CREDIT AGREEMENT

Exhibit 4.16

CREDIT AGREEMENT

between

OPTICAL CABLE CORPORATION and

SUPERIOR MODULAR PRODUCTS INCORPORATED, as Borrower

and

VALLEY BANK, as Bank

May 30, 2008

TABLE OF CONTENTS

 

 

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CREDIT AGREEMENT

THIS CREDIT AGREEMENT dated as of May 30, 2008, by and between OPTICAL CABLE CORPORATION, a Virginia corporation (“OCC”), SUPERIOR MODULAR PRODUCTS INCORPORATED, a Delaware corporation (“SMP”, and together with OCC, each individually with respect to itself, jointly and severally, and collectively, the “Borrower”), and VALLEY BANK, a Virginia banking corporation, its affiliates and their successors and assigns (the “Bank”), provides:

RECITALS

WHEREAS, the Borrower and the Bank desire to agree to the terms and conditions upon which the Borrower may obtain certain loans from the Bank.

AGREEMENT

NOW THEREFORE, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.1 The terms defined in this Article I shall for all purposes of this Agreement have the meanings herein specified unless the context expressly or by necessary implication otherwise requires:

“Acquisition Agreement” means that certain Merger Agreement by and between the Borrower, Aurora Merger Corporation and Preformed Line Products Company and SMP, dated May 30, 2008, as amended, supplemented or otherwise modified from time to time.

“Affiliate” means any Person (1) which directly or indirectly controls, or is controlled by, or is under common control with, the Borrower; or (2) which directly or indirectly beneficially owns or holds five percent or more interest in the Borrower. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.

“Agreement” means this Credit Agreement between the Borrower and the Bank, as amended, supplemented, or modified from time to time.

“AOS” means Applied Optical Systems, Inc., a Delaware corporation.

“Bank” has the meaning set forth in the preamble of this Agreement.

“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in Roanoke, Virginia, are authorized or required to close under applicable laws, and, if the applicable day relates to a LIBOR Base Loan, or notice with respect to a LIBOR Base Loan, a day on which dealings in Dollar deposits are also carried on in the London interbank market and banks are open for business in London.

“Capital Acquisitions Term Loan” means the loan or loans described under Section 2.1(c).

“Capital Acquisitions Term Loan Limit” means as defined under Section 3.1(d)(i) hereof.

“Capital Acquisitions Term Loan Termination Date” means June 1, 2015.

“Capital Acquisitions Term Loan” means the promissory note evidencing the Capital Acquisitions Term Loan and any and all renewals, modifications, replacements and extensions thereof.

“Closing Date” means May 30, 2008.

“Collateral” means as defined under Section 4.1 hereof.

“Debt Service Coverage Ratio” shall have the meaning as defined under Section 7.11(b) of this Agreement.

“Dollar(s)” means lawful money of the United States of America.

“Eligible Inventory” means all raw materials inventory used or consumed in connection with the manufacture of goods produced by the Borrower and any Subsidiary and located at Borrower’s and such Subsidiary’s principal places of business. Criteria for eligibility shall be established by the Bank in a commercially reasonable manner.

“Eligible Receivables” means Receivables which are, and at all times shall continue to be, acceptable to the Bank in all respects and which meet the following criteria: (a) delivery of the goods or the rendition of services relating to such Receivable has been completed; (b) no return, rejection or repossession of the goods relating to such Receivable has occurred; (c) such goods or services have been accepted by the customer without dispute, offset, defense or counterclaim; (d) the Receivable continues to be in full conformity with the representations and warranties made by the Borrower herein with respect thereto; (e) no more than 90 days have elapsed from the invoice date of such Receivable; (f) the Bank is and continues to be satisfied with the credit standing of the customer in relation to the amount of credit extended; (g) no more than 50 percent of the entire amount of Receivables from such customer has been due and owing for more than 90 days from the date of invoice; (h) neither the customer nor any of its affiliates are subject to bankruptcy or insolvency proceedings; (i) the Receivable is not subject to a contra account; (j) the Receivable is not owed by an Affiliate of the Borrower; (k) the Receivable is not a foreign account (except for purposes of calculating Eligible Foreign Receivable, without duplication); and (l) the Receivable does not constitute an unpaid finance charge.

 

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“Eligible Foreign Receivables” means Receivables which are due from any customer located outside the United States of America and which otherwise meet the criteria for Eligible Receivables.

“Environmental Laws” means any Federal, state or local laws, rules, ordinances or common law, and any judicial interpretation thereof, relating primarily to the environment or to environmental protection, including, but not limited to, the Clean Air Act, 42 U.S.C. Section 7401, et seq .; Federal Water Pollution Control Act, 33 U.S.C. Section 1251, et seq .; Solid Waste Disposal Act, 42 U.S.C. Section 6901, et seq .; Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C. Section 9601, et seq .; National Environmental Policy Act, 42 U.S.C. Section 4321, et seq .; and Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq .

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereof.

