LOAN AGREEMENT

     

LOAN AGREEMENT

by and between

CITY OF SPRINGDALE, ARKANSAS ,
the City

and

ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.,
the Company

Related to:

$10,610,000
City of Springdale, Arkansas
Industrial Development Refunding Revenue Bonds
(Advanced Environmental Recycling Technologies, Inc. Project)
Series 2008

Dated as of February 1, 2008

     

TABLE OF CONTENTS

				Page
ARTICLE I
DEFINITIONS					2
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01.		Representations, Warranties and Covenants by the City			2
Section 2.02.		Representations, Warranties and Covenants by the Company			3
Section 2.03.		Environmental Representations and Covenants			4
ARTICLE III
SECURITY PROVISIONS: TERM OF THE LOAN AGREEMENT
Section 3.01.		Security Provisions			5
Section 3.02.		Term			6
Section 3.03.		Patent Security			6
Section 3.04.		Deposit of Pledged Revenues: Deposit Account Control Agreement			7
Section 3.05.		Assignment of Weyerhaeuser Agreement			7
ARTICLE IV
FINANCING THE COST OF THE FACILITIES: ISSUANCE OF THE SERIES 2008 BONDS
Section 4.01.		[Intentionally Omitted]			8
Section 4.02.		Agreement to Issue the Bonds; Application of Bond Proceeds			8
Section 4.03.		[Intentionally Omitted]			8
Section 4.04.		[Intentionally Omitted]			8
Section 4.05.		Investment of Moneys			8
Section 4.06.		Arbitrage and Tax Matters			8
ARTICLE V
OBLIGATIONS; PROVISIONS FOR PAYMENT
Section 5.01.		Loan Payments and Other Amounts Payable			8
Section 5.02.		Payees of Payments			10
Section 5.03.		Obligations of Company Hereunder Unconditional			10

				Page
ARTICLE VI
MAINTENANCE AND INSURANCE
Section 6.01.		Maintenance and Modifications			11
Section 6.02.		Insurance			12
ARTICLE VII
CASUALTY LOSS AND CONDEMNATION
Section 7.01.		Insurance and Condemnation Proceeds			15
ARTICLE VIII
SPECIAL COVENANTS
Section 8.01.		No Warranty of Condition or Suitability by the City			15
Section 8.02.		Further Assurances			15
Section 8.03.		Annual Audit			16
Section 8.04.		Financial Statements			16
Section 8.05.		Release and Indemnification Covenants			16
Section 8.06.		Company Representative			17
Section 8.07.		Leases and Operating Contracts			17
Section 8.08.		No Default Certificate			18
Section 8.09.		[Intentionally Omitted]			18
Section 8.10.		Limitations on Creation of Liens			18
Section 8.11.		Limitations on Indebtedness			19
Section 8.12.		Subordinated Debt			19
Section 8.13.		Parity Indebtedness			22
Section 8.14.		Transfer of Assets			22
Section 8.15.		Consolidation, Merger, Sale or Conveyance			23
Section 8.16.		Financial Covenants			24
Section 8.17.		Reporting Extensions			25
ARTICLE IX
ASSIGNMENT AND PLEDGING OF LOAN AGREEMENT; REDEMPTION OF BONDS
Section 9.01.		Assignment by Company			25
Section 9.02.		Assignment and Pledge by the City			25
Section 9.03.		Redemption of Bonds			25
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.01.		Events of Default Defined			26

				Page
Section 10.02.		Remedies on Default			27
Section 10.03.		No Remedy Exclusive			29
Section 10.04.		Agreement to Pay Attorneys’ Fees and Expenses			29
Section 10.05.		Waiver			30
Section 10.06.		Appointment of Receiver			30
Section 10.07.		Remedies Subject to Provisions of Law			30
Section 10.08.		Waiver of Appraisement, Valuation, Stay, and Execution Laws			31
Section 10.09.		Purchase of Property by Bondholder or Holder of Parity Indebtedness			31
ARTICLE XI
PREPAYMENT OF THE LOAN
Section 11.01.		General Option to Prepay the Loan			32
Section 11.02.		Prepayment Credits			32
Section 11.03.		Notice of Prepayment			32
Section 11.04.		Use of Prepayment Moneys			32
ARTICLE XII
MISCELLANEOUS
Section 12.01.		Notices			33
Section 12.02.		Binding Effect			33
Section 12.03.		Severability			33
Section 12.04.		Amounts Remaining in Funds			33
Section 12.05.		Amendments, Changes and Modifications			33
Section 12.06.		Execution in Counterparts			34
Section 12.07.		Governing Law			34
Section 12.08.		Cancellation at Expiration of Term of Agreement			34
Section 12.09.		Recording			34
Section 12.10.		No Pecuniary Liability of the City			34
Section 12.11.		Partial Release			34
Section 12.12.		General Release			35
Section 12.13.		Captions			35
Section 12.14.		Payments Due on Non-Business Day			35
Section 12.15.		Provision of General Application			35
EXHIBIT A		COSTS OF THE PROJECT
EXHIBIT B		PERMITTED EXCEPTIONS

