecute any Person Infringing its Intellectual
Property Rights and to defend itself against any Person accusing it of
Infringing any Person’s Intellectual Property Rights.

 

22

 

5.14        Insurance.  Company shall at all times
maintain insurance with insurers acceptable to Wells Fargo, in such amounts and
on such terms (including deductibles) as Wells Fargo in its sole discretion may
require and including, as applicable and without limitation, business
interruption insurance (including force majeure coverage), hazard coverage on
an “all risks” basis for all tangible Collateral, and theft and physical damage
coverage for Collateral consisting of motor vehicles.  All insurance policies must contain an
appropriate lender’s interest endorsement or clause, and name Wells Fargo as an
additional insured.

 

5.15        Preservation of Existence.  Company shall preserve and maintain its
existence and all of its rights, privileges and franchises necessary or
desirable in the normal conduct of its business and shall conduct its business
in an orderly, efficient and regular manner.

 

5.16        Delivery of Instruments, etc.  Upon request by Wells Fargo, Company shall
promptly deliver to Wells Fargo in pledge all instruments, documents and
chattel paper constituting Collateral, endorsed or assigned by Company.

 

5.17        Sale or Transfer of Assets; Suspension of
Business Operations.  Company shall
not sell, lease, assign, transfer or otherwise dispose of (a) the stock of
any Subsidiary, (b) all or a substantial part of its assets, or
(c) any Collateral or any interest in Collateral (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and shall not liquidate,
dissolve or suspend business operations. 
Company shall not transfer any part of its ownership interest in any
Intellectual Property Rights and shall not permit its rights as licensee of
Licensed Intellectual Property to lapse, except that Company may transfer such
rights or permit them to lapse if it has reasonably determined that such
Intellectual Property Rights are no longer useful in its business.  If Company transfers any Intellectual
Property Rights for value, Company shall pay the Proceeds to Wells Fargo for
application to the Indebtedness.  Company
shall not license any other Person to use any of Company’s Intellectual
Property Rights, except that Company may grant licenses in the ordinary course
of its business in connection with sales of Inventory or the provision of services
to its customers.

 

5.18        Consolidation and Merger; Asset Acquisitions.  Company shall not
consolidate with or merge into any other entity, or permit any other entity to
merge into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all of the assets of any other
entity.

 

5.19        Sale and Leaseback.  Company shall not enter into
any arrangement, directly or indirectly, with any other Person pursuant to
which Company shall sell or transfer any real or personal property, whether
owned now or acquired in the future, and then rent or lease all or part of such
property or any other property which Company intends to use for substantially
the same purpose or purposes as the property being sold or transferred.

 

5.20        Restrictions on Nature of Business.  Company will not engage in
any line of business materially different from that presently engaged in by
Company, and will not purchase, lease or otherwise acquire assets not related
to its business.

 

23

 

5.21        Accounting.  Company will not adopt any
material change in accounting principles except as required by GAAP,
consistently applied.  Company will not
change its fiscal year.

 

5.22        Discounts, etc.  After notice from Wells
Fargo, Company will not grant any discount, credit or allowance to any customer
of Company or accept any return of goods sold. 
Company will not at any time modify, amend, subordinate, cancel or
terminate any Account.

 

5.23        Pension Plans.  Except as disclosed to Wells Fargo in a
Record prior to the date of this Agreement, neither Company nor any ERISA
Affiliate will (a) adopt, create, assume or become party to any Pension
Plan, (b) become obligated to contribute to any Multiemployer Plan, (c) incur
any obligation to provide post-retirement medical or insurance benefits with
respect to employees or former employees (other than benefits required by law)
or (d) amend any Plan in a manner that would materially increase its
funding obligations.

 

5.24        Place of Business; Name.  Company will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business Premises. 
Company will not permit any tangible Collateral or any records relating
to the Collateral to be located in any state or area in which, in the event of
such location, a financing statement covering such Collateral would be required
to be, but has not in fact been, filed in order to perfect the Security
Interest.  Company will not change its name
or jurisdiction of organization.

 

5.25        Constituent Documents; S Corporation Status.  Company will not amend its Constituent
Documents.  Company will not become an
S Corporation.

 

5.26        Performance by Wells Fargo.  If Company fails to perform or observe any of
its obligations under this Agreement at any time, Wells Fargo may, but need
not, perform or observe them on behalf of Company and may, but need not, take
any other actions which Wells Fargo may reasonably deem necessary to cure or
correct this failure; and Company shall pay Wells Fargo upon demand the amount
of all costs and expenses (including reasonable attorneys’ fees and legal
expense) incurred by Wells Fargo in performing these obligations, together with
interest on these amounts at the Default Rate.

 

5.27        Wells Fargo Appointed as Company’s Attorney in
Fact.  To facilitate Wells Fargo’s
performance or observance of Company’s obligations under this Agreement,
Company hereby irrevocably appoints Wells Fargo and Wells Fargo’s agents, as
Company’s attorney in fact (which appointment is coupled with an interest) with
the right (but not the duty) to create, prepare, complete, execute, deliver,
endorse or file on behalf of Company any instruments, documents, assignments,
security agreements, financing statements, applications for insurance and any
other agreements or any Record required to be obtained, executed, delivered or
endorsed by Company in accordance with the terms of this Agreement.

 

6.             EVENTS OF
DEFAULT AND REMEDIES

 

6.1          Events of Default.  An “Event of
Default” means any of the following:

 

(a)                                  Company fails to pay the amount of any Indebtedness on the date that it
becomes due and payable;

 

24

 

(b)                                 Company fails to observe or perform any covenant or agreement of Company
set forth in this Agreement, or in any of the Loan Documents, or in any other
document or agreement described in or related to this Agreement or to any
Indebtedness, or any covenant in Section 5.2 becomes inapplicable due to
the lapse of time, and Company and Wells Fargo fail to come to an agreement
acceptable to Wells Fargo in Wells Fargo’s sole discretion to amend the
covenant to apply to future periods;

 

(c)                                  An Overadvance arises as the result of any reduction in the Borrowing
Base, or arises in any manner or on terms not otherwise approved of in advance
by Wells Fargo in a Record that it has Authenticated;

 

(d)                                 An event of default or termination event (however defined) occurs under
any Rate Hedge Agreement, derivative, foreign exchange, or similar transaction
or arrangement entered into between Company and Wells Fargo;

 

(e)                                  A Change of Control shall occur;

 

(f)                                    Company or any Guarantor becomes insolvent or admits in a Record an
inability to pay debts as they mature, or Company or any Guarantor makes an
assignment for the benefit of creditors; or Company or any Guarantor applies
for or consents to the appointment of any receiver, trustee, or similar officer
for the benefit of Company or any Guarantor, or for any of its properties; or any
receiver, trustee or similar officer is appointed without the application or
consent of Company; or any judgment, writ, warrant of attachment or execution
or similar process is issued or levied against a substantial part of the
property of Company or any Guarantor;

 

(g)                                 Company or any Guarantor files a petition under any chapter of the United
States Bankruptcy Code or under the laws of any other jurisdiction naming
Company or any Guarantor as debtor; or any such petition is instituted against
Company or any Guarantor; or Company or any Guarantor institutes (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, debt arrangement, dissolution, liquidation or similar
proceeding under the laws of any jurisdiction; or any such proceeding is
instituted (by petition, application or otherwise) against Company or any
Guarantor.

 

(h)                                 Any representation or warranty made by Company in this Agreement or by
any Guarantor in any Guaranty, or by Company (or any of its Officers) or any
Guarantor in any agreement, certificate, instrument or financial statement or
other statement delivered to Wells Fargo in connection with this Agreement or
pursuant to such Guaranty is untrue or misleading in any material respect when
delivered to Wells Fargo;

 

(i)                                     A final, non-appealable arbitration award, judgment, or decree or order
for the payment of money in an amount in excess of $10,000 which is not insured
or subject to indemnity, is entered against Company which is not immediately
stayed or appealed;

 

25

 

(j)                                     Company is in default with respect to any bond, debenture, note or other
evidence of material indebtedness issued by Company that is held by any third
Person other than Wells Fargo, or under any instrument under which any such
evidence of indebtedness has been issued or by which it is governed, or under
any material lease or other contract, and the applicable grace period, if any,
has expired, regardless of whether such default has been waived by the holder
of such indebtedness;

 

(k)                                  Company liquidates, dissolves, terminates or suspends its business
operations or otherwise fails to operate its business in the ordinary course,
or merges with another Person; or sells or attempts to sell all or
substantially all of its assets;

 

(l)                                     Company fails to pay any indebtedness or obligation owed to Wells Fargo
which is unrelated to the Line of Credit or this Agreement as it becomes due
and payable;

 

(m)                               Any Guarantor (if any) repudiates or purports to revoke the Guarantor’s
Guaranty, or fails to perform any obligation under such Guaranty, or any
individual Guarantor dies or becomes incapacitated, or any other Guarantor
ceases to exist for any reason;

 

(n)                                 Company engages in any act prohibited by any Subordination Agreement, or
makes any payment on Subordinated Indebtedness (as defined in the Subordination
Agreement) that the Subordinated Creditor was not contractually entitled to
receive;

 

(o)                                 Any event or circumstance occurs that Wells Fargo in good faith believes
may impair the prospect of payment of all or part of the Indebtedness, or
Company’s ability to perform any of its material obligations under any of the
Loan Documents, or any other document or agreement described in or related to
this Agreement, or there occurs any material adverse change in the business or
financial condition of Company.

 

(p)                                 Any Director, Officer, Guarantor, or Owner of at least 20% of the issued
and outstanding common stock of Company is indicted for a felony offence under
state or federal law, or Company hires an Officer or appoints a Director who
has been convicted of any such felony offense, or a Person becomes an Owner of
at least 20% of the issued and outstanding common stock of Company who has been
convicted of any such felony offense.

 

(q)                                 Any Reportable Event, which Wells Fargo in good faith believes to
constitute sufficient grounds for termination of any Pension Plan or for the
appointment of a trustee to administer any Pension Plan, has occurred and is
continuing 30 days after Company gives Wells Fargo a Record notifying it
of the Reportable Event; or a trustee is appointed by an appropriate court to
administer any Pension Plan; or the Pension Benefit Guaranty Corporation
institutes proceedings to terminate or appoint a trustee to administer any
Pension Plan; or Company or any ERISA

 

26

 

Affiliate files for a
distress termination of any Pension Plan under Title IV of ERISA; or Company or
any ERISA Affiliate fails to make any quarterly Pension Plan contribution
required under Section 412(m) of the IRC, which Wells Fargo in good
faith believes may, either by itself or in combination with other failures,
result in the imposition of a Lien on Company’s assets in favor of the Pension
Plan; or any withdrawal, partial withdrawal, reorganization or other event
occurs with respect to a Multiemployer Plan which could reasonably be expected
to result in a material liability by Company to the Multiemployer Plan under
Title IV of ERISA.

 

6.2          Rights and Remedies.  During any Default Period,
Wells Fargo may in its discretion exercise any or all of the following rights
and remedies:

 

(a)                                  Wells Fargo may terminate the Line of Credit and decline to make Advances
including any unfunded Term Loan Advances, if any, and terminate any services
extended to Company under the Master Agreement for Treasury Management Services;

 

(b)                                 Wells Fargo may declare the Indebtedness to be immediately due and
payable and accelerate payment of the Revolving Note and the Term Note, and all
Indebtedness shall immediately become due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which Company
hereby expressly waives;

 

(c)                                  Wells Fargo may, without notice to Company, apply any money owing by
Wells Fargo to Company to payment of the Indebtedness;

 

(d)                                 Wells Fargo may exercise and enforce any rights and remedies available
upon default to a secured party under the UCC, including the right to take
possession of Collateral (without posting a bond or other form of security,
which Company hereby waives), to proceed with or without judicial process
(without a prior hearing or notice of hearing, which Company hereby waives) and
to sell, lease or otherwise dispose of Collateral for cash or on credit (with
or without giving warranties as to condition, fitness, merchantability or title
to Collateral, and in the event of a credit sale, Indebtedness shall be
reduced only to the extent that payments are actually received), and Company
will upon Wells Fargo’s demand assemble the Collateral and make it available to
Wells Fargo at any place designated by Wells Fargo which is reasonably
convenient to both parties;

 

(e)                                  Wells Fargo may exercise and enforce its rights and remedies under any of
the Loan Documents and any other document or agreement described in or related
to this Agreement;

 

(f)                                    Company will pay Wells Fargo upon demand in immediately available funds
an amount equal to the Aggregate Face Amount plus any anticipated costs and
fees for deposit to the Special Account pursuant to Section 1.11;

 

27

 

(g)                                 Wells Fargo may for any reason apply for the appointment of a receiver of
the Collateral (to which appointment Company hereby consents) without the
necessity of posting a bond or other form of security (which Company hereby
waives); and

 

(h)                                 Wells Fargo may exercise any other rights and remedies available to it by
law or agreement.