“ERISA Affiliate” means any trade or business (whether or not incorporated) which together with the Borrower would be treated as a single employer under Section 4001 of ERISA.

“Event of Default” means an event specified in Section 9.1 hereof.

“GAAP” means generally accepted accounting principles in the United States, consistently applied.

“Hazardous Materials” means all materials subject to regulation under Environmental Laws, including, but not limited to, asbestos, polychlorinated biphenyls (PCB’s), petroleum products, and lead based paints.

“Head Office” means the principal office of the Bank located at 36 Church Avenue, SW Roanoke, Virginia 24011.

“Indebtedness” means with respect to any Person at any time, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person upon which interest charges are customarily paid (other than accounts payable to suppliers incurred in the ordinary course of business and not overdue), (iv) all obligations of such Person under conditional sale or other title retention agreements relating to property purchased by such Person, (v) all obligations of such Person issued or assumed as the deferred purchase price of property or services (other than accounts payable to suppliers incurred in the ordinary course of business and not overdue), (vi) all obligations of others secured by any lien, security interest or encumbrance on property owned or acquired by such Person, whether or not the obligations secured thereby have been assumed, and (vii) all capitalized lease obligations of such Person.

“LIBOR Base Interest Rate” means the one-month London Interbank Offered Rate established by the British Bankers’ Association as of 11:00 a.m. (London, England time) on the first Business Day of each month during which a liquidity drawing remains unreimbursed, as published by an online information service such as Bloomberg Financial Markets News Services or any comparable reporting service selected by the Bank. The rate shall be adjusted on the first Business Day of each month and shall be effective as of the first calendar day of the month.

 

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“LIBOR Base Loan” means any of the Loans when and to the extent the interest rate therefor is determined by reference to the LIBOR Base Interest Rate.

“Loan Documents” means, collectively, this Agreement, the Notes, the Security Agreement, and all documents, agreements, certificates, and instruments evidencing and securing the Loans, and as may be executed pursuant to, or transferred or delivered in connection with, this Agreement.

“Loans” means as defined under Section 1.1 hereof.

“Minimum Tangible Net Worth” shall have the meaning as defined under Section 7.11(a) of this Agreement.

“Multiemployer Plan” means a Plan described in Section 4001(a)(3) of ERISA which covers employees of the Borrower or any ERISA Affiliate.

“Notes” means, collectively, the Revolving Loan Note, Term Loan A Note, Term Loan B Note, and the Capital Acquisitions Term Loan Note.

“PBGC” means the Pension Benefit Guaranty Corporation.

“Permitted Encumbrances” means, as of any particular time, (a) liens imposed by mandatory provisions of law such as for materialmen’s, mechanics’, warehousemen’s and other like liens arising in the ordinary course of business securing charges for which payment is not yet due, (b) liens for taxes, assessments and governmental charges or levies imposed upon any person or upon such person’s income or profits or property, if the same are not yet due and payable or if the same are being contested in good faith and as to which adequate reserves therefor have been established on the Borrower’s books in accordance with generally accepted accounting principles, (c) liens arising in connection with any court proceedings in the aggregate amount of no more than$100,000 at any one time, provided the execution of such liens is effectively stayed and such liens are contested in good faith and adequate reserves therefor have been established on the Borrower’s books in accordance with GAAP or any attachment or judgment lien not constituting an Event of Default hereunder, (d) liens incurred or deposits made securing statutory obligations under workmen’s compensation, unemployment insurance, social security or public liability laws or similar legislation or securing the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness) and other similar obligations (excluding liens under ERISA), (e) pledges or deposits of money securing bids, tenders, contracts (other than contracts for the payment of money) or leases to which Borrower is a party as lessee made in the ordinary course of business, (f) carriers’, warehousemen’s, suppliers’ or other similar possessory liens arising in the ordinary course of business and securing liabilities in an outstanding aggregate amount not in excess of $100,000 at any time, so long as such liens attach only to Inventory, (g) deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings to which Borrower is a party, (h) liens in favor of the Bank, (i) purchase money liens incurred in the ordinary course of business for purchase of equipment (which may take the form of capitalized lease obligations), and (k) existing liens set forth on Schedule 2.1(b) (together with any renewals, replacements or extensions thereof).

 

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“Person” means a corporation, association, partnership, limited liability company, organization, business, division, individual or government or political subdivision thereof or any governmental agency.

“Plan” means any employee pension benefit plan of the Borrower or any Subsidiary covered by ERISA.

“Prime Rate” means the prime interest rate as established by the Bank from time to time.

“Prime Loan or Loans” means any of the Loans when and to the extent the interest rate therefore is determined by reference to the Prime Rate.

“Prohibited Transaction” means a prohibited transaction as defined in Section 406 of ERISA.

“Properties” means the land, buildings, improvements and structures now or later owned or leased by the Borrower.

“Real Property” means the real property described on the attached Exhibit A .

“Receivable(s)” means all accounts, accounts receivable, contract rights, instruments, documents, chattel paper and general intangibles of the Borrower and each Subsidiary.