LOAN AGREEMENT

      THIS LOAN AGREEMENT (this “Loan Agreement”), dated as of February 1, 2008, by and between CITY OF SPRINGDALE, ARKANSAS (the “City”), a body corporate and politic, and ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC . (the “Company”), a corporation duly organized and existing under the laws of the State of Delaware.

W I T N E S S E T H :

     WHEREAS, the Company had previously requested that the City finance and refinance the cost of certain solid waste disposal facilities located within the City, in accordance with that certain Mortgage and Loan Agreement, dated as of October 1, 1999 (as amended, the “Original Loan Agreement”) between the City and the Company; and

     WHEREAS, Title 14, Chapter 267 of the Arkansas Code of 1987, Annotated, and Title 14, Chapter 164, Subchapter 2 of the Arkansas Code of 1987, Annotated (the “Act”), authorizes the City to finance such costs; and

     WHEREAS, in order to finance and refinance such costs, the City issued its City of Springdale, Arkansas Industrial Development Revenue Bonds (Advanced Environmental Recycling Technologies, Inc. Project) Series 1999 (the “Series 1999 Bonds”) pursuant to and secured by an Indenture of Trust, dated as of October 1, 1999 (the “Original Indenture”), between the City and First National Bank of Springdale, as trustee (as trustee under the Original Indenture, the “Original Trustee”); and

     WHEREAS, the rights of the City in the Original Loan Agreement were assigned by the City to the Original Trustee pursuant to an Assignment of Mortgage, dated as of October 1, 1999; and

     WHEREAS, in order to provide funds to refund, redeem and discharge the Series 1999 Bonds, the City issued its City of Springdale, Arkansas Industrial Development Refunding Revenue Bonds (Advanced Environmental Recycling Technologies, Inc. Project) Series 2003 (the “Series 2003 Bonds”); and

     WHEREAS, in order to provide funds to refund, redeem and discharge the Series 2003 Bonds with the consent of the holders thereof, the City shall issue its City of Springdale, Arkansas Industrial Development Refunding Revenue Bonds (Advanced Environmental Recycling Technologies, Inc. Project) Series 2008 (the “Bonds” or the “Series 2008 Bonds”) pursuant to and secured by an Indenture of Trust, dated as of the date hereof (the “Indenture”), between the City and Bank of Oklahoma, N.A., as trustee (the “Trustee”); and

     WHEREAS, the City proposes to loan to the Company and the Company desires to borrow from the City the proceeds of the Bonds upon the terms and conditions hereinafter in this Loan Agreement set forth.

     NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto formally covenant, agree and bind themselves as follows:

ARTICLE I

DEFINITIONS

     All terms not defined herein shall have the meanings assigned to such terms in Article I of the Indenture.

ARTICLE II

REPRESENTATIONS, WARRANTIES AND COVENANTS

      Section 2.01. Representations, Warranties and Covenants by the City . The City represents, covenants and warrants for the benefit of the Company, the Trustee and the Bondholders that:

     (a) the City is an independent public body politic and corporate constituting a political subdivision, is duly organized and existing under the laws of the State of Arkansas, is authorized pursuant to the Act to enter into the transactions contemplated by this Loan Agreement and the Indenture and to carry out its obligations hereunder and thereunder, and has duly authorized the execution and delivery of this Loan Agreement and the Indenture;

     (b) consistent with the understanding between the City and the Company, the City will loan the Company the proceeds of the Bonds to provide for the refinancing of the Project;

     (c) the City hereby finds that the refinancing of the Project is in the public interest;

     (d) to refinance the Project, the City will issue the Bonds in the aggregate principal amount of $10,610,000. The Bonds shall mature, bear interest, be subject to redemption prior to maturity, be secured and have such other terms and conditions as are set forth in the Indenture;

     (e) neither the execution and delivery of this Loan Agreement or the Indenture, the consummation of the transactions contemplated hereby or thereby nor the fulfillment of or compliance with the terms and conditions of this Loan Agreement or the Indenture conflicts with or results in a breach of any of the terms, conditions or provisions of any restriction or any agreement or instrument to which the City is now a party or by which it is bound or constitutes a default under any of the foregoing or results in the creation or imposition of any prohibited lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the City under the terms of any instrument or agreement;

     (f) the City hereby acknowledges the Company’s estimate of the total Cost of the Project set forth in Exhibit A hereto;

     (g) the Bonds are to be issued under and secured by the Indenture pursuant to which certain of the City’s interest in this Loan Agreement will be pledged and assigned to the Trustee as security for payment of the principal of, premium, if any, and interest on the Bonds; and

     (h) the issuance of the Bonds was approved by the governmental unit on behalf of which the Bonds were issued by the applicable elected representatives thereof after a public hearing following reasonable public notice.