 

6.3          Immediate Default and Acceleration.  Following the occurrence of an Event of
Default described in Section 6.1(f) or (g), the Line of Credit shall
immediately terminate and all of Company’s Indebtedness shall immediately
become due and payable without presentment, demand, protest or notice of any
kind.

 

7.             MISCELLANEOUS

 

7.1          No Waiver; Cumulative Remedies.  No delay or any single or partial exercise by
Wells Fargo of any right, power or remedy under the Loan Documents, or under
any other document or agreement described in or related to this Agreement,
shall constitute a waiver of any other right, power or remedy under the Loan
Documents or granted by Company to Wells Fargo under other agreements or
documents that are unrelated to the Loan Documents.  No notice to or demand on Company in any
circumstance shall entitle Company to any additional notice or demand in any
other circumstances.  The remedies
provided in the Loan Documents or in any other document or agreement described
in or related to this Agreement are cumulative and not exclusive of any
remedies provided by law.  Wells Fargo
may comply with applicable law in connection with a disposition of Collateral,
and such compliance will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.

 

7.2          Amendments; Consents and Waivers;
Authentication.  No amendment or
modification of any Loan Documents, or any other document or agreement described
in or related to this Agreement, or consent to or waiver of any Event of
Default, or consent to or waiver of the application of any covenant or
representation set forth in any of the Loan Documents, or any other document or
agreement described in or related to this Agreement, or any release of Wells
Fargo’s Security Interest in any Collateral, shall be effective unless it has
been agreed to by Wells Fargo and memorialized in a Record that: (a) specifically
states that it is intended to amend or modify specific Loan Documents, or any
other document or agreement described in or related to this Agreement, or waive
any Event of Default or the application of any covenant or representation of
any terms of specific Loan Documents, or any other document or agreement
described in or related to this Agreement, or is intended to release Wells
Fargo’s Security Interest in specific Collateral; and (b) is Authenticated
by the signature of an authorized employee of both parties, or by an authorized
employee of Wells Fargo with respect to a consent or waiver.  The terms of an amendment, consent or waiver
memorialized in any Record shall be effective only to the extent, and in the
specific instance, and for the limited purpose to which Wells Fargo has agreed.

 

7.3          Execution in Counterparts; Delivery of
Counterparts.  This Agreement
and all other Loan Documents, or any other document or agreement described in
or related to this Agreement, and any amendment or modification to them may be
Authenticated by the parties in any number

 

28

 

of counterparts, each of which, once authenticated
and delivered in accordance with the terms of this Section 7.3, will be
deemed an original, and all such counterparts, taken together, shall constitute
one and the same instrument.  Delivery by
fax or by encrypted e-mail or e-mail file attachment of any counterpart to any
Loan Document Authenticated by an authorized signature will be deemed the
equivalent of the delivery of the original Authenticated instrument.  Company shall send the original Authenticated
counterpart to Wells Fargo by first class U.S. mail or by overnight courier,
but Company’s failure to deliver a Record in this form shall not affect the
validity, enforceability, and binding effect of this Agreement or the other
Loan Documents, or any other document or agreement described in or related to
this Agreement.

 

7.4          Notices, Requests, and Communications;
Confidentiality.  Except as
otherwise expressly provided in this Agreement:

 

(a)                                  Delivery of Notices, Requests and Communications.  Any notice, request, demand, or
other communication by either party that is required under the Loan Documents,
or any other document or agreement described in or related to this Agreement,
to be in the form of a Record (but excluding any Record containing information
Company must report to Wells Fargo under Section 5.1) may be delivered (i) in
person, (ii) by first class U.S. mail, (iii) by overnight courier of
national reputation, or (iv) by fax, or the Record may be sent as an
Electronic Record and delivered (v) by an encrypted e-mail, or (vi) through
Wells Fargo’s Commercial Electronic Office® (“CEO®”) portal or other secure
electronic channel to which the parties have agreed.

 

(b)                                 Addresses for Delivery.  Delivery of any Record under this Section 7.4
shall be made to the appropriate address set forth on the last page of
this Agreement (which either party may modify by a Record sent to the other
party), or through Wells Fargo’s CEO portal or
other secure electronic channel to which the parties have agreed.

 

(c)                                  Date of Receipt.  Each
Record sent pursuant to the terms of this Section 7.4 will be deemed to
have been received on (i) the date of delivery if delivered in person,
(ii) the date deposited in the mail if sent by mail, (iii) the date
delivered to the courier if sent by overnight courier, (iv) the date of
transmission if sent by fax, or (v) the date of transmission, if sent as
an Electronic Record by electronic mail or through Wells Fargo’s CEO portal or similar secure electronic channel to which the
parties have agreed; except that
any request for an Advance or any other notice, request, demand or other
communication from Company required under Section 1, and any request for
an accounting under Section 9-210 of the UCC, will not be deemed to have
been received until actual receipt by Wells Fargo on a Business Day by an
authorized employee of Wells Fargo.

 

(d)                                 Confidentiality of Unencrypted E-mail.  Company acknowledges that if it sends an
Electronic Record to Wells Fargo without encryption by e-mail or as an e-mail
file attachment, there is a risk that the Electronic Record may be received by
unauthorized Persons, and that by so doing it will be deemed to have accepted
this risk and the consequences of any such unauthorized disclosure.

 

29

 

7.5          Company Information Reporting;
Confidentiality.  Except as otherwise expressly provided in
this Agreement:

 

(a)                                  Delivery of Company Information Records.  Any information that Company is required to
deliver under Section 5.1 in the form of a Record may be delivered to
Wells Fargo (i) in person, or by (ii) first class U.S. mail,
(iii) overnight courier of national reputation, or (iv) fax, or the
Record may be sent as an Electronic Record (v) by encrypted e-mail, or (vi) through
the file upload service of Wells Fargo’s CEO portal or
other secure electronic channel to which the parties have agreed.

 

(b)                                 Addresses for Delivery.  Delivery of any Record to Wells Fargo under this
Section 7.5 shall be made to the appropriate address set forth on the last
page of this Agreement (which Wells Fargo may modify by a Record sent to
Company), or through Wells Fargo’s CEO portal or
other secure electronic channel to which the parties have agreed.

 

(c)                                  Date of Receipt.  Each
Record sent pursuant to this Section will be deemed to have been received
on (i) the date of delivery to an authorized employee of Wells Fargo, if
delivered in person, or by U.S. mail, overnight courier, fax, or e-mail; or
(ii) the date of transmission, if sent as an Electronic Record through
Wells Fargo’s CEO portal or similar secure
electronic channel to which the parties have agreed.

 

(d)                                 Authentication of Company Information Records.  Company shall Authenticate any
Record delivered (i) in person, or by U.S. mail, overnight courier, or
fax, by the signature of the Officer or employee of Company who prepared the
Record; (ii) as an Electronic Record sent via encrypted e-mail, by the
signature of the Officer or employee of Company who prepared the Record by any
file format signature that is acceptable to Wells Fargo, or by a separate
certification signed and sent by fax; or (iii) as an Electronic Record via
the file upload service of Wells Fargo’s CEO portal or
similar secure electronic channel to which the parties have agreed, through
such credentialing process as Wells Fargo and Company may agree to under the CEO agreement.

 

(e)                                  Certification of Company Information Records.   Any Record (including without limitation any
Electronic Record) Authenticated and delivered to Wells Fargo under this Section 7.5
will be deemed to have been certified as materially true, correct, and complete
by Company and each Officer or employee of Company who prepared and
Authenticated the Record on behalf of Company, and may be legally relied upon
by Wells Fargo without regard to method of delivery or transmission.

 

(f)                                    Confidentiality of Company Information Records Sent by Unencrypted E-mail.  Company acknowledges that if it
sends an Electronic Record to Wells Fargo without encryption by e-mail or as an
e-mail file attachment, there is a risk that the Electronic Record may be
received by unauthorized Persons, and that by so doing it will be deemed to
have accepted this risk and the consequences of any such unauthorized
disclosure.  Company acknowledges that it
may deliver

 

30

 

Electronic
Records containing Company information to Wells Fargo by e-mail pursuant to any
encryption tool acceptable to Wells Fargo and Company, or through Wells Fargo’s
CEO portal file upload service without
risk of unauthorized disclosure.

 

7.6          Further Documents.  Company will from time to
time execute, deliver, endorse and authorize the filing of any instruments,
documents, conveyances, assignments, security agreements, financing statements,
control agreements and other agreements that Wells Fargo may reasonably request
in order to secure, protect, perfect or enforce the Security Interest or Wells
Fargo’s rights under the Loan Documents, or any other document or agreement
described in or related to this Agreement (but any failure to request or assure
that Company executes, delivers, endorses or authorizes the filing of any such
item shall not affect or impair the validity, sufficiency or enforceability of
the Loan Documents, or any other document or agreement described in or related
to this Agreement, and the Security Interest, regardless of whether any such
item was or was not executed, delivered or endorsed in a similar context or on
a prior occasion).

 

7.7          Costs and Expenses.  Company shall pay on demand
all costs and expenses, including without limitation reasonable attorneys’
fees, incurred by Wells Fargo in connection with the Indebtedness, this
Agreement, the Loan Documents, or any other document or agreement described in
or related to this Agreement, and the transactions contemplated by this
Agreement, including without limitation all such costs, expenses and fees
incurred in connection with the negotiation, preparation, execution, delivery,
amendment, administration, performance, collection and enforcement of the
Indebtedness and all such documents and agreements and the creation,
perfection, protection, satisfaction, foreclosure or enforcement of the
Security Interest.

 

7.8          Indemnity.  In addition to its
obligation to pay Wells Fargo’s expenses under the terms of this Agreement,
Company shall indemnify, defend and hold harmless Wells Fargo, its parent Wells
Fargo & Company, and any of its affiliates and successors, and all of
their present and future Officers, Directors, employees, attorneys and agents
(each an “Indemnitee”) from and against any of
the following (collectively, “Indemnified  Liabilities”):

 

(a)                                  Any and all transfer taxes, documentary taxes, assessments or charges
made by any governmental authority by reason of the execution and delivery of
the Loan Documents, or any other document or agreement described in or related
to this Agreement, or the making of the Advances;

 

(b)                                 Any claims, loss or damage to which any Indemnitee may be subjected if
any representation or warranty contained in Exhibit D proves to be incorrect in any respect or
as a result of any violation of the covenants contained in Section 5.11;
and

 

(c)                                  Any and all other liabilities, losses, damages, penalties, judgments,
suits, claims, costs and expenses of any kind or nature whatsoever (including
without limitation the reasonable fees and disbursements of counsel) in
connection with this Agreement and any other investigative, administrative or judicial
proceedings, whether or not such Indemnitee shall be designated a party to such
proceedings,

 

31

 

which
may be imposed on, incurred by or asserted against any such Indemnitee, in any
manner related to or arising out of or in connection with the making of the
Advances and the Loan Documents, or any other document or agreement described
in or related to this Agreement, or the use or intended use of the proceeds of
the Advances, with the exception of any Indemnified Liability caused by the
gross negligence or willful misconduct of an Indemnitee.

 

If
any investigative, judicial or administrative proceeding described in this Section is
brought against any Indemnitee, upon the Indemnitee’s request, Company, or
counsel designated by Company and satisfactory to the Indemnitee, will resist
and defend the action, suit or proceeding to the extent and in the manner
directed by the Indemnitee, at Company’s sole cost and expense.  Each Indemnitee will use its best efforts to
cooperate in the defense of any such action, suit or proceeding.  If this agreement to indemnify is held to be
unenforceable because it violates any law or public policy, Company shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities to the extent permissible under applicable
law.  Company’s obligations under this Section shall
survive the termination of this Agreement and the discharge of Company’s other
obligations under this Agreement.