“Reportable Event” means a reportable event as defined in Section 4043 of ERISA that might constitute grounds for termination by the PBGC of an employee benefit plan of the Borrower covered by ERISA or for the appointment by the appropriate United States District Court of a trustee to administer any such plan.

“Revolving Loan” means the loan or loans described under Section 2.1(a).

“Revolving Loan Limit” means as defined under Section 3.1(a)(i) hereof.

“Revolving Loan Termination Date” means February 28, 2010.

“Revolving Loan Note” means the promissory note evidencing the Revolving Loan and any and all renewals, modifications, replacements and extensions thereof.

“Security Agreement” means that certain security agreement from the Borrower to the Bank, to secure the Loans and the Notes, as amended replaced or restated from time to time.

“Subsidiary” means any corporation, partnership, joint venture, limited liability company, of which the Borrower at the time owns or controls, directly or through any intervening medium, or in which the Borrower owns securities or other ownership interests representing more

 

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than 50 percent of the ordinary voting power, or in the case of a partnership, more than 50 percent of the general partnership interests; provided however , that a right or option to obtain any such securities or ownership interests shall not be deemed to be owning or controlling same until and to the extent exercised.

“Tangible Net Worth” means the difference between total assets (defined in accordance with GAAP consistently applied)(less amounts owed to the Borrower under that certain note receivable from AOS, dated April 22, 2005, as modified from time to time) and total liabilities (defined in accordance with GAAP consistently applied), plus the dollar amount of the impact of all repurchases of common stock of OCC subsequent to the date of this Agreement that are executed in accordance with a stock redemption or repurchase plan or program approved by the board of directors of OCC prior to the date hereof.

“Term Loan A” means the loan or loans described under Section 2.1(b).

“Term Loan A Limit” means as defined under Section 3.1(b)(i) hereof.

“Term Loan A Termination Date” means June 1, 2013.

“Term Loan A Note” means the promissory note evidencing Term Loan A and any and all renewals, modifications, replacements and extensions thereof.

“Term Loan B” means the loan or loans described under Section 2.1(c).

“Term Loan B Limit” means as defined under Section 3.1(c)(i) hereof.

“Term Loan B Termination Date” means June 1, 2013.

“Term Loan B Note” means the promissory note evidencing Term Loan B and any and all renewals, modifications, replacements and extensions thereof.

“UCC” means the Uniform Commercial Code as adopted and in effect in the Commonwealth of Virginia, and with respect to matters outside of the Commonwealth of Virginia, similar laws in such states.

ARTICLE II

PURPOSES OF LOANS

2.1 Purposes of the Loans . The Borrower shall borrow from the Bank certain loans described as follows (the “Loans”):

(a) $6,000,000 Revolving Loan to provide for the working capital needs of the Borrower and to finance the transactions contemplated by the Acquisition Agreement (the “Revolving Loan”);

 

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(b) $2,240,000 term loan to finance the acquisition of the North Carolina Real Property (the “Term Loan A”);

(c) $6,500,000 term loan to refinance an existing loan secured by the Virginia Real Property (the “Term Loan B”); and

(d) $2,260,000 term loan to assist with financing of capital acquisitions by the Borrower (the “Capital Acquisitions Term Loan”).

ARTICLE III

THE LOANS

3.1 The Loans .

(a) Revolving Loan .

(i) Limit . The Bank shall, on the terms and subject to the conditions of this Agreement and the Loan Documents, make the Revolving Loan to the Borrower in the aggregate principal amount at any one time outstanding not to exceed the lesser of (i) $6,000,000, or (ii) the sum of 85 percent of Eligible Receivables plus 35 percent of uninsured Eligible Foreign Receivables (or 100 percent of insured Eligible Foreign Receivables, without duplication and at the Bank’s discretion) up to a maximum amount of $1,500,000 at any one time plus 25 percent of Eligible Inventory (the “Revolving Loan Limit”). Within the Revolving Loan Limit, the Borrower may borrow, repay, and reborrow, at any time or from time to time from the Closing Date until the Revolving Loan Termination Date. If the Bank shall make advances in excess of the Revolving Loan Limit or in excess of the foregoing advance formula, such advances shall be subject to this Agreement and shall be secured by the Collateral. All advances shall be disbursed by the Bank and charged to the Borrower’s account on the Bank’s books, and shall bear interest as hereinafter provided, and be payable in accordance with the terms hereof and of the Revolving Loan Note.

(ii) Revolving Loan Interest and Repayment . The Revolving Loan shall be evidenced by the Revolving Loan Note in the form attached hereto as Exhibit 3.1(a) , in the principal amount of the Revolving Loan Limit and payable to the order of the Bank. Advances under the Revolving Loan shall be LIBOR Base Loans, with interest accruing at the LIBOR Base Interest Rate plus 190 basis points; provided however , that at any time that the average quarterly deposits balance of the Borrower is less than $500,000, interest shall accrue at the LIBOR Base Interest Rate plus 215 basis points. Repayment shall be made as follows: Accrued interest on the outstanding principal balance shall be paid in immediately available funds at the Head Office of the Bank on the first day of each month commencing on July 1, 2008, with all then outstanding principal, interest, fees and costs due on the Revolving Loan Termination Date.