      Section 2.02. Representations, Warranties and Covenants by the Company . The Company represents, warrants and covenants for the benefit of the City, the Trustee and the Bondholders, that:

     (a) the Company is a corporation duly organized and in good standing under the laws of the State of Delaware, is authorized by the laws of each state where its facilities are located to own, provide and operate the applicable facilities, has power to enter into and to perform and observe the covenants and agreements on its part contained in this Loan Agreement and the Tax Certificates and by proper action has duly authorized the execution and delivery of this Loan Agreement, the Watts Mortgage, the Springdale Mortgage, the Lowell Mortgage, the Junction Deed of Trust, the Weyerhaeuser Assignment Agreement, the Patent and Trademark Security Agreement and the Tax Certificate;

     (b) neither the execution and delivery of this Loan Agreement and the Tax Certificate, the consummation of the transactions contemplated hereby or thereby nor the fulfillment of or compliance with the terms and conditions of this Loan Agreement and the Tax Certificate violates any law or conflicts with or results in a breach of any of the terms, conditions or provisions of any restriction or any agreement or instrument to which the Company is now a party or by which it is bound or constitutes a default under any of the foregoing or results in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Company under the terms of any instrument or agreement except for the Indenture and other Permitted Liens;

     (c) the total cost of refunding the Prior Bonds is hereby determined to be not less than $10,610,000, and the refinancing of such cost by the City will assist the Company in providing recycling and manufacturing facilities;

     (d) the Company intends to operate or to cause its facilities to be operated and to use the improvements thereon in connection therewith to the expiration of the term of this Loan Agreement pursuant to the Act;

     (e) as of the date of this Loan Agreement, there is no litigation or legal or governmental action, proceeding, inquiry or investigation pending or threatened by governmental authority or to which the Company is a party or of which any property of

the Company is subject, which would, if determined adversely to the Company, materially adversely affect the transactions contemplated hereby;

     (f) the Company has or shall have good and marketable title to the Springdale Property, the Lowell Property and the Junction Property, and a valid leasehold interest in the Watts Property, free from all encumbrances except Permitted Liens and such title shall remain in the Company so long as the Bonds remain Outstanding, except as otherwise provided herein;

     (g) the Company has obtained, or will obtain on or before the date required therefor, all licenses, authorizations, permits and approvals from applicable local, state and federal governmental agencies necessary to operate its Facilities as plastic waste reclamation and recycling facilities contemplated by this Loan Agreement. The Company knows of no reasons that such licenses, authorizations, permits and approvals will not be issued or issued in a timely manner;

     (h) the Company is in possession of Phase One Environmental Assessments which were performed on the Springdale Property, the Lowell Property, the Junction Property and the Watts Property, and such assessments have not revealed any contamination of the Springdale Property, the Lowell Property, the Junction Property or the Watts Property or any violation of any rules or regulations of the Environmental Protection Agency or any other environmental protection rule or regulation of any federal, state or local agency;

     (i) no improvements located or to be located in the building set-back shown on the ALTA/ATSM Land Title Surveys prepared with respect to the Springdale Property, the Lowell Property, the Junction Property or the Watts Property are used or shall be used in the business operations of the Company.

      Section 2.03. Environmental Representations and Covenants . Except as may be described in (i) the Phase I Environmental Site Assessment dated September 2003, prepared by ENVIRON International Corporation with respect to the Site, or (ii) the Phase I Environmental Site Assessment dated September 2003, prepared by ENVIRON International Corporation with respect to the Junction Property         , or (iii) the limited environmental review dated September 12, 2003, prepared by ENVIRON International Corporation with respect to the Lowell Property, or (iv) the Phase I Environmental Site Assessment Report, dated October 1, 2002, prepared by B&F Engineering, Inc., with respect to the Lowell Property or (iv) the Phase I Environmental Site Assessment dated October 25, 2007, prepared by Terracon Consultants, Inc. with respect to the Watts Property, neither the Company nor, to the Company’s knowledge, any other Person has ever caused or permitted any Hazardous Material to be placed, held, located or disposed of on, under or at the Springdale Property, the Lowell Property, the Junction Property or the Watts Property or any part thereof except in compliance with Environmental Laws. The Company hereby warrants and represents that, to the best of its knowledge, it has complied and, in the future, will comply in all material respects with all applicable Environmental Laws. None of the Springdale Property, the Lowell Property, the Junction Property or the Watts Property has previously contained, and none of such properties now contain, any underground storage tanks (other than in compliance with all applicable Environmental Laws) and none has ever been used