 

7.9          Retention of Company’s Records.  Wells Fargo shall have no
obligation to maintain Electronic Records or retain any documents, schedules,
invoices, agings, or other Records delivered to Wells Fargo by Company in
connection with the Loan Documents, or any other document or agreement
described in or related to this Agreement for more than 30 days after receipt
by Wells Fargo.  If there is a special
need to retain specific Records, Company must notify Wells Fargo of its need to
retain or return such Records with particularity, which notice must be
delivered to Wells Fargo in accordance with the terms of this Agreement at the
time of the initial delivery of the Record to Wells Fargo.

 

7.10        Release.  The Borrower hereby
absolutely and unconditionally releases and forever discharges the Lender, and
any and all participants, parent corporations, subsidiary corporations,
affiliated corporations, insurers, indemnitors, successors and assigns thereof,
together with all of the present and former directors, officers, employees,
attorneys and agents of any of the foregoing, from any and all claims, demands
or causes of action of any kind, nature or description, whether arising in law
or equity or upon contract or tort or under any state or federal law or
otherwise, which the Borrower has had, now has or has made claim to have
against any such person for or by reason of any act, omission, matter, cause or
thing whatsoever arising from the beginning of time to and including the date
of this Agreement, whether such claims, demands and causes of action are
matured or unmatured or known or unknown.

 

7.11        Binding Effect; Assignment; Complete
Agreement.  The Loan
Documents, or any other document or agreement described in or related to this
Agreement, shall be binding upon and inure to the benefit of Company and Wells
Fargo and their respective successors and assigns, except that Company shall
not have the right to assign its rights under this Agreement or any interest in
this Agreement without Wells Fargo’s prior consent, which must be confirmed in
a Record Authenticated by Wells Fargo. To the extent permitted by law, Company
waives and will not assert against any assignee any claims, defenses or
set-offs which Company could assert against Wells Fargo. This Agreement shall also
bind all Persons who become a party to this Agreement as a borrower.  This Agreement, together with the Loan
Documents, or any other

 

32

 

document or agreement described in or related to
this Agreement, comprises the complete and integrated agreement of the parties
on the subject matter of this Agreement and supersedes all prior agreements,
whether oral or evidenced in a Record. 
To the extent that any provision of this Agreement contradicts other
provisions of the Loan Documents other than this Agreement, or any other
document or agreement described in or related to this Agreement, this Agreement
shall control.

 

7.12        Sharing of Information.  Wells Fargo may share any
Confidential Information that it may have regarding Company and its Affiliates
with its accountants, lawyers, and other advisors, and with each business unit
and line of business within Wells Fargo and each direct and indirect subsidiary
of Wells Fargo & Company.

 

7.13        Severability of Provisions.  Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining terms of this Agreement.

 

7.14        Headings.  Section and subsection
headings in this Agreement are included for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.

 

7.15        Definitional Terms and Rules of
Interpretation.  All accounting
terms not otherwise defined in this Agreement shall have the meanings given
them in accordance with GAAP.  Unless the
context clearly requires otherwise, the word “or” has the inclusive meaning
represented by the phrase “and/or”. 
Reference to any agreement (including without limitation the Loan
Documents), document or instrument means the agreement, document or instrument
as amended or supplemented, subject to any restrictions on amendment contained
therein (and, if applicable, in accordance with the terms of this Agreement and
the other Loan Documents).  Unless
otherwise specified, any reference to a statute or regulation means that
statute or regulation as amended or supplemented from time to time, and any
corresponding provisions of successor statutes or regulations.

 

7.16        Governing Law; Jurisdiction, Venue;
Waiver of Jury Trial.  The Loan
Documents (other than real estate related documents, if any) shall be governed
by and construed in accordance with the substantive laws (other than conflict
laws) of the State of Minnesota. The parties to this Agreement (a) consent
to the personal jurisdiction of the state and federal courts located in the
State of Minnesota in connection with any controversy related to this
Agreement; (b) waive any argument that venue in any such forum is not
convenient; (c) agree that any litigation initiated by Wells Fargo or
Company in connection with this Agreement or the other Loan Documents may be
venued in either the state or federal courts located in the City of
Minneapolis, County of Hennepin, State of Minnesota; and (d) agree that a
final judgment in any such suit, action or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law.

 

33

 

	
  COMPANY
  AND WELLS FARGO WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT LAW OR IN
  EQUITY OR IN ANY OTHER PROCEEDING BASED ON OR PERTAIING TO THIS AGREEMENT OR
  ANY OTHER LOAN DOCUMENT.

  
	
   

  
	
   

  
	
  NORTECH
  SYSTEMS 

  	
  WELLS
  FARGO BANK,

  
	
  INCORPORATED

  	
  NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:
  

  	
   

  	
   

  	
  By:

  	
   

  
	
  Its:
  

  	
   

  	
   

  	
  Its:

  	
   

  

 

34

 

COMPANY AND WELLS FARGO have executed this Agreement
through their authorized officers as of the date set forth above.

 

	
  WELLS FARGO BANK,  NATIONAL ASSOCIATION

  	
  NORTECH
  SYSTEMS INCORPORATED

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  James B. Fisher

  	
   

  
	
   

  	
  Its Vice President

  	
  Its

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Wells Fargo Bank, National Association

  MAC- N9312-040

  109 South 7th Street, 4th Floor

  Minneapolis, MN 55402

  Fax:  612.673.8589

  Attention:  James B. Fisher

  e-mail: james.b.fisher@wellsfargo.com

   

  	
  Nortech
  Systems Incorporated

  1120
  Wayzata Boulevard East

  Suite 201

  Wayzata,
  MN 55391

  Fax:  952.449.0442

  Attention:  Richard G. Wasielewski

  e-mail:  rwasielewski@nortechsys.com

  Federal
  Employer Identification No.  41-1592157

  Organizational
  Identification No.  6V-534 (MN)

  
					

 

 

Exhibit A to Credit and Security Agreement

 

DEFINITIONS

 

“Account Funds” is defined in Section 1.6(a).

 

“Accounts” shall have the meaning given it under the UCC.

 

“Advance” and “Advances” means an advance or advances under
the Line of Credit or the Term Loan.

 

“Affiliate” or “Affiliates”
means Nortech Medical Services, Inc., a Minnesota corporation, Myron Kunin
and any other Person controlled by, controlling or under common control with
Company, including without limitation any Subsidiary of Company.  For purposes of this definition, “control,”
when used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.

 

“Aggregate Face Amount” means the aggregate amount that may
then be drawn under each outstanding Letter of Credit, assuming compliance with
all conditions for drawing.

 

“Agreement” means this Credit and Security Agreement.

 

“Authenticated” means (a) to have signed; or (b) to
have executed or to have otherwise adopted a symbol, or have encrypted or
similarly processed a Record in whole or in part, with the present intent of
the authenticating Person to identify the Person and adopt or accept a Record.

 

“Availability Reserve” means (a) $500,000, from and
after the effective date of this Agreement; and (b) $1,000,000, from and
after the earlier of (i) date that the Company receives its tax refund
(anticipated receipt in June 2010), or (ii) August 31, 2010.

 

“Book Net Worth” means the aggregate of the Owners’  equity in Company, determined in accordance with GAAP.

 

“Borrowing Base” is defined in Section 1.2(a).

 

“Borrowing Base
Reserve” means, as of any date of determination, an amount or a
percent of a specified category or item that Wells Fargo establishes in its
sole discretion from time to time to reduce availability under the Borrowing
Base (a) to reflect events, conditions, contingencies or risks which
affect the assets, business or prospects of Company, or the Collateral or its
value, or the enforceability, perfection or priority of Wells Fargo’s Security
Interest in the Collateral, as the term “Collateral” is defined in this
Agreement, or (b) to reflect Wells Fargo’s judgment that any collateral
report or financial information relating to Company and furnished to Wells
Fargo may be incomplete, inaccurate or misleading in any material respect.

 

“Business Day” means a day on which the Federal Reserve Bank
of New York is open for business.

 

“Capital Expenditures” means for a period, any expenditure of
money during such period for the lease, purchase or other acquisition of any
capital asset, or for the lease of any other asset whether payable currently or
in the future.

 

A-1

 

“CEO” is defined in Section 7.4(a).

 

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

 

(a)           Any Person or “group” (as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934) is or becomes the “beneficial owner” (as defined in Rules 13d-3 and
13d-5 under the Securities Exchange Act of 1934, except that any such Person,
entity or group will be deemed to have “beneficial ownership” of all securities
that such Person, entity or group has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than thirty-five percent (35%) of the voting power of all
classes of ownership of Company, excluding Myron Kunin;

 

(b)           During any consecutive two-year
period, individuals who at the beginning of such period constituted the board
of Directors of Company (together with any new Directors whose election to such
board of Directors, or whose nomination for election by the Owners of Company,
was approved by a vote of two thirds of the Directors then still in office who
were either Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the board of Directors of Company then in office;

 

(c)           Michael Degen ceases to actively
manage the Company’s day-to-day business activities.

 

“Collateral” means all of Company’s Accounts, chattel paper
and electronic chattel paper, deposit accounts, documents, Equipment, General
Intangibles, goods, instruments, Inventory, Investment Property,
letter-of-credit rights, letters of credit, all sums on deposit in any
Collection Account, and any items in any Lockbox; together with (a) all
substitutions and replacements for and products of such property; (b) in
the case of all goods, all accessions; (c) all accessories, attachments,
parts, Equipment and repairs now or subsequently attached or affixed to or used
in connection with any goods; (d) all warehouse receipts, bills of lading
and other documents of title that cover such goods now or in the future;
(e) all collateral subject to the Lien of any of the Security Documents;
(f) any money, or other assets of Company that come into the possession,
custody, or control of Wells Fargo now or in the future; (g) Proceeds of
any of the above Collateral; (h) books and records of Company, including
without limitation all mail or e-mail addressed to Company; and (i) all of
the above Collateral, whether now owned or existing or acquired now or in the
future or in which Company has rights now or in the future.

 

“Collection Account” means “Collection Account” as defined in
the Master Agreement for Treasury Management Services and related Lockbox and
Collection Account Service Description or Collection Account Service
Description, whichever is applicable.

 

“Compliance Certificate” is defined in Section 5.1(a) and
is in the form of Exhibit E.

 

“Commercial Letter of Credit Agreement” means an agreement
governing the issuance of documentary letters of credit entered into between
Company as applicant and Wells Fargo as issuer.

 

“Confidential Information” means all non-public, confidential
or proprietary information of Company that is disclosed to Wells Fargo prior to
or during the term of this Agreement by 

 

A-2

 

Company
or any of its officers, employees, agents or representatives, and includes,
without limitation, any trade secrets, research and development test results,
marketing or business plans, strategies, forecasts, budgets, projections,
customer and supplier information, and any other analyses, computations or
studies prepared by or for Company.

 

“Constituent Documents” means with respect to any Person, as
applicable, that Person’s certificate of incorporation, articles of
incorporation, by-laws, certificate of formation, articles of organization,
limited liability company agreement, management agreement, operating agreement,
shareholder agreement, partnership agreement or similar document or agreement
governing such Person’s existence, organization or management or concerning
disposition of ownership interests of such Person or voting rights among such
Person’s owners.

 

“Current Maturities of Long Term Debt” means, during a period
beginning and ending on designated dates, the amount of Company’s long-term
debt and capitalized leases which become due during that period.

 

“Daily Three Month LIBOR” means, for any day, the rate of
interest equal to LIBOR then in effect for delivery for a three (3) month
period.  When interest is determined in
relation to Daily Three Month LIBOR, each change in the interest rate shall
become effective each Business Day that Wells Fargo determines that Daily Three
Month LIBOR has changed.

 

“Debt” means of a Person as of a given date, all items of
indebtedness or liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a balance
sheet for such Person and shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.

 

“Debt Service Coverage Ratio” means:

 

(a)           with respect to the fiscal year
ending 2010 (i) the sum of (A) Funds from Operations,
(B) Interest Expense, and (C) cash proceeds from the Company’s tax
refund minus (D) Unfinanced Capital Expenditures, minus (E) dividends
or distributions divided by (ii) the sum of (A) Current Maturities of
Long Term Debt, (B) Interest Expense, and (C) payments of Indebtedness
from the proceeds of the Company’s tax refund; and

 

(b)           with respect to any fiscal year
ending after 2010 (i) the sum of (A) Funds from Operations, and
(B) Interest Expense, minus (C) Unfinanced Capital Expenditures,
minus (D) dividends or distributions, divided by (ii) the sum of
(A) Current Maturities of Long Term Debt and (B) Interest Expense.

 

“Default Period” is defined in Section 1.8(c).

 

“Default Rate” is defined in Section 1.8(c).