(b) Term Loan A .

(i) Amount . The Bank shall on the terms and subject to the conditions of this Agreement and the Loan Documents, make Term Loan A to the Borrower in the aggregate principal amount not to exceed $2,240,000 (the “Term Loan Limit”). Term Loan A shall be fully funded on the Closing Date. The Borrower may not re-borrow amounts thereunder.

 

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(ii) Term Loan A Interest and Repayment . The Term Loan shall be evidenced by Term Loan A Note, payable to the order of the Bank, in the principal amount of Term Loan A Limit. Term Loan A shall accrue interest at six percent (6%) per annum based on a 360 day year, amortized over a 25 year period. Repayment shall be made as follows: 59 equal payments of principal and interest in the amount of $14,556.93 in immediately available funds at the Head Office of the Bank on the first day of each month commencing on July 1, 2008, plus one final payment of principal and interest in the amount of $2,032,147.07 and all then outstanding principal, interest, fees and costs due on Term Loan A Termination Date.

(c) Term Loan B .

(i) Amount . The Bank shall on the terms and subject to the conditions of this Agreement and the Loan Documents, make Term Loan B to the Borrower in the aggregate principal amount not to exceed $6,500,000 (the “Term Loan B Limit”). Term Loan B shall be fully funded on the Closing Date. The Borrower may not re-borrow amounts thereunder.

(ii) Term Loan B Interest and Repayment . Term Loan B shall be evidenced by Term Loan B Note, payable to the order of the Bank, in the principal amount of Term Loan B Limit. Term Loan shall accrue interest at six percent (6%) per annum based on a 360 day year, amortized over a 25 year period. Repayment shall be made as follows: 59 equal payments of principal and interest in the amount of $42,241.09 in immediately available funds at the Head Office of the Bank on the first day of each month commencing on July 1, 2008, plus one final payment of principal and interest in the amount of $5,896,855.51 and all then outstanding principal, interest, fees and costs due on Term Loan B Termination Date.

(d) Capital Acquisitions Term Loan .

(i) Amount . The Bank shall on the terms and subject to the conditions of this Agreement and the Loan Documents, make the Capital Acquisitions Term Loan to the Borrower in the aggregate principal amount not to exceed $2,260,000 (the “Capital Acquisitions Term Loan Limit”). The Capital Acquisitions Term Loan may be funded based upon draw requests of the Borrower for the 12 month period immediately after the Closing Date.

(ii) Capital Acquisitions Term Loan Interest and Repayment . The Capital Acquisitions Term Loan shall be evidenced by the Capital Acquisitions Term Loan Note, payable to the order of the Bank, in the principal amount of the Capital Acquisitions Term Loan Limit. The Capital Acquisitions Term Loan shall accrue interest at six percent (6%) per annum based on a 360 day year and convert to an amortized loan on June 1, 2009, amortized over a seven year period. Repayment shall be made as follows: Interest only payable monthly at the Head Office of the Bank for 12 months commencing June 1, 2008, then converting to 72 equal payments of principal and interest, based on outstanding principal as of May 31, 2009, in immediately available funds at the Head Office of the Bank on the first day of each month commencing on July 1, 2009, with all then outstanding principal, interest, fees and costs due on the Capital Acquisitions Term Loan Termination Date.

 

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3.2 Notice and Manner of Borrowing for the Loans . The Borrower shall give the Bank written or facsimile notice, or through telephone conversation with the officer designated for purposes of notice in accordance with Section 10.1 hereof. If the advance request is received by 10:00 a.m. (Eastern), the Bank shall use commercially reasonable best efforts to advance funds the same Business Day and, if not, the next Business Day. All advances shall be funded in the Borrower’s deposit account at the Bank.

3.3 Method of Payment . The Borrower shall make each payment under this Agreement and under the Notes not later than 5:00 p.m. (Eastern) on the date when due in lawful money of the United States to the Bank at the Bank’s Head Office. The Borrower authorizes the Bank, if and to the extent payment is not made when due under this Agreement and the Notes, to charge from time to time against any account of the Borrower with the Bank any amount so due.

3.4 Prepayments . The Borrower may prepay the Notes, subject to the terms hereof, in whole or in part with accrued interest to the date of such prepayment on the amount prepaid without cost, premium, penalty, or otherwise. Except as may be otherwise agreed to by the Borrower and the Bank, all payments received by the Bank hereunder shall be applied, in accordance with the then current billing statement applicable to the advance, first to accrued interest, then to fees, then to principal due and then to late charges. Any remaining funds shall be applied to the further reduction of principal. Notwithstanding the foregoing, upon the occurrence and continuance of an Event of Default, payments shall be applied as determined by the Bank in its sole discretion.