by the Company or by any other Person as a temporary or permanent storage or disposal site for any Hazardous Material. The Company has delivered to the Trustee all environmental reports, studies, audits and other data and information in the possession or control of the Company relating to the Springdale Property, the Lowell Property, the Junction Property or the Watts Property.

     If the City or the Trustee reasonably suspects that any violation of the Environmental Laws is occurring involving the Springdale Property, the Lowell Property, the Junction Property or the Watts Property, or if an Event of Default shall have occurred and be continuing which, with the passage of time or the giving of notice, or both, would constitute an Event of Default, the City and the Trustee shall have the right, but no obligation, to conduct any tests or inspections of the Springdale Property, the Lowell Property, the Junction Property and the Watts Property at the Company’s expense (including, without limitation, soil and other tests, borings, sampling and monitoring) in order to determine compliance with Environmental Laws or the presence thereon or therein of Hazardous Material and to have access to the Springdale Property, the Lowell Property, the Junction Property and the Watts Property for such purposes.

ARTICLE III

SECURITY PROVISIONS: TERM OF THE LOAN AGREEMENT

      Section 3.01. Security Provisions . In order to secure the payment of the Bonds and Parity Indebtedness, on a pro rata basis, and payment of all sums advanced under this Loan Agreement, including advances which may be made in the future and to secure the performance by the Company of all the covenants expressed or implied by this Loan Agreement (a) the Company does hereby grant, bargain, sell, convey and mortgage unto the City (for the benefit of the Bondholders and holders of Parity Indebtedness, pro rata) its interest in the real property described in the Watts Mortgage, the Springdale Mortgage, the Lowell Mortgage and the Junction Deed of Trust and any fixtures or appurtenances now or hereafter erected thereon; together with all rents and leases, profits, royalties, minerals, geothermal resources, oil and gas rights and profits, easements and access rights, now owned or hereafter acquired by the Company, used, belonging to, or in any way connected with the Watts Property, the Springdale Property, the Lowell Property or the Junction Property, all of which are declared to be a part of said Watts Property, Springdale Property, Lowell Property or Junction Property, as applicable, and all the rights, privileges, benefits, hereditaments and appurtenances in any way belonging, incidental or appertaining to said Watts Property, Springdale Property, Lowell Property or Junction Property (other than equipment hereafter acquired), subject to Permitted Liens as described in Section 8.10 hereof; and (b) the Company hereby pledges to and grants to the City a present security interest, within the meaning of the Arkansas Uniform Commercial Code and to the extent permitted by law; in (i) the Pledged Revenues; (ii) all of its right, title and interest, if any, in the Funds (other than the Rebate Fund); (iii) any trust accounts referred to in this Loan Agreement or in the Indenture; (iv) all tangible personal property, furniture, machinery and equipment of the Company, now owned by the Company and located on the Springdale Property, the Lowell Property, the Junction Property or the Watts Property (the “Equipment”); and (v) inventory of the Company located on the Springdale Property, the Lowell Property, the Junction Property or the Watts Property, in each case subject to Permitted Liens and subject to liens and security interests of record as of the date of execution hereof, excluding from such

pledge and security interest all patents, trademarks, copyrights, licenses and similar proprietary rights of the Company now owned or hereafter acquired, to the extent the same constitute “collateral” within the meaning of Section 3.03 hereof.

     This pledge shall be valid and binding from and after the date of the first delivery of any of the Bonds. To the extent any assets pledged pursuant to this Loan Agreement consist of rights of action or personal property, this Loan Agreement constitutes a security agreement. The Company shall file financing statements from time to time relating to this Loan Agreement in such manner and at such places as may be required by law fully to protect the security of the Bondholders and the right, title and interest of the Trustee in and to the Trust Estate or any part thereof.

     Notwithstanding the foregoing, the Company shall be entitled to pledge any accounts receivable, raw materials and inventory, on a basis senior to the pledge herein provided, to secure the payment of Indebtedness in the form of a revolving credit or similar agreement in a maximum principal amount up to $25,000,000.