 

“Dilution” means, as of any date of determination, a percentage,
which is the result of dividing (a) actual bad debt write-downs,
discounts, advertising allowances, credits, and any other items with respect to
the Accounts determined to be dilutive by Wells Fargo in its sole discretion
during this period, by (b) Company’s net sales during such period
(excluding extraordinary items) plus the amount of clause (a).

 

A-3

 

“Director” means a director if Company is a corporation, or a
governor or manager if Company is a limited liability company.

 

“Earnings Before Taxes” means pretax earnings from
operations, excluding extraordinary gains, but including extraordinary losses.

 

“Electronic Record” means a Record that is created,
generated, sent, communicated, received, or stored by electronic means, but does
not include any Record that is sent, communicated, or received by fax.

 

“Eligible Accounts” means all unpaid Accounts of Company
arising from the sale or lease of goods or the performance of services, net of
any credits, but excluding any Accounts having any of the following
characteristics:

 

(a)                                 That portion of
Accounts unpaid 90 days or more after the invoice date; except that with respect to accounts owing from General
Electric Company (and its affiliates) and Emerson Electric Co., that portion of
Accounts unpaid 120 days or more after the invoice date;

 

(b)                                 That portion of
Accounts related to goods or services with respect to which Company has
received notice of a claim or dispute, which are subject to a claim of offset
or a contra account, or which reflect a reasonable reserve for warranty claims
or returns;

 

(c)                                  That portion of
Accounts not yet earned by the final delivery of goods or that portion of
Accounts not yet earned by the final rendition of services by Company to the
account debtor, including with respect to both goods and services, progress
billings, and that portion of Accounts for which an invoice has not been sent
to the applicable account debtor;

 

(d)                                 Accounts
constituting (i) Proceeds of copyrightable material unless such
copyrightable material shall have been registered with the United States
Copyright Office, or (ii) Proceeds of patentable inventions unless such
patentable inventions have been registered with the United States Patent and
Trademark Office;

 

(e)                                  Accounts owed
by any unit of government, whether foreign or domestic (except that there shall
be included in Eligible Accounts that portion of Accounts owed by such units of
government for which Company has provided evidence satisfactory to Wells Fargo
that (i) Wells Fargo’s Security Interest constitutes a perfected first
priority Lien in such Accounts, and (ii) such Accounts may be enforced by
Wells Fargo directly against such unit of government under all applicable
laws);

 

(f)                                   Accounts
denominated in any currency other than United States Dollars;

 

(g)                                  Accounts owed
by an account debtor located outside the United States which are not
(i) backed by a bank letter of credit naming Wells Fargo as beneficiary or
assigned to Wells Fargo, in Wells Fargo’s possession or control, and with
respect to which a control agreement concerning the letter-of-credit rights is
in effect, and acceptable to Wells Fargo in all respects, in its sole
discretion, or (ii) covered by a 

 

A-4

 

foreign receivables insurance policy acceptable to Wells Fargo in its
sole discretion;

 

(h)                                 Accounts owed
by an account debtor who is insolvent or is the subject of bankruptcy
proceedings or who has gone out of business;

 

(i)                                     Accounts owed
by an Owner, Subsidiary, Affiliate, Officer or employee of Company;

 

(j)                                    Accounts not
subject to the Security Interest or which are subject to any Lien in favor of
any Person other than Wells Fargo;

 

(k)                                 That portion of
Accounts that has been restructured, extended, amended or modified;

 

(l)                                     That portion of
Accounts that constitutes advertising, finance charges, service charges or
sales or excise taxes;

 

(m)                             Accounts owed
by an account debtor and its affiliates, regardless of whether otherwise
eligible, to the extent that the aggregate balance of such Accounts exceeds 15%
of the aggregate amount of all Accounts; except that
with respect to General Electric Company (and its affiliates) and Emerson
Electric Co., to the extent that the aggregate balance of such Accounts exceeds
25% of the aggregate amount of all Accounts;

 

(n)                                 Accounts owed
by an account debtor and its affiliate, regardless of whether otherwise
eligible, if 10% or more of the total amount of Accounts due from such debtor
is ineligible under clauses (a), (b), or (k) above; except that with
respect to General Electric Company (and its affiliates), Emerson Electric Co.,
and Semitool, Inc. (together with Applied Materials, Inc.) if 25% or
more of the total amount of Accounts due from such debtor is ineligible under
clauses (a), (b), or (k) above;

 

(o)                                 Accounts owing by Rockwell Collins, Inc.;

 

(p)                                 Unless otherwise agreed by Wells Fargo, Accounts arising under the
Company’s Trivirix operating division or otherwise owing from account debtors
acquired via the Company’s purchase of the assets of Trivirix Minneapolis, Inc.
and Trivirix International, Inc.; and

 

(q)                                 Accounts, or
portions of Accounts, otherwise deemed ineligible by Wells Fargo in its sole
discretion.

 

“Eligible Finished Goods Inventory” means Eligible Inventory
classified as finished goods.

 

“Eligible Inventory” means all Inventory of Company, valued
at the lower of cost or market in accordance with GAAP; but excluding Inventory
having any of the following characteristics:

 

(a)                                 Inventory that
is: in-transit; located at any warehouse, job site or other premises not
approved by Wells Fargo in an Authenticated Record delivered to Company; not
subject to a perfected first priority Lien in Wells Fargo’s favor; covered by 

 

A-5

 

any negotiable or non-negotiable warehouse receipt, bill of lading or
other document of title; on consignment from any consignor; or on consignment
to any consignee or subject to any bailment unless the consignee or bailee has
executed an agreement with Wells Fargo;

 

(b)                                 Supplies,
packaging, maintenance parts or sample Inventory, or customer supplied parts or
Inventory;

 

(c)                                  Work-in-process
Inventory;

 

(d)                                 Inventory that
is damaged, defective, obsolete, slow moving or not currently saleable in the
normal course of Company’s operations, or the amount of such Inventory that has
been reduced by shrinkage;

 

(e)                                  Inventory that
Company has returned, has attempted to return, is in the process of returning
or intends to return to the vendor of the Inventory;

 

(f)                                   Inventory that
is perishable or live;

 

(g)                                  Inventory
manufactured by Company pursuant to a license unless the applicable licensor
has agreed in a Record that has been Authenticated by licensor to permit Wells
Fargo to exercise its rights and remedies against such Inventory;

 

(h)                                 Inventory that
is subject to a Lien in favor of any Person other than Wells Fargo;

 

(i)                                     Inventory
stored at locations holding less than $500,000 of the aggregate value of
Company’s Inventory;

 

(j)                                    Inventory
classified by the Company as Burden and/or Outside Services;

 

(k)                                 Unless otherwise agreed by Wells Fargo in writing, Inventory related
to the Company’s Trivirix operating division or otherwise relating to or
acquired acquired via the Company’s purchase of the assets of Trivirix
Minneapolis, Inc. and Trivirix International, Inc.; and

 

(l)                                     Inventory
otherwise deemed ineligible by Wells Fargo in its sole discretion.

 

“Eligible Raw Materials Inventory” means Eligible Inventory
classified as Raw Materials.

 

“Environmental Law” means any federal, state, local or other
governmental statute, regulation, law or ordinance dealing with the protection
of human health and the environment.

 

“Equipment” shall have the meaning given it under the Uniform
Commercial Code in effect in the state whose laws govern this Agreement.

 

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

 

“ERISA Affiliate” means any trade or business (whether or not
incorporated) that is a member of a group which includes Company and which is
treated as a single employer under Section 414 of the IRC.

 

A-6

 

“Event of Default” is defined in Section 6.1.

 

“Floating Rate” is defined in Section 1.8(a).

 

“Floating Rate Advance” is defined in Section 1.3(a).

 

“Funds from
Operations” means for a given period, the sum of (a) Net
Income, (b) depreciation and amortization, (c) any increase (or
decrease) in deferred income taxes, (d) any increase (or decrease) in lifo
reserves, and (e) other non-cash items, each as determined for such period
in accordance with GAAP.

 

“GAAP” means generally accepted accounting principles,
applied on a basis consistent with the accounting practices applied in the
financial statements described on Exhibit D.

 

“General Intangibles” shall have the meaning given it under
the UCC.

 

“Guarantor” means any Person now or in the future
guaranteeing any Indebtedness through the issuance of a Guaranty.

 

“Guaranty” means an unconditional continuing guaranty executed
by a Guarantor in favor of Wells Fargo (if more than one, the “Guaranties”).

 

“Hazardous Substances” means pollutants, contaminants,
hazardous substances, hazardous wastes, or petroleum, and all other chemicals,
wastes, substances and materials listed in, regulated by or identified in any
Environmental Law.

 

“Indebtedness” is used in its most comprehensive sense and
means any debts, obligations and liabilities of Company to Wells Fargo, whether
incurred in the past, present or future, whether voluntary or involuntary, and
however arising, and whether due or not due, absolute or contingent, liquidated
or unliquidated, determined or undetermined, and including without limitation
all obligations arising under any Rate Hedge Agreement, derivative, foreign exchange,
deposit, treasury management or similar transaction or arrangement however
described or defined that Company may enter into at any time with Wells Fargo,
whether or not Company may be liable individually or jointly with others, or
whether recovery upon such Indebtedness may subsequently become unenforceable.

 

“Indemnified Liabilities” is defined in Section 7.8.

 

“Indemnitee” is defined in Section 7.8.

 

“Infringement” or “Infringing”
when used with respect to Intellectual Property Rights means any infringement
or other violation of Intellectual Property Rights.

 

“Intellectual Property Rights” means all actual or
prospective rights arising in connection with any intellectual property or
other proprietary rights, including without limitation all rights arising in
connection with copyrights, patents, service marks, trade dress, trade secrets,
trademarks, trade names or mask works.

 

“Interest Expense” means for a fiscal year-to-date period,
Company’s total gross interest expense during such period (excluding interest
income), and shall in any event include (a) interest expensed (whether or
not paid) on all Debt, (b) the amortization of debt discounts, 

 

A-7

 

(c) the
amortization of all fees payable in connection with the incurrence of Debt to
the extent included in interest expense, and (d) the portion of any
capitalized lease obligation allocable to interest expense.

 

“Interest Payment Date” is defined in Section 1.10(a).

 

“Inventory” shall have the meaning given it under the UCC.

 

“Investment Property” shall have the meaning given it under
the UCC.

 

“L/C Amount” means the sum of (a) the Aggregate Face
Amount of any outstanding Letters of Credit, plus (b) the amount of each
Obligation of Reimbursement that either remains unreimbursed or has not been
paid through an Advance on the Line of Credit.

 

“L/C Application” means an application for the issuance of
standby or documentary Letters of Credit pursuant to the terms of a Standby
Letter of Credit Agreement or Commercial Letter of Credit Agreement, in form
acceptable to Wells Fargo.

 

“Letter of Credit” and “Letters of Credit”
are each defined in Section 1.12(a).

 

“LIBOR” means the rate per annum (rounded upward, if
necessary, to the nearest whole 1/8th of one percent (1%)) determined pursuant
to the following formula:

 

	
  LIBOR =

  	
  Base LIBOR

  	
   

  
	
   

  	
  100% - LIBOR Reserve Percentage

  	
   

  

 

(a)                                 “Base LIBOR” means the rate per annum
for United States dollar deposits quoted by Wells Fargo for the purpose of
calculating the effective Floating Rate for loans that reference Daily Three
Month LIBOR as the Inter-Bank Market Offered Rate in effect from time to time
for three (3) month delivery of funds in amounts approximately equal to
the principal amount of such loans. 
Company understands and agrees that Wells Fargo may base its quotation
of the Inter-Bank Market Offered Rate upon such offers or other market
indicators of the Inter-Bank Market as Wells Fargo in its discretion deems
appropriate, including but not limited to the rate offered for U.S. dollar
deposits on the London Inter-Bank Market.

 

(b)                                 “LIBOR Reserve Percentage” means the
reserve percentage prescribed by the Board of Governors of the Federal Reserve
System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation
D of the Federal Reserve Board, as amended), adjusted by Wells Fargo for
expected changes in such reserve percentage during the applicable term of the
Revolving Note and Term Note.

 

“Licensed Intellectual Property” is defined in Exhibit D.

 

“Lien” means any security interest, mortgage, deed of trust,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device, including without limitation the interest of each lessor
under any capitalized lease and the interest of any bondsman under any payment
or performance bond, in, of or on any assets or properties of a Person, whether
now owned or subsequently acquired and whether arising by agreement or
operation of law.