3.5 Illegality . Notwithstanding any other provision in this Agreement, if the adoption of any applicable law, rule, or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank, or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any request or directive (whether or not having the force of law) of any such authority, central bank, or comparable agency shall make it unlawful or impossible for the Bank to (a) maintain its commitment, then upon notice to the Borrower by the Bank the commitment of the Bank shall terminate; or (b) maintain or fund its LIBOR Base Loans, then upon notice to the Borrower by the Bank the outstanding principal amount of the LIBOR Base Loans, together with interest accrued thereon, and any other amounts payable to the Bank under this Agreement shall be repaid (i) immediately upon demand of the Bank if such change or compliance with such request, in the judgment of the Bank, requires immediate repayment; or (ii) at the expiration of the last interest period to expire before the effective date of any such change or request.

3.6 Insufficiency of Base Rate . Notwithstanding anything to the contrary herein, if the Bank determines on a commercially reasonable basis (which determination shall be conclusive) that:

(a) Quotations of interest rates for the relevant deposits referred to in the definition of LIBOR Base Interest Rate are not being provided in the relevant amounts or for the relative maturities for purposes of determining the rate of interest on LIBOR as provided in this Agreement; or

(b) The relevant rates of interest referred to in the definition of LIBOR Base Interest Rate upon the basis of which the rate of interest for any such type of Loan is to be determined do not accurately cover the cost of capital to the Bank of making or maintaining such type of Loan;

 

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then the Bank shall forthwith give notice thereof to the Borrower, whereupon until the Bank notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligation of the Bank to make LIBOR Base Loans shall be suspended; and (ii) the LIBOR Base Loans shall be converted to Prime Loans.

3.7 Increased Cost . The Borrower shall pay to the Bank from time to time such amounts as the Bank may determine to be necessary to compensate the Bank for any costs incurred by the Bank which the Bank determines are attributable to its making or maintaining any LIBOR Base Loans hereunder or its obligation to make any such Loans hereunder, or any reduction in any amount receivable by the Bank under this Agreement or the Notes in respect of any such Loans or such obligation (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), caused by any change after the date of this Agreement in United States federal, state, municipal, or foreign laws or regulations (including Regulation D), or the adoption or making after such date of any interpretations, directives, or requirements applying to a class of banks including the Bank of or under any United States federal, state municipal, or any foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. The Bank will notify the Borrower of any event occurring after the date of this Agreement which entitles the Bank to compensation pursuant to this Section 3.7 as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Determinations by the Bank for purposes of this Section 3.7 of the effect of any Regulatory Change on its costs of making or maintaining the Loans or on amounts receivable by it in respect of Loans, and of the additional amounts required to compensate the Bank in respect of any Additional Costs, shall be conclusive, absent manifest error, provided that such determinations are made on a reasonable basis.

3.8 Funding Loss Indemnification . The Borrower shall pay to the Bank, upon the request of the Bank, such amount or amounts as shall be sufficient (in the reasonable opinion of the Bank) to compensate it for any loss, cost, or expense incurred as a result of:

(a) Any payment of a LIBOR Base Loan on a date other than the last day of the interest period for such LIBOR Base Loan including, but not limited to, acceleration of the Loans by the Bank pursuant to Section 9.2; or

(b) Any failure by the Borrower to borrow, or to honor a LIBOR Base Loan on the date set for borrowing as specified in the relevant notice under Section 3.2.

ARTICLE IV

COLLATERAL

4.1 Description of Collateral . The Bank shall receive, subject to Permitted Encumbrances, as collateral security for the Loans, the Notes and all other present and future indebtedness of the Borrower owing to the Bank: (a) A perfected first priority lien on and security interest in all of the Borrower’s personal property and assets of every kind and description, whether now owned or hereafter acquired, including but not limited to all accounts, deposit accounts,

 

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inventory, furniture, fixtures and equipment, general intangibles, instruments, investment property, letter of credit rights, commercial tort claims, documents, and chattel paper, and with respect to all of the foregoing, without limitation, all goods represented thereby, all accessions thereto, and all goods that may be substituted therefor, reclaimed or repossessed from or returned by account debtors and all proceeds, products, rents and profits thereof, as all such terms are defined in the UCC; and (b) A first lien deed of trust on the Real Property ((a) and (b) collectively constituting the “Collateral).

4.2 Loan Documents . The Borrower shall execute and deliver, or cause to be executed and delivered, all Loan Documents and other instruments, in form and substance satisfactory to the Bank and its counsel, reasonably necessary, in the opinion of such counsel, to evidence and secure the Loans, and to perfect and maintain continuously the Bank’s security interest in and lien on the Collateral, at such time or times as the Bank shall reasonably request. The Borrower authorizes the Bank to file such financing instruments necessary to perfect its interest in the Collateral.