     In addition, the Company shall be entitled to pledge purchase order receipts from Approved Purchasers and to pledge inventory with respect thereto on a basis senior to the pledge herein provided, to secure the payment of Indebtedness in a maximum principal amount equal to 95% of the principal amount of such purchase orders. The terms of such Indebtedness shall require that the principal balance of such indebtedness be reduced to $0 for a period of not less than three consecutive business days annually.

     The Trustee, as assignee of the City pursuant to the Indenture, will execute such subordination or similar agreements as reasonably requested by the Company with respect to any such accounts receivable, purchase order receipts and inventory pledge. In the event the Company is unable, following a reasonable good faith effort, as certified to the Trustee, to obtain a commitment from a lending institution to provide either such credit arrangements, the Company may submit revised proposed lending terms to the holders of the Bonds requesting a consent to such terms, which consent shall not be unreasonably withheld.

      Section 3.02. Term . This Loan Agreement shall remain in full force and effect from the date of delivery hereof until such time as all of the Bonds and Parity Indebtedness shall have been fully paid or provision is made for such payment pursuant to the Indenture and all reasonable and necessary fees and expenses of the Trustee accrued and to accrue through final payment of the Bonds and Parity Indebtedness, all fees and expenses of the City accrued and to accrue through final payment of the Bonds and Parity Indebtedness and all other liabilities of the Company accrued and to accrue through final payment of the Bonds and Parity Indebtedness under this Loan Agreement and the Indenture have been paid or provision is made for such payments pursuant to the Indenture.

      Section 3.03. Patent Security . Simultaneously with the execution hereof, the Company shall execute and deliver a Patent and Trademark Security Agreement to the Trustee (for the benefit of the holders of the Bonds and holders of Parity Indebtedness), the provisions of which shall control all security and other interests of the Trustee in “collateral,” as therein defined, to

the extent the same shall be inconsistent with the terms hereof or of the Springdale Mortgage, Lowell Mortgage, Junction Deed of Trust or Watts Mortgage.

      Section 3.04. Deposit of Pledged Revenues: Deposit Account Control Agreement . The Company covenants and agrees that it shall deposit or cause to be deposited no later than the Business Day following receipt of such Pledged Revenues all Pledged Revenues in the Deposit Account pursuant to the terms of the Deposit Account Control Agreement. The Company covenants and agrees to maintain or cause to be maintained the Deposit Account while the Bonds are Outstanding. The Company covenants and agrees to execute any substitute or replacement control agreements with respect to the Pledged Revenues. The Company hereby consents to the filing of UCC financing statements and shall execute and cause to be sent to the Depository Bank a notice of the security interest granted hereunder and shall execute and deliver such other documents (including, but not limited to, continuation statements and control agreements) as may be necessary or reasonably requested by the Trustee or the Issuer in order to perfect and maintain as perfected such security interest or give public notice thereof. Amounts on deposit in the Deposit Account shall be applied pursuant to the Deposit Account Control Agreement and when transferred to the Trustee shall be applied by the Trustee in accordance with the Indenture. Amounts in the Deposit Account may be used and withdrawn by the Company and the Trustee as provided in the Deposit Account Control Agreement, the Indenture and herein; provided, however, that in the event of a conflict among such documents, the Indenture shall be deemed the controlling instrument. The Deposit Account Control Agreement shall provide that immediately following receipt of a written notice that an Event of Default under the Indenture has occurred, the Trustee shall direct the Depository Bank to withhold disbursements of Pledged Revenues to the Company or its designees and to transfer the Deposit Account and the collateral held therein to the name and credit of the Trustee upon demand thereof; provided, the Trustee shall continue to be bound by the Indenture and the Deposit Account Control Agreement. Following an Event of Default under the Indenture, all Pledged Revenues shall be disbursed by the Depository Bank to the Trustee for application as may be directed by the Trustee. The Trustee also shall be entitled to and shall take all steps, actions and proceedings following an Event of Default under the Indenture reasonably necessary in its judgment to enforce all of the rights of the City which have been assigned to the Trustee and all of the obligations of the Company under this Loan Agreement. The Company shall execute and deliver all instruments as may be required to implement this Section. The Company further agrees that a failure to comply with the terms of this Section shall cause irreparable harm to the Registered Owners from time to time of the Bonds, and shall entitle the Trustee, as assignee of the City, with or without notice to the Company, to take immediate action to compel the specific performance of the obligations of the Company as provided in this Section.

      Section 3.05. Assignment of Weyerhaeuser Agreement . While the Bonds are Outstanding, the Company shall maintain the Weyerhaeuser Assignment Agreement for the benefit of the Trustee.