 

A-8

 

“Line of Credit” is defined in the Recitals.

 

“Loan Documents” means this Agreement, the Revolving Note,
the Term Note, the Master Agreement for Treasury Management Services, each
Standby Letter of Credit Agreement, each Commercial Letter of Credit Agreement,
any L/C Applications, and the Security Documents, together with every other
agreement, note, document, contract or instrument to which Company now or in
the future may be a party and which may be required by Wells Fargo in
connection with, or as a condition to, the execution of this Agreement.  Any documents or other agreements entered
into between Company and Wells Fargo that relate to any Rate Hedge Agreement,
derivative, foreign exchange, or similar product or transaction, or which are
entered into with an operating division of Wells Fargo other than Wells Fargo
Business Credit, shall not be included in this definition.

 

“Loan Manager” means the treasury management service defined
in the Master Agreement for Treasury Management Services and related Loan Manager
Service Description.

 

“Lockbox” means “Lockbox” as defined in the Master Agreement
for Treasury Management Services and related Lockbox and Collection Account
Service Description.

 

“Master Agreement for Treasury Management Services” means the
Master Agreement for Treasury Management Services, the related Acceptance of
Services, and the Service Description governing each treasury management
service used by Company.

 

“Material Adverse
Effect” means any of the following:

 

(a)                                 A material
adverse effect on the business, operations, results of operations, prospects,
assets, liabilities or financial condition of Company;

 

(b)                                 A material
adverse effect on the ability of Company to perform its obligations under the
Loan Documents, or any other document or agreement related to this Agreement;

 

(c)                                  A material
adverse effect on the ability of Wells Fargo to enforce the Indebtedness or to
realize the intended benefits of the Security Documents, including without
limitation a material adverse effect on the validity or enforceability of any
Loan Document or of any rights against any Guarantor, or on the status,
existence, perfection, priority (subject to Permitted Liens) or enforceability
of any Lien securing payment or performance of the Indebtedness; or

 

(d)                                 Any claim
against Company or threat of litigation which if determined adversely to
Company would cause Company to be liable to pay an amount exceeding $500,000 or
would result in the occurrence of an event described in clauses (a), (b) and
(c) above.

 

“Maturity Date” means (a) with respect to the Line of
Credit, May 31, 2013, and (b) with respect to the Term Loan, May 31,
2012.

 

“Maximum Line Amount” is defined in Section 1.1(a).

 

“Minimum Interest
Charge” is defined in Section 1.8(b).

 

A-9

 

“Mortgages” means collectively (i) that certain
Mortgage, Security Agreement, Fixture Financing Statement and Assignment of
Leases and Rents dated January 31, 2002 granting the Lender a first
priority mortgage lien and assignment of leases and rents in the Borrower’s
facilities located in Bemidji, Fairmont and Merrifield, Minnesota; (ii) that
certain Mortgage, Security Agreement, Fixture Financing Statement and
Assignment of Leases and Rents dated June 28, 2006 granting the Lender a
first priority mortgage lien and assignment of leases and rents in the Borrower’s
facilities located in Blue Earth, Minnesota; and (iii) that certain
combination Mortgage, Security Agreement, Fixture Financing Statement and
Assignment of Leases and Rents dated February 2, 2007, granting the Lender
a first priority mortgage lien and assignment of leases and rents in the
Borrower’s facilities located in Eau Claire County, Wisconsin; each of the
foregoing as executed by the Borrower, as mortgagor, in favor of the Lender, as
mortgagee, and as each may be amended from time to time.

 

“Multiemployer Plan” means a multiemployer plan (as defined
in Section 4001(a)(3) of ERISA) to which Company or any ERISA
Affiliate contributes or is obligated to contribute.

 

“Net Income”
means fiscal year-to-date after tax income from continuing operations,
including extraordinary losses and extraordinary gains, all as determined in
accordance with GAAP.

 

“Net Loss” means fiscal year-to-date after-tax net loss from
continuing operations including extraordinary losses and extraordinary gains,
as determined in accordance with GAAP.

 

“Obligation of Reimbursement” is defined in Section 1.12(b).

 

“OFAC” is defined in Section 5.11(b).

 

“Officer” means with respect to Company, an officer if
Company is a corporation, a manager if Company is a limited liability company,
or a partner if Company is a partnership.

 

“Operating Account” is defined in Section 1.3(a), and
maintained in accordance with the terms of Wells Fargo’s Commercial Account Agreement
in effect for demand deposit accounts.

 

“Overadvance”
means the amount, if any, by which the unpaid principal amount of the Revolving
Note, plus the L/C Amount, is in excess of the then-existing Borrowing Base.

 

“Owned Intellectual Property” is defined in Exhibit D.

 

“Owner” means with respect to Company, each Person having
legal or beneficial title to an ownership interest in Company or a right to
acquire such an interest.

 

“Pension Plan” means a pension plan (as defined in Section 3(2) of
ERISA) maintained for employees of Company or any ERISA Affiliate and covered
by Title IV of ERISA.

 

“Permitted Lien” and “Permitted Liens”
are defined in Section 5.3(a).

 

“Person” means any individual, corporation, partnership,
joint venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivision of a governmental entity.

 

“Plan” means an employee benefit plan (as defined in Section 3(3) of
ERISA) maintained for employees of Company or any ERISA Affiliate.

 

A-10

 

“Premises” is defined in Section 2.4(a).

 

“Proceeds” shall have the meaning given it under the UCC.

 

“Rate Hedge” means any interest rate swap or interest rate
collar agreement applicable to borrowings advanced by Wells Fargo under this
Agreement.

 

“Rate Hedge Agreement” is an agreement entered into between
Wells Fargo (or any of its affiliates) and Company for purposes of providing
Company with a Rate Hedge.

 

“Record” means information that is inscribed on a tangible
medium or that is stored in an electronic or other medium and is retrievable in
perceivable form, and includes all information that is required to be reported
by Company to Wells Fargo pursuant to Section 5.1.

 

“Reimbursement Agreement” means that certain Letter of Credit
and Reimbursement Agreement dated as of June 28, 2006 by and between
Company and Wells Fargo, as the same may be amended and/or restated from time
to time.

 

“Reportable Event” means a reportable event (as defined in Section 4043
of ERISA), other than an event for which the 30-day notice requirement under
ERISA has been waived in regulations issued by the Pension Benefit Guaranty
Corporation.

 

“Revolving Note” is defined in Section 1.1(a).

 

“Security Documents” means this Agreement, and any other
document delivered to Wells Fargo from time to time to secure the Indebtedness.

 

“Security Interest” is defined in Section 2.1.

 

“Special Account” means a specified cash collateral account
maintained with Wells Fargo or another financial institution acceptable to
Wells Fargo in connection with each undrawn Letter of Credit issued by Wells
Fargo, as more fully described in Section 1.12.

 

“Standby Letter of Credit Agreement” means an agreement
governing the issuance of standby letters of credit by Wells Fargo entered into
between Company as applicant and Wells Fargo as issuer.

 

“Subsidiary” means any Person of which more than 50% of the
outstanding ownership interests having general voting power under ordinary
circumstances to elect a majority of the board of directors or the equivalent
of such Person, irrespective of whether or not at the time ownership interests
of any other class or classes shall have or might have voting power by reason
of the happening of any contingency, is at the time directly or indirectly
owned by Company, by Company and one or more other Subsidiaries, or by one or
more other Subsidiaries.

 

“Termination Date” is defined in Section 1.1(c).

 

“Term Loan” is defined in the Recitals.

 

“Term Note” is defined in Section 1.7(b).

 

A-11

 

“UCC” means the Uniform Commercial Code in effect in the
state designated in this Agreement as the state whose laws shall govern this
Agreement, or in any other state whose laws are held to govern this Agreement
or any portion of this Agreement.

 

“Unfinanced Capital Expenditures” means for a period, any
expenditure of money during such period for the purchase or construction of
assets, or for improvements or additions to such assets, which are not financed
with borrowed funds and are capitalized on Company’s balance sheet.

 

“Unused Amount” is defined in Section 1.9(b).

 

“Wells Fargo” means Wells Fargo Bank, National Association in
its broadest and most comprehensive sense as a legal entity, and is not limited
in its meaning to the Wells Fargo Business Credit operating division, or to any
other operating division of Wells Fargo.

 

A-12

 

Exhibit B to Credit and Security Agreement

 

PREMISES

 

The
Premises referred to in the Credit and Security Agreement have the following
street addresses and/or are legally described as follows:

 

1)                                      WAYZATA:  1120 Wayzata Blvd, Suite 200 &
201, Wayzata, MN  55391

 

2)                                      AUGUSTA:  A parcel of land located in Eau Claire
County, State of Wisconsin, described as follows: Lot 1 of Eau Claire County
certified survey map number 1358 filed March 14, 1997, in volume 7 of
Certified Survey Maps, pages 137-139 in the office of the Register of
Deeds for Eau Claire County Wisconsin.

 

750
Industrial Drive, Augusta, WI 54722

 

3)                                      BAXTER:     Lot
6, Block 1, Baxter Industrial Park. Property ID 032050010060009

Lot 5, Block 1, Baxter Industrial Park.  Property ID 032050010050009

 

1750
Goedderz Road, Baxter, MN 56425

1800
Goedderz Road, Baxter, MN 56425

 

4)                                      BEMIDJI:  That part of Government Lot 2, also with that
part of the Northwest Quarter of the Southeast Quarter, Section 36,
Township 147, Range 34, described as follows:

 

Commencing
at a cast iron monument known as B-12 on the Northerly right-of-way line of
Trunk Highway No. 2, said monument being the most Northerly point of the
plat of Minnesota Department of Transportation right-of-way Plat No. 04-5,
according to the recorded plat thereof, assuming said Northerly right-of-way
line bears North 68 degrees 32 minutes 14 seconds West along said Northerly right-of-way
line 1023.92 feet to the point of beginning; thence continuing North 68 degrees
32 minutes 14 seconds West along said Northerly right-of-way line1167.81 feet;
thence North 74 degrees 29 minutes 01 seconds East 701.36 feet; thence South 68
degrees 32 minutes 14 seconds East, parallel to said Northerly right-of-way
line 462.30 feet to a point on a 100.00 feet radius curve, the center of circle
of said curve bears South 54 degrees 10 minutes 06 seconds East from said
point, said point also being on the right-of-way line of a road; thence
Southeasterly along said curve and said right-of-way line 194.28 feet; central
angle 111 degrees 18 minutes 46 seconds; thence South 14 degrees 21 minutes 08
seconds West along the prolongation of a radial line of said curve 300.00 feet
to the point of beginning.

 

Beltrami
County, Minnesota  -  Abstract Property

 

4050
Norris Court NW, Bemidji, MN 56601

 

B-1

 

5)                                      FAIRMONT:

 

Parcel A:  Sold

 

Parcel B:  Lot Two (2), Block One
(1), of the First Northeast Addition to the City of Fairmont, according to the
plat thereof on file and of record in the Office of the Register of Deeds in
and for Martin County, Minnesota, and that portion of Lot Three (3), Block One
(1), First Northeast Addition aforesaid described as follows: Commencing at the
Southwest corner of the aforementioned Lot Three (3) in Block One (1) of
the First Northeast Addition to the City of Fairmont, Minnesota, thence East
along the South line of said Lot Three (3) for a distance of 163.35 feet,
thence deflecting 90 degrees 21 minutes left for a distance of 30.00 feet,
thence deflecting 89 degrees 39 minutes left for a distance of 163.35 feet to a
point on the West line of said Lot Three (3), thence South along said West line
of Lot Three (3) for a distance of 30.00 feet to the point of beginning.

 

Parcel C:  Lots Four (4) and
Five (5), Block Two (2), First Northeast Addition to the City of Fairmont, as
per map or plat thereof on file and of record in the Office of the County
Recorder in and for Martin County, Minnesota.