ARTICLE V

CONDITIONS OF LENDING

5.1 First Borrowing Under The Loans . The obligation of the Bank to make the Loans is subject to the accuracy, as of the Closing Date, of the representations and warranties contained in Article VI, to the performance by the Borrower of its obligations to be performed hereunder and to the satisfaction of the following conditions, each of which shall be precedent to any obligations of the Bank hereunder and shall be satisfied prior to the first advance under the Loans. With respect to the obligation of the Bank to make the initial advance under the Loans on the Closing Date:

(a) The Borrower shall have duly authorized, executed (and, where appropriate, acknowledged) and delivered to the Bank the Loan Documents to which it is a party;

(b) The Borrower shall have delivered to the Bank copies of the corporate resolutions adopted by its respective Board of Directors, duly authorizing the execution, delivery and performance of the Loan Documents to which it is a party, and all transactions and documents contemplated thereby;

(c) The Bank shall have received true copies of all consents and required governmental approvals, if any, necessary to the execution, delivery and performance of the Loan Documents and the transactions contemplated thereby;

(d) The Bank shall have received a General Certificate of the Secretary of the Borrower with (i) a copy of its articles of incorporation, certified as of a recent date by the appropriate official of the state of incorporation, (ii) a certificate of the appropriate official of the state of incorporation, dated as of a recent date, as to the good standing of the Borrower, (iii) a copy of the bylaws of the Borrower certified as of a recent date by its secretary; and (iv) incumbency and signature certificates of the Borrower certified as of a recent date by its secretary certifying the names and the signatures of the officers of the Borrower authorized to sign the Loan Documents to which it is a party;

 

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(e) The Bank shall have received a written opinion of counsel to the Borrower addressed to the Bank, dated the Closing Date;

(f) No event shall have occurred and be continuing which constitutes an Event of Default, or which would constitute an Event of Default but for a requirement that notice be given or that a period of time elapse, or both; and the Borrower shall have duly authorized, executed and delivered to the Bank a certificate to that effect, dated the Closing Date;

(g) Financing statements, notices and other documents deemed by the Bank and its counsel necessary or advisable to perfect the Bank’s security interest in the Collateral shall have been duly filed or recorded in all appropriate offices and jurisdictions and sent to or received by all necessary Persons, as the case may be, and filing and recording receipts evidencing such filings shall have been delivered to, or shall be available for prompt delivery to, the Bank;

(h) The Bank shall have received certificates of insurance and, if requested by the Bank, copies of all policies evidenced thereby, showing insurance covering all of the Collateral against loss, or damage of any nature or kind in the amounts and with insurers reasonably satisfactory to the Bank;

(i) The Bank shall have received an American Land Title Association commitment of title insurance, inclusive of affirmative mechanics and materialmans’ lien coverage, containing only Permitted Encumbrances or those exceptions acceptable to the Bank, and otherwise in form and content acceptable to the Bank;

(j) The Bank shall have received evidence satisfactory to the Bank as to the priority of the Bank’s security interest in the Collateral;

(k) The Borrower shall have delivered to the Bank such evidence, as is requested by the Bank, of compliance with all laws, ordinances, rules, charters, by-laws, regulations and restrictions affecting the Real Property, such evidence including, without limitation, zoning maps, ordinances, permits, resolutions, and other documents or items as the Bank may reasonably request;

(l) The Bank shall have received a flood certification letter evidencing that the Real Property is not located within a Special Flood Hazard area as defined by the U.S. Department of Housing and Urban Development;

(m) The Borrower shall have paid or shall pay all costs of the Bank incurred in connection with the underwriting, drafting and closing of the Loans and the Loan Documents, including without limitation, reasonable fees of counsel;

(n) The representations made, and the information furnished by the Borrower to the Bank with regard to the Loans and the Borrower’s qualifications therefor shall have been and, to the best of the Borrower’s knowledge, shall continue to be true and correct and not misleading in any material respect;

 

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(o) Receipt and approval by the Bank of the executed Acquisition Agreement, including the accompanying Disclosure Schedule (which Bank hereby acknowledges has been received and reviewed) and all material related documents, and satisfactory confirmation that consummation of the transactions descried thereby will occur contemporaneously with funding of the Loans by the Bank;

(p) All legal matters incident to the Loans and all documents and instruments to be delivered hereunder or pursuant hereto or thereto, shall be reasonably satisfactory in form and substance to counsel for the Bank;

(q) The Bank shall have placed a participation of no less than $9,500,000 of the Loans with another lender upon terms and conditions acceptable to the Bank; and

(r) The Borrower shall have paid the Bank a fee of $11,200 applicable to Term Loan A and a fee of $5,650 applicable to the Capital Acquisitions Term Loan, the $3,000 Phase I fee, the $3,750 appraisal fee, the $190 Veracheck fee, the $50 flood certifications, plus all other costs incurred by the Bank in closing the Loans, no later than the Closing Date.