ARTICLE IV

FINANCING THE COST OF THE FACILITIES:
ISSUANCE OF THE SERIES 2008 BONDS

      Section 4.01. [Intentionally Omitted].

      Section 4.02. Agreement to Issue the Bonds; Application of Bond Proceeds . In order to provide funds to make the Loan for payment of the Project, the City will sell and cause to be delivered to the initial purchaser thereof the Bonds. Proceeds of the Bonds shall be deposited in accordance with the Indenture, and invested as provided in Section 6.01 of the Indenture.

      Section 4.03. [Intentionally Omitted].

      Section 4.04. [Intentionally Omitted].

      Section 4.05. Investment of Moneys . Any moneys held as a part of the Funds shall be invested, reinvested and transferred to other Funds by the Trustee as provided in Article VI of the Indenture.

      Section 4.06. Arbitrage and Tax Matters . The Company hereby covenants and represents for the benefit of each owner of the Bonds and the City that it will not make or permit any use of the proceeds of the Bonds or the moneys in the Funds or take any other action which will cause the Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code. The Company covenants that it will comply with the applicable requirements of Section 148 of the Code so long as any Bonds are Outstanding. The Company shall deliver to the City certificates in such reasonable form as the City shall specify upon which the City may rely in furnishing the certificates required by Section 6.02 of the Indenture. The Company covenants and agrees to comply with the provisions of the Tax Certificates.

ARTICLE V

OBLIGATIONS; PROVISIONS FOR PAYMENT

      Section 5.01. Loan Payments and Other Amounts Payable .

     (a) As repayment of the Loan, the Company shall deposit with the Trustee, on the date of issuance of the Bonds, and thereafter not later than the fifteenth day of each month, the Monthly Payment with respect to the following calendar month, in accordance with the Indenture, which amounts shall be applied to the payment of the Bonds at the times and in the manner provided in the Indenture. The Company shall be entitled to credit with respect to such Monthly Payments for any transfers to the Bond Principal Fund and Bond Interest Fund pursuant to Section 3.07(b) of the Indenture.

     (b) Upon any acceleration of amounts due under the Loan Agreement, the Company shall immediately pay as repayment of the Loan, for deposit in the Bond Principal Fund, the Bond Interest Fund and the Reserve Fund, an amount which, together

with other moneys available under the Loan Agreement, is sufficient to pay the entire principal of and interest on the Bonds.

     (c) On or before any redemption date (other than a sinking fund redemption date) for which a notice of redemption has been given pursuant to the Indenture, the Company shall pay as repayment of the Loan, for deposit in the Bond Principal Fund, an amount which, together with other moneys available therefor in the Bond Principal Fund (and, if all Bonds are called for redemption, the Reserve Fund), is sufficient to pay the principal of and premium, if any, on the Bonds called for optional or mandatory redemption and for deposit into the Bond Interest Fund an amount of money which, together with other moneys available therefor in the Bond Interest Fund, is sufficient to pay the interest accrued to the redemption date on the Bonds called for optional or mandatory redemption. If on any principal or interest payment date on the Bonds or the date any other amounts are payable on the Bonds the amount held by the Trustee in the Bond Principal Fund and the Bond Interest Fund is insufficient to make the required payments of principal of, premium, if any, and interest on the Bonds, the Company shall forthwith pay such deficiency as repayment of the Loan for deposit in the Bond Principal Fund or the Bond Interest Fund, as the case may be.

     (d) At the option of the Company Representative, so long as no Event of Default has occurred or is occurring, to be exercised by delivery of a written certificate to the Trustee and the City not less than 45 days next preceding the applicable sinking fund redemption date, it may (i) deliver to the Trustee for cancellation Bonds in an aggregate principal amount desired by the Company Representative or (ii) specify a principal amount of such Bonds which prior to said date have been redeemed (otherwise than through the operation of the applicable sinking fund) and canceled by the Trustee and not theretofore applied as a credit against the respective sinking fund redemption obligation. Each such Bond so delivered or previously redeemed shall be credited by the Trustee at 100% of the principal amount thereof against the obligation of the Company on such respective sinking fund redemption date for Bonds and any excess over such amounts shall be credited against future sinking fund redemption obligations for such Bonds as directed by the Company Representative. In the event the Company Representative shall avail itself of the provisions of clause (i) of the first sentence of this paragraph, the certificate required by the first sentence of this paragraph shall be accompanied by the Bonds to be canceled.