 

Abstract Property

 

1007 East 10th Street,
Fairmont, MN 55603

1030 Fairview Avenue, Fairmont, MN 55603

 

6)                                      MERRIFIELD:  That part of Govt. Lot 6, Sec. 36, Twp. 135,
Rge. 28, described as follows:  Beginning
at the Northeast corner of said Govt. Lot 6; thence South 00 degrees 59 minutes
20 seconds West, assumed bearing, 579.89 feet along the East line  of said Govt. Lot 6; thence North 82 degrees
38 minutes 21 seconds West 114.59 feet; thence South 81 degrees 39 minutes 36
seconds West 374.51 feet to the Easterly line of a 66 foot easement; thence
North 70 degrees 11 minutes 23 seconds West 19.60 feet along said Easterly line
of the 66 foot road easement; thence Northeasterly 44.66 feet along a tangential
curve, concave to the Northeast, central angle 64 degrees 10 minutes 00 seconds
and radius 39.88 feet continuing along said Easterly line of the 66 foot road
easement; thence North 06 degrees 01 minutes 23 seconds West, along tangential
of the last described curve, 24.02 feet continuing along said Easterly line of
the 66 foot road easement; thence North 00 degrees 59 minutes 20 seconds East
565 feet, more or less, to the North line of said Govt. Lot 6; thence Easterly
600 feet, more or less, along the North line of said Govt. Lot 6 to the point
of beginning.  AND that part of Govt. Lot
6, Sect. 36, Twp. 135, Rge. 28, described as follows:  Commencing at the Northeast corner of said
Govt. Lot 6; thence South 00 degrees 59 minutes 20 seconds West, assumed bearing,
579.89 feet along the East line of said Govt. Lot 6; thence North 82 degrees 38
minutes 21 seconds West 114.59 feet; thence South 81 degrees 39 minutes 36
seconds West 374.51 feet to the Easterly line of a 66 foot road easement;
thence Northwesterly 44.66 feet along a tangential curve concave to the
Northeast, central angle 64 degrees 10 minutes 00 seconds, radius 39.88 feet,
continuing along said Easterly line of the 66 foot wide road easement; thence
North 6 degrees 01 minutes 23 seconds West, along the tangent to the last
described curve, 24.02 feet continuing along said Easterly line of the 66 foot
road easement; thence 

 

B-2

 

South 83 degrees 58 minutes 37 seconds West 66.00 feet along the North
line of said 66 foot road easement; thence North 00 degrees 59 minutes 20
seconds East 33.25 feet to the point of beginning of the tract to be described;
thence South 83 degrees 58 minutes 37 seconds West 725 feet, more or less, to
the West line of said Govt. Lot 6; thence Northerly 591 feet, more or less,
along said West line of Govt. Lot 6 to the Northwest corner of said Govt. Lot
6; thence Easterly 716 feet, more or less, along the North line of said Govt.
Lot 6 to the line bearing North 00 degrees 59 minutes 20 seconds East from the
point of beginning; thence South 00 degrees 59 minutes 20 seconds West 523
feet, more or less, to the point of beginning.

 

Crow Wing Count, Minnesota

Abstract Property

 

12136 Crystal Lake Road, Merrifield, MN 55465

 

7)                                                      BLUE EARTH,
MINNESOTA:  Commencing at the Southwest
corner of the Southwest Quarter of Section 7 in Township 102 North, Range
27, West of the 5th Principal Meridian in the County of Faribault
and State of Minnesota; thence North along the West line of the Southwest
Quarter of said Section 7, a distance of 680 feet; thence East parallel
with the South line of the Southwest Quarter of said Section 7, a distance
of 765 feet; thence South parallel with the West line of the Southwest Quarter
of said Section 7, a distance of 680 feet; thence West along the South
line of the Southwest Quarter of said Section 7, a distance of 765 feet to
the point of beginning;

 

Except
a tract of land in the Southwest Quarter of Section 7, Township 102 North,
Range 27 West in the City of Blue Earth, Faribault County, Minnesota, described
as follows:  Commencing at the Southwest
corner of said Section 7; thence North 89 degrees 04 minutes 19 seconds
East, (assumed bearing) along the south line of the Southwest Quarter of said Section 7,
a distance of 765.00 feet; thence North 00 degrees 00 minutes 00 seconds East,
parallel with the West line of the Southwest Quarter of said Section 7, a
distance of 78.10 feet to the northerly right-of-way line of County State Aid
Highway No. 16 and the point of beginning; thence continuing North 00
degrees 00 minutes 00 seconds East, a distance of 60.00 feet; thence South 89
degrees 04 minutes 19 seconds West, a distance of 20.00 feet; thence South 00
degrees 00 minutes 00 seconds West, a distance of 59.71 feet to said north
highway right-of-way line; thence North 89 degrees 54 minutes 45 seconds East,
along said highway right-of-way line, a distance of 20.00 feet to the point of
beginning.

 

Together with an easement over that part of the West Half of the Southwest
Quarter of said Section 7, excepting the tract described above, that lies
between a line running parallel to but 10 feet North of the North right of way
line of U.S. Trunk Highway No. 16 and the North right of way line of said
Trunk Highway No. 16 as now located.

 

Faribault County, Minnesota.

 

1930 West First Street, Blue Earth, MN 56013

 

B-3

 

8)             MILACA, MINNESOTA.  Sect 25 TWP-038-Range 27 city of Milaca TR in
NE of NE, Beg. at NE Corner of Lt 2 Blk 1 Mip, S 450 ft. E 335 ft, NW’L 2.5
Acres.

 

PID:  21-025-0201

 

925
6th Avenue N.E., Milaca, MN 56353

 

In
the event of any conflict between the address and the legal description, the
legal description shall control.

 

B-4

 

Exhibit C to Credit and Security Agreement

 

CONDITIONS PRECEDENT

 

Wells
Fargo’s obligation to make an initial Advance shall be subject to the condition
that Wells Fargo shall have received the following, executed and in form and
content satisfactory to Wells Fargo.  The
following descriptions are limited descriptions for reference purposes only and
should not be construed as limiting in any way the subject matter that Wells
Fargo requires each document to address.

 

A.            Loan Documents to be
Executed by Company:

 

1.             The Credit and Security Agreement.

 

2.             The Master
Agreement for Treasury Management Services, the Acceptance
of Services, and the related Service Description for each deposit or
treasury management related product or service that Company will subscribe to,
including without limitation the Loan Manager Service
Description and the Lockbox and Collection Account Service Description.

 

3.             A Standby Letter of Credit
Agreement and the Commercial Letter of Credit Agreement, and a separate L/C
Application for each Letter of Credit that Company has requested that Wells
Fargo issue.

 

4.             The Second Amendment to Letter of
Credit and Reimbursement Agreement by and between the Company and Wells Fargo.

 

B.            Loan Documents to be
Executed by Third Parties:

 

1.             Reaffirmation of the Support Agreements
of Michael Degen and Richard Wasielewski, pursuant to which
that Person makes certain personal representations and warranties relating to
Company’s Collateral in favor of Wells
Fargo.

 

2.             A Landlord’s Disclaimer
and Consent to each lease entered into by Company and that Landlord
with respect to the Premises, pursuant to which the Landlord waives its Lien in
any goods or other Inventory of Company located on the Premises.

 

3.             Certificates Insurance required
under this Agreement, with all hazard insurance containing a lender’s interest
endorsement in Wells Fargo’s favor and with all liability insurance naming
Wells Fargo as additional insured.

 

C.            Documents Related to
the Premises

 

1.             Any leases
pursuant to which Company is leasing
the Premises from a lessor.

 

2.             Any mortgages or
deeds of trust pursuant to which Company or the landlord to Company
has encumbered the Premises.

 

3.             Every bailment or
consignment pursuant to which any
property of Company is in the possession of a third Person such as a consignee
or subcontractor, together with, in the 

 

C-1

 

case
of any goods held by such Person for resale, UCC
financing statements sufficient to protect Company’s and Wells Fargo’s
interests in such goods.

 

D.            Federal Tax, State
Tax, Judgment, UCC and Intellectual Property Lien Searches

 

1.             Current
searches of Company in appropriate filing offices showing that
(i) no Liens have been filed and remain in effect against Company and Collateral
except Permitted Liens or Liens held by Persons who have agreed in an
Authenticated Record that upon receipt of proceeds of the initial Advances,
they will satisfy, release or terminate such Liens in a manner satisfactory to
Wells Fargo, and (ii) Wells Fargo has filed all UCC
financing statements necessary to perfect the Security Interest, to
the extent the Security Interest is capable of being perfected by filing.

 

2.             Current
searches of Third Persons in appropriate filing offices with respect
to any of the Collateral that is in the possession of a Person other than
Company that is held for resale, showing that (i) UCC financing statements
sufficient to protect Company’s and Wells Fargo’s interests in such Collateral
have been filed, and (ii) no other secured party has filed a financing
statement against such Person and covering property similar to Company’s, other
than Company, or if there exists any such secured party, evidence that each
such party has received notice from Company and Wells Fargo sufficient to
protect Company’s and Wells Fargo’s interests in Company’s goods from any claim
by such secured party.

 

E.             Constituent
Documents:

 

1.             The Certificate
of Authority of Company, which shall include as part of the
Certificate or as exhibits to the Certificate, (i) the Resolution of Company’s Directors and, if required, Owners,
authorizing the execution, delivery and performance of those Loan Documents and
other documents or agreements described in or related to this Agreement to
which Company is a party, (ii) an Incumbency Certificate
containing the signatures of Company’s Officers or agents authorized to execute
and deliver those instruments, agreements and certificates referenced in (i) above,
as well as Advance requests, on Company’s behalf, (iii) Company’s Constituent Documents, (iv) a current Certificate of Good Standing or Certificate
of Status issued by the secretary of state or other appropriate
authority for Company’s state of organization, certifying that Company is in
good standing and in compliance with all applicable organizational requirements
of the state of organization, and (v) a Secretary’s
Certificate of Company’s secretary or assistant secretary certifying
that the Certificate of Authority of Company is true, correct and complete.

 

2.             Evidence
that Company is licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or qualification
necessary.

 

3.             An Officer’s Certificate  of an appropriate Officer of Company confirming, in his or
her personal capacity, the representations and warranties set forth in this
Agreement.

 

4.             A Customer Identification Information Form and such other forms and verification
as Wells Fargo may need to comply with the U.S.A. Patriot Act.

 

C-2

 

F.             Real Estate Related
Documents:

 

With
respect to the real estate that is encumbered by the mortgage or deed of trust
given by Company or any third Person to Wells Fargo (unless otherwise waived by
Wells Fargo):

 

1.             An appraisal
ordered by Wells Fargo or its agent of the real property and all improvements
to the real property, conforming to Uniform Standards of Professional Appraisal
Practice.

 

2.             A American Land Title Association policy of title insurance, with such endorsements as Wells
Fargo may require, issued by an insurer in such amounts as Wells Fargo may
require, insuring Wells Fargo’s first priority lien on said real estate,
subject only to such exceptions as Wells Fargo in its discretion may approve,
together with such evidence relating to the payment of liens or potential liens
as Wells Fargo may require.

 

3.             An American Land Title Association survey certified to Wells Fargo and to the title company.

 

4.             A current environmental site assessment indicating that the real property is
subject to no “recognized environmental conditions”, as that term is defined by
the American Society for Testing and Materials, in its standards for
environmental due diligence, and is not in need of remedial action to avoid
subjecting its owner to any present or future liability or contingent liability
with respect to the release of toxic or hazardous wastes or substances.

 

5.             A flood hazard determination form, confirming whether or not the parcel is
in a flood hazard area and whether or not flood insurance must be obtained,
and, if the real estate is located in a flood hazard area, a policy of flood
insurance.

 

6.             Copies of management services and
maintenance contracts, fire, health and safety reports, certificates of
occupancy, leases and rent rolls.

 

G.            Miscellaneous
Matters or Documents:

 

1.             Payment of fees and reimbursable
costs and expenses due under this Agreement through the date of this Agreement,
including without limitation all legal expenses incurred through the date of
the closing of this Agreement.

 

2.             Evidence that after making the
initial Advance, satisfying all obligations owed to Company’s prior lender,
reserving for all trade payables older than 60 days from invoice date,
reserving for all book overdrafts and paying all closing costs, availability
under the Line of Credit is not less than $1,500,000.00 (prior to giving effect
to the Availability Reserve).

 

3.             Any documents or other agreements
entered into by Company and Wells Fargo that relate to any Rate Hedge
Agreement, derivative, foreign exchange, deposit, treasury management or
similar product or transaction extended to Company by Wells Fargo not already
provided pursuant to the requirements of (A)-(F) above.