ARTICLE VI

GENERAL REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Bank, as of the date of this Agreement (unless otherwise specified) and as of the date of each advance under the Loans, and each of which shall be deemed continuing during the terms of the Loans that:

6.1 Incorporation, Qualification, Properties . The Borrower is a (i) corporation duly organized, existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (ii) duly qualified as a foreign corporation to do business in each of the jurisdictions where failure to qualify would have a material adverse effect on its ability to fulfill its obligations under the Loan Documents or to conduct its business, and (iii) entitled to own or lease its Properties and operating assets and carry on its businesses as now conducted.

6.2 Authority . The Borrower has the necessary corporate power to enter into, and has taken all necessary corporate actions to authorize the execution, delivery and performance of this Agreement, and the other Loan Documents, and all transactions and documents contemplated hereby and thereby to which it is a party, and all such corporate actions are in full force and effect.

6.3 Binding Effect and Enforceability . This Agreement constitutes, and the other Loan Documents, when issued and delivered pursuant hereto for value received, shall constitute, legal, valid and binding obligations of the Borrower, enforceable in accordance with the terms thereof, except that the enforceability of the obligations of the parties under the Loan Documents is subject to the provisions of bankruptcy, insolvency, reorganization, moratorium or other similar laws and is also subject to general equity principles, which may limit the specific enforcement of certain remedies.

6.4 No Corporate or Contract Violation . There is no provision of law or in the charter or bylaws of the Borrower, and no provision of any existing mortgage, contract, lease, indenture or agreement binding on the Borrower or any of its rights in its Properties or operating assets, which

 

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would be breached by the execution and delivery of the Loan Documents or by the performance or observance of any of the terms thereof, or result in, or require, the creation or imposition of any lien (other than Permitted Encumbrances) upon or with respect to any of the Borrower’s rights in any of its Properties or cause the Borrower to be in default or violation of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award binding upon or applicable to the Borrower, in each case that could reasonably be expected to have a material adverse effect on the Borrower.

6.5 Financial Statements . The financial statements of the Borrower which include the balance sheet of the Borrower dated as of January 31, 2008, together with its statements of income, and changes in financial position for the period then ended, in the form previously delivered to the Bank, fairly present the financial condition of the Borrower as well as the results of its operations and changes in its financial position as of the dates and for the period covered thereby, and are correct and complete in all material respects. All such financial statements were prepared in substantial compliance with GAAP applied on a consistent basis. There are no material liabilities, direct or indirect, fixed or contingent, of the Borrower as of the date hereof, which are not reflected in the above financial statements, other than those incurred in the ordinary course of business since January 31, 2008, or which the Borrower has disclosed to the Bank in writing. There has been no material adverse change in the Borrower’s financial condition or operations since January 31, 2008, except as disclosed in writing to the Bank.

6.6 Proceedings . To the best of the Borrower’s knowledge, there are no proceedings pending or threatened, before any court or administrative agency against the Borrower which, if adversely determined, would individually or in the aggregate materially and adversely affect the financial condition of the Borrower, or the ability of the Borrower to perform under this Agreement or any of the other Loan Documents, with the exception of those proceedings set forth on Schedule 6.6 .

6.7 Approvals . To the best of the Borrower’s knowledge, the execution, delivery and performance of this Agreement and the other Loan Documents, and the transactions contemplated hereby and thereby, do not require any consents, approvals, permits, authorizations or orders of any governmental or regulatory authority, except as set forth herein. All tax returns now required to be filed by the Borrower have been filed (or appropriate extensions of such filings have been obtained) and all taxes, assessments and other governmental charges (other than those presently payable without penalty or interest and those being contested in good faith by appropriate proceedings) due from the Borrower have been paid. The Borrower has established on its books reserves adequate for the payment of all federal, state and other income tax liabilities.

6.8 ERISA . To the best of the Borrower’s knowledge, the Borrower is in compliance in all material respects with all applicable provisions of ERISA, and has not received any notice of violation thereof from any applicable authority. Neither a Reportable Event nor a Prohibited Transaction has occurred or exists in connection with any Plan; no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstances exist which constitute grounds for the termination of any Plan by PBGC or for the appointment of any trustee to administer a Plan, nor has the PBGC instituted any such proceedings; the Borrower has not completely or partially withdrawn from a Multiemployer Plan, as described in Section 4001(e)(3) of ERISA; the Borrower has met its minimum funding requirements under ERISA with respect to all of their or its Plan and the present fair market value of all Plan assets exceeds the present value

 

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of all vested benefits under each Plan, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA and the regulations thereunder for calculating the potential liability of the Borrower to PBGC or the Plan under Title IV of ERISA; and the Borrower has not incurred any liability to the PBGC or ERISA.

6.9 Compliance . The Borrower is in compliance with all statutes, rules and regulations relating to environmental, occupational and health standards and controls in all jurisdictions where they presently are doing business, the failure to comply with which might materially adversely affect the business, operations or Properties of the Borrower, and the Borrower has not received any notice of violation thereof from any applicable authority. The Borrower is not in violation of any other statute, rule or regulation of any governmental body, the violation of any of which might materially adversely affect the business, operations or Properties of the Borrower.