     (e) The Company shall deposit the following amounts to the Reserve Fund:

          (i) on the date of issuance of the Bonds, $1,061,000 from proceeds of the reserve fund established with respect to the Prior Bonds;

          (ii) in the event any moneys in the Reserve Fund are transferred to the Bond Principal Fund or the Bond Interest Fund pursuant to the Indenture, or to the Rebate Fund pursuant to the Indenture, or in the event the valuation of the amounts in the Reserve Fund required by the Indenture reveals there is an amount less than the Reserve Requirement on deposit in the Reserve Fund, the Company shall deposit, on the first day of each month following such transfer or valuation,

substantially equal monthly payments into the Reserve Fund to cause the total amount in the Reserve Fund to equal the Reserve Requirement not later than the next succeeding Interest Payment Date.

     (f) The Company agrees to pay to the Trustee and the City, respectively, as an Operating Expense, the reasonable and necessary fees and expenses of the Trustee and the City, respectively, including the reasonable fees and other costs incurred for the services of any paying agent or engineers, architects, attorneys, management consultants, accountants and other consultants employed by the Trustee or the City to make examinations and reports, provide services and render opinions required under the Loan Agreement or the Indenture, plus the Company agrees to pay to the appropriate party the fees and expenses of any Rebate Analyst, as and when the same become due, upon submission of a statement therefor.

     (g) The Company agrees to pay to the Trustee as an Operating Expense all amounts to be deposited to the Rebate Fund, as and when the same become due as determined pursuant to the Indenture, to the extent there are no other amounts available to make such deposits, and to cause the Trustee to apply such funds in compliance with the terms of the Indenture.

     (h) The Company agrees to pay as an Operating Expense all costs and expenses which may be incurred in connection with any removal or substitution of the Trustee and the appointment of any successor trustee.

      Section 5.02. Payees of Payments . The payments provided for in Sections 5.01(a), (b) and (c) hereof shall be paid in funds immediately available in the City in which the designated office of the Trustee is located directly to the Trustee for the account of the City and shall be deposited as therein provided. The payments provided for in Section 5.01(e) hereof shall be paid in funds immediately available in the City in which the designated office of the Trustee is located directly to the Trustee for the benefit of the Bondholders and shall be deposited in the Reserve Fund. The payments to be made under Sections 5.01(d), (g) and (h) hereof shall be paid directly to the payee for its own use.

      Section 5.03. Obligations of Company Hereunder Unconditional . The obligations of the Company to make the payments required in Section 5.01 hereof and to perform and observe the other agreements on its part contained herein shall be absolute and unconditional. The Company (a) will not suspend or discontinue, or permit the suspension or discontinuance of, any payments provided for in Section 5.01 hereof; (b) will perform and observe all of its other agreements contained in this Loan Agreement; and (c) except as provided in Article XI hereof, will not terminate this Loan Agreement for any cause including, without limiting the generality of the foregoing, any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction of or damage to its solid waste recovery facilities, commercial frustration of purpose, or change in the tax or other laws or administrative rulings of or administrative actions by the United States of America or the State of Arkansas or any political subdivision of either, any failure of the City to perform and observe any agreement, whether express or implied, or any duty, liability, or obligation arising out of or connected with this Loan Agreement, whether express or implied, or any failure of the Trustee to perform and

observe any agreement, whether express or implied, or any duty, liability or obligation arising out of or connected with the Indenture, whether express or implied. Nothing contained in this Section shall be construed to release the City from the performance of any agreements on its part herein contained, and if the City shall fail to perform any such agreement, the Company may institute such action against the City as the Company may deem necessary to compel performance, provided that no such action shall violate the agreements on the part of the Company contained herein. The Company may, however, at its own cost and expense and in its own name or in the name of the City, prosecute or defend any action or proceeding or take any other action involving third persons which the Company deems reasonably necessary in order to secure or protect its right of possession, occupancy and use of its solid waste recovery facilities, and in such event the City hereby agrees to cooperate fully with the Company (without expense to the City).

ARTICLE VI

MAINTENANCE AND INSURANCE

      Section 6.01. Maintenance and Modifications . The Company agrees that during the term of this Loan Agreement its Property, Plant and Equipment shall be operated and maintained in substantial compliance with all laws, building codes, ordinances and regulations and zoning laws as shall be applicable to the Property, Plant and Equipment. The Company agrees that during the term of this Loan Agreement it will at its own expense (a) keep the Property, Plant and Equipment in as reasonably safe condition as its operations permit; and (b) keep the Property, Plant and Equipment in good repair and in good operating condition, making from time to time all necessary repairs thereto (including external and structural repairs) and renewals and replacements thereof. The Company may also at its own expense, make from time to time any additions, modifications or improvements to the Property, Plant and Equipment it may deem desirable for its purposes that do not adversely affect the structural integrity of any building or substantially reduce its value or impair the character of its use permitted pursuant to the Act, provided that all such additions, modifications, renovations, repairs and improvements made by the Company shall become a part of the Property, Plant and Equipment; provided, however, that nothing in this subsection shall prevent the Company from ceasing to operate any immaterial portion of the Property, Plant and Equipment. The Company hereby covenants and agrees that it shall not construct any improvements or install any equipment on any portion of the Springdale Property, Lowell Property, Junction Property or Watts Property located within a federally designated flood hazard zone unless and until such property shall be insured against loss or damage by flood in accordance with Section 6.02(a) hereof.