 

4.             Such other documents as Wells Fargo
in its sole discretion may require.

 

C-3

 

Exhibit D to Credit and Security Agreement

 

REPRESENTATIONS AND WARRANTIES

 

Company
represents and warrants to Wells Fargo as follows:

 

(a)                                  Existence and Power; Name; Chief
Executive Office; Inventory and Equipment Locations; Federal Employer
Identification Number and Organizational Identification Number.  Company is a corporation organized, validly
existing and in good standing under the laws of the State of Minnesota and is
licensed or qualified to transact business in all jurisdictions where the
character of the property owned or leased or the nature of the business
transacted by it makes such licensing or qualification necessary.  Company has all requisite power and authority
to conduct its business, to own its properties and to execute and deliver, and
to perform all of its obligations under, those Loan Documents and any other
documents or agreements that it has entered into with Wells Fargo related to
this Agreement.  During its existence,
Company has done business solely under the names set forth below in addition to
its correct legal name.  Company’s chief
executive office and principal place of business is located at the address set
forth below, and all of Company’s records relating to its business or the
Collateral are kept at that location. 
All Inventory and Equipment is located at that location or at one of the
other locations set forth below.  Company’s
name, Federal Employer Identification Number and Organization Identification
Number are correctly set forth at the end of the Agreement next to Company’s
signature.

 

Trade Names

 

Intercon One

 

Chief Executive Office / Principal
Place of Business

 

1120 Wayzata Boulevard
East, Suite 201, Wayzata, MN 55391

 

Other Inventory and Equipment
Locations

 

1)                            750 Industrial
Drive, Augusta, WI  54722

2)                            1007 East 10th Street, Fairmont, MN  55603

3)                            1750 Goedderz
Road, Baxter, MN  56425

4)                            1800 Goedderz
Road, Baxter, MN  56425

5)                            1030 Fairview
Avenue, Fairmont, MN  55603

6)                            12136 Crystal
Lake Road, Merrifield, MN 56465

7)                            1120 Wayzata
Blvd, Ste 200 & 201, Wayzata, MN 55391

8)                            4050 Norris
Court NW, Bemidji, MN 56601

9)                            1930 West First
Street, Blue Earth, Minnesota 56013

10)                      925 6th Avenue N.E. Milaca, Minnesota 56353

 

D-1

 

(b)                                 Capitalization.  The Capitalization Chart below constitutes a
correct and complete list of all ownership interests of Company and all rights
to acquire ownership interests, including the record holder, number of
interests and percentage interests on a fully diluted basis, and the
Organizational Chart below shows the ownership structure of all Subsidiaries of
Company.

 

Capitalization Chart

 

	
  Holder

  	
   

  	
  Type of Rights/Stock

  	
   

  	
  No. of Shares (after

  exercise of all rights to

  acquire shares)

  	
   

  
	
  Publicly Held

  	
   

  	
  Common Stock

  	
   

  	
  2,742,992

  	
   

  
	
  Publicly Held

  	
   

  	
  Preferred Stock

  	
   

  	
  250,00

  	
   

  

 

Organizational Chart

 

 

(c)                                  Authorization of Borrowing; No
Conflict as to Law or Agreements.  The execution, delivery and performance by
Company of the Loan Documents and any other documents or agreements described
in or related to this Agreement, and all borrowing under the Line of Credit
have been authorized and do not (i) require the consent or approval of
Company’s Owners; (ii) require the authorization, consent or approval by,
or registration, declaration or filing with, or notice to, any governmental
agency or instrumentality, whether domestic or foreign, or any other Person,
except to the extent obtained, accomplished or given prior to the date of this
Agreement; (iii) violate any provision of any law, rule or regulation
(including Regulation X of the Board of Governors of the Federal Reserve
System) or of any order, writ, injunction or decree presently in effect having
applicability to Company or of Company’s Constituent Documents;
(iv) result in a breach of or constitute a default or event of default
under any indenture or loan or credit

 

D-2

 

agreement
or any other material agreement, lease or instrument to which Company is a
party or by which it or its properties may be bound or affected; or
(v) result in, or require, the creation or imposition of any Lien (other
than the Security Interest) upon or with respect to any of the properties now
owned or subsequently acquired by Company.

 

(d)                                 Legal Agreements.  This Agreement, the other Loan Documents, and
any other document or agreement described in or related to this Agreement, will
constitute the legal, valid and binding obligations of Company, enforceable
against Company in accordance with their respective terms.

 

(e)                                  Subsidiaries.  Except as disclosed below, Company has no
Subsidiaries.

 

Subsidiaries

 

1.                                      Nortech Medical
Services, Inc. (wholly-owned) (Inactive)

 

2.                                      Manufacturing &
Assembly Solutions of Monterrey S DE RL DE CV              (wholly-owned)

 

(f)                                   Financial Condition; No Adverse
Change.  Company has furnished to Wells
Fargo its audited financial statements for its fiscal year ended December 31,
2009 and unaudited financial statements for the fiscal-year-to-date period
ended March 31, 2010 and those statements fairly present Company’s
financial condition as of those dates and the results of Company’s operations
and cash flows for the periods then ended and were prepared in accordance with
GAAP.  Since the date of the most recent
financial statements, there has been no Material Adverse Effect in Company’s
business, properties or condition (financial or otherwise).

 

(g)                                  Litigation.  There are no actions, suits or proceedings
pending or, to Company’s knowledge, threatened against or affecting Company or
any of its Affiliates or the properties of Company or any of its Affiliates
before any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely to Company
or any of its Affiliates, would result in a final judgment or judgments against
Company or any of its Affiliates in an amount in excess of $10,000, apart from
those matters specifically disclosed below.

 

Litigation Matters in Excess of $10,000

 

None.

 

D-3

 

(h)                                 Intellectual Property Rights.

 

(i)                                     Owned
Intellectual Property.  Set
forth below is a complete list of all patents, applications for patents,
trademarks, applications to register trademarks, service marks, applications to
register service marks, mask works, trade dress and copyrights for which
Company is the owner of record (the “Owned Intellectual
Property”).  Except as set
forth below, (A) Company owns the Owned Intellectual Property free and
clear of all restrictions (including without limitation covenants not to sue
any Person), court orders, injunctions, decrees, writs or Liens, whether by
agreement memorialized in a Record Authenticated by Company or otherwise, (B) no
Person other than Company owns or has been granted any right in the Owned
Intellectual Property, (C) all Owned Intellectual Property is valid,
subsisting and enforceable, and (D) Company has taken all commercially
reasonable action necessary to maintain and protect the Owned Intellectual
Property.

 

(ii)                                  Agreements with Employees and
Contractors.  Company has
entered into a legally enforceable agreement with each Person that is an
employee or subcontractor obligating that Person to assign to Company, without
additional compensation, any Intellectual Property Rights created, discovered
or invented by that Person in the course of that Person’s employment or
engagement with Company (except to the extent prohibited by law), and further
obligating that Person to cooperate with Company, without additional
compensation, to secure and enforce the Intellectual Property Rights on behalf
of Company, unless the job description of the Person is such that it is not reasonably
foreseeable that the employee or subcontractor will create, discover, or invent
Intellectual Property Rights.

 

(iii)                               Intellectual Property Rights
Licensed from Others.  Set forth
below is a complete list of all agreements under which Company has licensed
Intellectual Property Rights from another Person (“Licensed
Intellectual Property”) other than readily available, non-negotiated
licenses of computer software and other intellectual property used solely for
performing accounting, word processing and similar administrative tasks (“Off-the-shelf Software”) and a summary of any ongoing
payments Company is obligated to make with respect to Licensed Intellectual
Property.  Except as set forth below or
in any other Record, copies of which have been given to Wells Fargo, Company’s
licenses to use the Licensed Intellectual Property are free and clear of all
restrictions, Liens, court orders, injunctions, decrees, or writs, whether
agreed to in a Record Authenticated by Company or otherwise.  Except as disclosed below, Company is not
contractually obligated to make royalty payments of a material nature, or pay
fees to any owner of, licensor of, or other claimant to, any Intellectual
Property Rights.

 

(iv)                              Other Intellectual Property
Needed for Business.  Except for
Off-the-shelf Software and as disclosed below, the Owned Intellectual Property
and the Licensed Intellectual Property constitute all Intellectual Property
Rights used or necessary to conduct Company’s business as it is presently
conducted or as Company reasonably foresees conducting it.

 

D-4

 

(v)                                 Infringement.  Except as disclosed below, Company has no
knowledge of, and has not received notice either orally or in a Record
alleging, any Infringement of another Person’s Intellectual Property Rights
(including any claim set forth in a Record that Company must license or refrain
from using the Intellectual Property Rights of any Person) nor, to Company’s
knowledge, is there any threatened claim or any reasonable basis for any such
claim.

 

Intellectual Property Disclosures

 

None.

 

(i)                                     Taxes.  Company and its Affiliates have paid or
caused to be paid to the proper authorities when due all federal, state and
local taxes required to be withheld by each of them.  Company and its Affiliates have filed all
federal, state and local tax returns which to the knowledge of the Officers of
Company or any Affiliate, as the case may be, are required to be filed, and
Company and its Affiliates have paid or caused to be paid to the respective
taxing authorities all taxes as shown on these returns or on any assessment
received by any of them to the extent such taxes have become due.

 

(j)                                    Titles
and Liens.  Company has
good and absolute title to all Collateral free and clear of all Liens other
than Permitted Liens.  No financing
statement naming Company as debtor is on file in any office except to perfect
only Permitted Liens.

 

(k)                                 No Defaults.  Company is in compliance with all provisions
of all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could have a Material Adverse Effect on Company’s financial condition,
properties or operations .

 

(l)                                     Submissions
to Wells Fargo.  All financial
and other information provided to Wells Fargo by or on behalf of Company in
connection with this Agreement (i) is true, correct and complete in all
material respects, (ii) does not omit any material fact that would cause
such information to be misleading, and (iii) as to projections, valuations
or proforma financial statements, presents a good faith opinion as to such
projections, valuations and proforma condition and results.

 

(m)                             Financing Statements.  Company has previously authorized the filing
of financing statements sufficient when filed to perfect the Security Interest
and other Liens created by the Security Documents.  When such financing statements are filed,
Wells Fargo will have a valid and perfected security interest in all Collateral
capable of being perfected by the filing of financing statements.  None of the Collateral is or will become a
fixture on real estate, unless a sufficient fixture filing has been filed with
respect to such Collateral.

 

(n)                                 Rights to Payment.  Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral is (or, in the case of all future 

 

D-5

 

Collateral,
will be when arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, setoff or counterclaim of the account debtor
or other obligor named in that instrument.

 

(o)                                 Employee Benefit Plans.

 

(i)                                     Maintenance
and Contributions to Plans.  Except as disclosed below, neither Company
nor any ERISA Affiliate (A) maintains or has maintained any Pension Plan,
(B) contributes or has contributed to any Multiemployer Plan, or (C) provides
or has provided post-retirement medical or insurance benefits to employees or
former employees (other than benefits required under Section 601 of ERISA,
Section 4980B of the IRC, or applicable state law).

 

(ii)                                  Knowledge of Plan Noncompliance
with Applicable Law.  Except as
disclosed below, neither Company nor any ERISA Affiliate has (A) knowledge
that Company or the ERISA Affiliate is not in full compliance with the
requirements of ERISA, the IRC, or applicable state law with respect to any
Plan, (B) knowledge that a Reportable Event occurred or continues to exist
in connection with any Pension Plan, or (C) sponsored a Plan that it
intends to maintain as qualified under the IRC that is not so qualified, and no
fact or circumstance exists which may have an adverse effect on such Plan’s
tax-qualified status.

 

(iii)                               Funding Deficiencies and Other
Liabilities.  Neither
Company nor any ERISA Affiliate has liability for any (A) accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412
of the IRC) under any Plan, whether or not waived, (B) withdrawal, partial
withdrawal, reorganization or other event under any Multiemployer Plan under Section 4201
or 4243 of ERISA, or (C) event or circumstance which could result in
financial obligation to the Pension Benefit Guaranty Corporation, the Internal
Revenue Service, the Department of Labor or any participant in connection with
any Plan (other than routine claims for benefits under the Plan).

 

Employee Benefit Plans

 

None.

 

(p)                                 Environmental Matters.

 

(i)                                     Hazardous
Substances on Premises. 
Except as disclosed below, there are not present in, on or under the
Premises any Hazardous Substances in such form or quantity as to create any
material liability or obligation for either Company or Wells Fargo under the
common law of any jurisdiction or under any Environmental Law, and no Hazardous
Substances have ever been stored, buried, spilled, leaked, discharged, emitted
or released in, on or under the Premises in such a way as to create a material
liability.

 

D-6

 

(ii)                                  Disposal of Hazardous Substances.  Except as disclosed below, Company has not
disposed of Hazardous Substances in such a manner as to create any material
liability under any Environmental Law.