6.10 Use of Proceeds . The Borrower shall use the proceeds of the Loans only for the purposes set forth in Section 2.1 of this Agreement.

6.11 No Default . The Borrower is not in default in respect of any indebtedness for borrowed money and no holder of any such indebtedness has given notice of any asserted default thereunder. No liquidation, dissolution or other winding up of the Borrower and no bankruptcy or similar proceedings relative to it or the Properties are pending or, to the Borrower’s knowledge, threatened against it.

6.12 Title to Property, Perfection of Liens . The Borrower has good and marketable title to all of its owned Properties and assets reflected on the balance sheets referred to in Section 7.1, and the Collateral, free and clear of any liens, security interests and encumbrances, except Permitted Encumbrances. The Borrower has the full right, power and authority to grant to the Bank a first priority lien and security interest in the Collateral.

6.13 RICO or CCE Actions . There is, to the best of the Borrower’s knowledge, no investigation, and there is no indictment, information, proceeding, conviction, judgment or order under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961, et seq . (“RICO”), the Continuing Criminal Enterprises Act, 21 U.S.C. 848 et seq . (“CCE”) or any similar law that may result in a forfeiture of any part of the Collateral or any of the assets of the Borrower.

6.14 Accuracy of Information . To Borrower’s knowledge after due inquiry, no information, exhibit or report furnished by the Borrower to the Bank in connection with the negotiation of this Agreement contained any material misstatement of fact or omitted to state any fact necessary to make the statement contained therein not materially misleading, and there is no fact that the Borrower has not disclosed to the Bank in writing that could materially adversely affect the Properties, or the business or financial condition of the Borrower.

6.15 Labor Disputes and Acts of God . Neither the business nor the Properties of the Borrower are affected by any fire, explosion, accident, strike, lockout, or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other casualty (whether or not covered by insurance), materially and adversely affecting such business or Properties or the operations of the Borrower.

 

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6.16 Other Agreements . The Borrower is not in default in any respect in the performance, observance, or fulfillment of any of the material obligations, covenants, or conditions contained in any agreement or instrument material to their respective businesses that could reasonably be expected to have a material adverse effect on the Borrower.

6.17 Operation of Business . To the best of the Borrower’s knowledge, the Borrower possesses all licenses, permits, franchises, patents, copyright, trademarks, and trade names, or rights thereto, to conduct its business substantially as now conducted and as presently proposed to be conducted, and the Borrower is not in violation of any valid rights of others with respect to any of the foregoing.

ARTICLE VII

AFFIRMATIVE COVENANTS

Until payment in full of the Loans and the Notes, unless the Bank shall otherwise consent in writing, the Borrower shall:

7.1 Financial Statements, Reports . Furnish or cause to be furnished, to the Bank:

(a) as soon as available, but not later than 90 days after the close of each fiscal year of the Borrower, the Borrower’s reasonably detailed consolidated operating statements and balance sheets, together with its financial statements consisting of its balance sheet as of the end of such fiscal year its statements of income, retained earnings, cash flows, all audited by independent certified public accountants reasonably satisfactory to the Bank, in accordance with GAAP, accompanied by a certificate of the chief financial officer in the form attached hereto as Exhibit 7.1(a);

(b) as soon as available, but no later than 45 days after the end of each fiscal quarter of the Borrower, a certificate of the chief financial officer of the Borrower, in the form attached hereto as Exhibit 7.1(a) ;

(c) as soon as available, but no later than 25 days after the end of each month, the Borrower’s report of Eligible Receivables, Eligible Foreign Receivables and Eligible Inventory pursuant to the Bank’s Line Manager; and

(d) such additional information, reports or statements (financial or otherwise) as the Bank from time to time may reasonably request.

Notwithstanding the foregoing, to the extent any financial statements are available as publicly filed documents on www.sec.gov , such financial statements shall be deemed to have been furnished to the Bank.

7.2 Taxes . Duly pay and discharge all taxes, assessments and governmental charges upon the Borrower or against their owned Properties and other assets prior to the date on which penalties attach unless and to the extent only that such taxes, assessments and governmental charges shall be contested in good faith and by appropriate proceedings by the Borrower, and the Borrower shall have set aside on its books such reserves as are required by GAAP with respect to any such tax, assessment or charge so contested.

 

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7.3 Corporate Franchises . Keep its corporate franchises in full force and effect and duly observe and conform to all valid requirements of any governmental authority relative to the conduct of its business and to its Properties and assets and maintain and keep in force all franchises, licenses and permits necessary to the lawful and proper conduct of its business.

7.4 Corporate Existence . Maintain its corporate existence in good standing.

7.5 Access to Premises and Records and Maintenance thereof .

(a) Maintain financial records in accordance with GAAP, and permit representatives of the Bank to have access to such financial records and its owned Properties (or in the case of any Properties not owned by Borrower, use its best efforts to make such access available) at reasonable times during normal business hours and to make inspections thereof and such excerpts fr