 

(iii)                               Claims and Proceedings with
Respect to Environmental Law Compliance. Except as disclosed below,
there have not existed in the past, nor are there any threatened or impending
requests, claims, notices, investigations, demands, administrative proceedings,
hearings or litigation relating in any way to the Premises or Company, alleging
material liability under, violation of, or noncompliance with any Environmental
Law or any license, permit or other authorization issued pursuant to such an
Environmental Law.

 

(iv)                              Compliance with Environmental
Law; Permits and Authorizations.  Except as disclosed below, Company (A) conducts
its business at all times in compliance with applicable Environmental Law, (B) possesses
valid licenses, permits and other authorizations required under applicable
Environmental Law for the lawful and efficient operation of its business, none
of which are scheduled to expire, or withdrawal, or material limitation within
the next 12 months, and (C) has not been denied insurance on grounds
related to potential environmental liability.

 

(v)                                 Status of Premises.  Except as disclosed below, the Premises are
not and never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability Information
System or any similar federal, state or local list, schedule, log, inventory or
database.

 

(vi)                              Environmental Audits, Reports,
Permits and Licenses.  Company has
delivered to Wells Fargo all environmental assessments, audits, reports,
permits, licenses and other documents describing or relating in any way to the
Premises or Company’s businesses.

 

Environmental Matters

 

None.

 

D-7

 

Exhibit E to Credit and Security Agreement

 

COMPLIANCE CERTIFICATE

 

To:                             Wells Fargo
Bank, National Association

Date:                                         ,
201   

Subject:         Financial
Statements

 

In
accordance with our Third Amended and Restated Credit and Security Agreement
dated May 27, 2010  (as amended
from time to time, the “Credit Agreement”),
attached are the financial statements of Nortech Systems Incorporated  (the “Company”) dated
[                              ,
200    ] (the “Reporting
Date”) and the year-to-date period then ended (the “Current Financials”). 
All terms used in this certificate have the meanings given in the Credit
Agreement.

 

A.                                    Preparation
and Accuracy of Financial Statements.  I certify that the Current Financials have
been prepared in accordance with GAAP, subject to year-end audit adjustments,
and fairly present Company’s financial condition as of the Reporting Date.

 

B.                                    Name of
Company; Merger and Consolidation.  I certify that:

 

(Check
one)

 

o                                    Company has
not, since the date of the Credit Agreement, changed its name or jurisdiction
of organization, nor has it consolidated or merged with another Person.

 

o                                    Company has,
since the date of the Credit Agreement, either changed its name or jurisdiction
of organization, or both, or has consolidated or merged with another Person,
which change, consolidation or merger: o was
consented to in advance by Wells Fargo in an Authenticated Record, and/or o is more
fully described in the statement of facts attached to this Certificate.

 

C.                                    Events
of Default.  I certify
that:

 

(Check
one)

 

o                                    I have no
knowledge of the occurrence of an Event of Default under the Credit Agreement,
except as previously reported to Wells Fargo in a Record.

 

o                                    I have
knowledge of an Event of Default under the Credit Agreement not previously
reported to Wells Fargo in a Record, as more fully described in the statement
of facts attached to this Certificate, and further, I acknowledge that
Wells Fargo may under the terms of the Credit Agreement impose the Default Rate
at any time during the resulting Default Period.

 

E-1

 

D.                                    Litigation
Matters.  I certify that:

 

(Check
one)

 

o                                    I have no
knowledge of any material adverse change to the litigation exposure of Company
or any of its Affiliates or of any Guarantor.

 

o                                    I have
knowledge of material adverse changes to the litigation exposure of Company or
any of its Affiliates or of any Guarantor not previously disclosed in Exhibit D, as more fully
described in the statement of facts attached to this Certificate.

 

E.                                     Financial
Covenants.  I further
certify that:

 

(Check
and complete each of the following)

 

5.                                      Minimum Earnings Before Taxes.  Pursuant to Section 5.2(a) of the
Credit Agreement, Company’s Earnings Before Taxes for the fiscal year-to-date
period ending on the Reporting Date, was
$                          ,
which o  satisfies
o  does
not satisfy the requirement that such amount be not less than the applicable
amount set forth in the table below (numbers
appearing between “< >“ are negative) on the Reporting Date:

 

	
  Period

  	
   

  	
  Min. Earnings Before Taxes

  	
   

  
	
  Through June 30, 2010

  	
   

  	
  $

  	
  0

  	
   

  
	
  Through September 30,
  2010

  	
   

  	
  $

  	
  0

  	
   

  
	
  Through December 31,
  2010

  	
   

  	
  $

  	
  0

  	
   

  

 

6.                                      Minimum Debt Service Coverage Ratio.  Pursuant to Section 5.2(b) of the
Credit Agreement, as of the Reporting Date, Company’s Debt Service Coverage
Ratio was
              to 1.00, which o satisfies o does not
satisfy the requirement that such ratio be not less than the applicable ratio set forth in the table
below on the Reporting Date:

 

	
  Period

  	
   

  	
  Min. Debt Service

  Coverage Ratio

  	
   

  
	
  Through June 30,
  2010*

  	
   

  	
  1.20 to 1.00

  	
   

  
	
  Through June 30, 2010

  	
   

  	
  0.80 to 1.00

  	
   

  
	
  Through September 30,
  2010

  	
   

  	
  1.20 to 1.00

  	
   

  
	
  Through December 31,
  2010

  	
   

  	
  1.20 to 1.00

  	
   

  

 

*
As adjusted for anticipated $2,250,000 tax refund, expected to be received in June 2010.

 

7.                                      Capital Expenditures.  Pursuant to Section 5.2(c) of the
Credit Agreement, for the year-to-date period ending on the Reporting Date,
Company has expended or contracted to expend during the fiscal year ended December 31, 2010  for Capital Expenditures, $                                
in the aggregate, which o satisfies o does not
satisfy the requirement that such expenditures not exceed $1,400,000  in the aggregate.

 

8.                                      Stop
Loss.  Pursuant to Section 5.2(d) of
the Credit Agreement, for the month ending on the Reporting Date, Company has
suffered a Net Loss of
$                            ,
which o satisfies
o does not
satisfy the requirement that Company suffer a Net Loss in any single month not
in excess of $250,000.

 

E-2

 

9.                                      Due
From Affiliate.  Pursuant to
Section 5.6(d) of the Credit Agreement, as of the Reporting Date,
Company has
$                            
in affiliate loans or advances due from Manufacturing & Assembly
Solutions of Monterrey S DE RL DE CV, which o satisfies
o does not
satisfy the requirement that Company not have loans or advances to Manufacturing &
Assembly Solutions of Monterrey S DE RL DE CV, in an aggregate amount in excess
of $9,500,000 at any time.

 

10.                               Salaries.  Company o has o has not
paid excessive or unreasonable salaries, bonuses, commissions, consultant fees
or other compensation to any Director, Officer or consultant, or any member of
their families, as of the Reporting Date, and o has o has not
paid any increase in such amounts (on a year over year basis, as of the
Reporting Date) from any source other than profits earned in the year of
payment, and as a consequence Company o is o is not in
compliance with Section 5.8 of the Credit Agreement.

 

Attached
are statements of all relevant facts and computations in reasonable detail
sufficient to evidence Company’s compliance with the financial covenants
referred to above, which computations were made in accordance with GAAP.

 

	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Its
  Chief Financial Officer

  

 

E-3

 

Exhibit F to Credit and Security Agreement

 

PERMITTED LIENS

 

	
   

  	
   

  	
  Original

  	
   

  	
  Original 

  Filing

  	
   

  	
  Lapse

  	
   

  	
   

  
	
  Secured Party

  	
   

  	
  Filing #

  	
   

  	
  Date

  	
   

  	
  Date

  	
   

  	
  Collateral/Comments

  
	
  Wells
  Fargo Bank N.A.

  	
   

  	
  1378983

  	
   

  	
  12/17/1990

  	
   

  	
  12/17/2010

  	
   

  	
  All
  Assets

  
	
  Wells
  Fargo Bank N.A.

  	
   

  	
  20023019434

  	
   

  	
  2/8/2002

  	
   

  	
  2/8/2012

  	
   

  	
  Mortgage
  - Bemidji, Fairmont and Merrifield

  
	
  Wells
  Fargo Bank, N.A.

  	
   

  	
  20023019607

  	
   

  	
  2/8/2002

  	
   

  	
  2/8/2012

  	
   

  	
  All
  Assets

  
	
  Wells
  Fargo Equipment Finance, Inc.

  	
   

  	
  200517515660

  	
   

  	
  8/4/2005

  	
   

  	
  8/4/2010

  	
   

  	
  Specific
  Equipment Located in Merrifield, Bemidji, Fairmont and Augusta

  
	
  Wells
  Fargo Equipment Finance, Inc.

  	
   

  	
  200611340371

  	
   

  	
  4/6/2006

  	
   

  	
  4/6/2011

  	
   

  	
  Specific
  Equipment Located in Merrifield, Bemidji and Fairmont

  
	
  Arrow
  Electronics, Inc.

  	
   

  	
  200612304176

  	
   

  	
  6/12/2006

  	
   

  	
  6/12/2011

  	
   

  	
  Consignment
  Inventory

  
	
  Arrow
  Electronics, Inc.

  	
   

  	
  200614885330

  	
   

  	
  12/29/2006

  	
   

  	
  12/29/2011

  	
   

  	
  Consignment
  Inventory

  
	
  Wells
  Fargo Bank, National Association

  	
   

  	
  200715472428

  	
   

  	
  2/9/2007

  	
   

  	
  2/9/2012

  	
   

  	
  Mortgage
  - Augusta

  
	
  Bell
  Microproducts Inc.

  	
   

  	
  200715644660

  	
   

  	
  2/22/2007

  	
   

  	
  2/22/2012

  	
   

  	
  Consignment
  inventory including all proceeds, products and accessories

  
	
  Banc
  of America Leasing & Capital LLC/Meridian Leasing Corporation

  	
   

  	
  200716052156

  	
   

  	
  3/26/2007

  	
   

  	
  3/26/2012

  	
   

  	
  All
  leased equipment leased from lessor.

  
	
  Marlin
  Leasing Corp

  	
   

  	
  200716427337

  	
   

  	
  4/19/2007

  	
   

  	
  4/19/2012

  	
   

  	
  Lease
  Filing - Copier Equipment

  
	
  Wells
  Fargo Equipment Finance/Providence Capital

  	
   

  	
  200718990862

  	
   

  	
  11/16/2007

  	
   

  	
  11/16/2012

  	
   

  	
  Specific
  Equpment - Stirling Stone & Tile

  
	
  Arrow
  Electronics, Inc.

  	
   

  	
  200810873217

  	
   

  	
  3/7/2008

  	
   

  	
  3/7/2013

  	
   

  	
  Consignment
  Inventory

  
	
  Wells
  Fargo Equipment Finance, Inc.

  	
   

  	
  200814387268

  	
   

  	
  12/30/2008

  	
   

  	
  12/30/2013

  	
   

  	
  Specific
  Equipment Located in Fairmont, Augusta and Merrifield

  
	
  Wells
  Fargo Equipment Finance, Inc.

  	
   

  	
  200915015295

  	
   

  	
  2/18/2009

  	
   

  	
  2/18/2014

  	
   

  	
  Specific
  Equipment Located in Garner, IA

  
	
  E.O.
  Johnson Co. Inc.

  	
   

  	
  200915138100

  	
   

  	
  2/27/2009

  	
   

  	
  2/27/2014

  	
   

  	
  Office
  Equipment

  
	
  Citibank,
  N.A.

  	
   

  	
  200917251542

  	
   

  	
  9/1/2009

  	
   

  	
  9/1/2014

  	
   

  	
  Accounts
  Receivable of Rockwell Collins, Inc.

  
	
  Manufacturers’
  Lease Plans, Inc.

  	
   

  	
  201018772818

  	
   

  	
  1/15/2010

  	
   

  	
  1/15/2015

  	
   

  	
  Specific
  Equipment Lease in Bemidji

  
	
  ERSA
  North America

  	
   

  	
  201018911194

  	
   

  	
  1/27/2010

  	
   

  	
  1/27/2015

  	
   

  	
  Specific
  Soldering Machine

  

 

INDEBTEDNESS

 

None.

 

GUARANTIES

 

None.

 

F-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00177-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00177-of-00352.parquet"}], [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00177-of-00352.parquet"}]]