      Section 6.02. Insurance .

     (a) Throughout the term of this Loan Agreement, the Company will keep the Springdale Property, the Lowell Property, the Junction Property and the Watts Property (or cause the Springdale Property, the Lowell Property, the Junction Property and the Watts Property to be kept) continuously insured against such risks as are customarily insured against with respect to property similar to the Springdale Property, the Lowell Property, the Junction Property and the Watts Property by businesses of like size and

type, paying as the same becomes due all premiums in respect thereto, including but not necessarily limited to:

          (i) insurance to the full insurable value of the Property, Plant and Equipment of the Company as determined by the Company sufficient to prevent the Company from being a co-issuer (and in no event less than the principal amount of the Bonds Outstanding from time to time), against loss or damage by fire, lightning and flood (if the Springdale Property, the Lowell Property, the Junction Property or the Watts Property is located within a federally designated flood hazard zone) and such other risks and matters, including without limitation, rental loss, public liability and boiler insurance, with uniform standard extended coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement at that time customarily used in the state where such property is located, provided that the insurance required by this subsection may contain a deductible provision and be in amounts which in the opinion of an Insurance Consultant is normal and reasonable;

          (ii) general public liability insurance against claims for bodily injury, death or property damage occurring on, in or about the Springdale Property, the Lowell Property, the Junction Property and the Watts Property and the adjoining streets, sidewalks and passageways, such insurance to afford protection of the type and in an amount which in the opinion of an Insurance Consultant is normal and reasonable with respect to bodily injury and property damage;

          (iii) rental or business interruption insurance against abatement of rent resulting from fire or other casualty in an amount not less than $1,000,000, with the proceeds from such rental or business interruption insurance being payable to the Company and the Trustee, as their respective interest may appear;

          (iv) Worker’s Compensation Insurance as required by law; and

          (v) key-man insurance with respect to Joe Brooks, the Co-Chairman of the Board of Directors of the Company, in the amount of $4 million and Douglas Brooks, as the Vice President, in the amount of $2.5 million.

     (b) Anything herein to the contrary, notwithstanding, a Significant Bondholder may, by notice thereof in writing to the Company and the Trustee, require additional insurance to be carried by the Company with respect to the Springdale Property, the Lowell Property, the Junction Property and the Watts Property beyond that expressly identified herein, with respect to such risks and in such coverage amounts and other terms as in each case are reasonable and customary with respect to property similar to the Springdale Property, the Lowell Property, the Junction Property or the Watts Property, and the Company will obtain such insurance and furnish to the Trustee and Significant Bondholder evidence thereof satisfactory to the Trustee and Significant Bondholder. All policies of insurance shall be issued by an insurer authorized to do business in the state where the respective property is located having a rating of at least A:6 in Best’s Key Rating Guide. Not later than 30 days prior to the expiration date of

each of the insurance policies, the Company will deliver to the Trustee satisfactory evidence of the renewal of each of the policies. If at any time the Trustee is not in receipt of written evidence that all insurance required hereunder is in full force and effect, the Trustee will have the right without notice to the Company to take such action as the Trustee deems necessary to protect its interest in the Springdale Property, the Lowell Property, the Junction Property and the Watts Property, including without limitation the obtaining of such insurance coverage as the Trustee in its sole discretion deems appropriate, and all expenses incurred by the Trustee in connection with such action or in obtaining such insurance and keeping it in effect will be paid by the Company to the Trustee upon demand; provided, however, that if that the Trustee takes any such action, the Trustee shall give the Company notice of such action within five Business Days thereof.

     (c) All of the insurance policies required pursuant to this Section 6.02 will (i) contain a standard noncontributory form of mortgage clause (in favor of the Trustee and entitling the Trustee to collect any and all proceeds payable under such insurance), as well as a standard waiver of subrogation endorsement, and in the case of such liability policy, name the Trustee as an additional insured, all to be in form and substance satisfactory to the Trustee; (ii) provide, to the extent obtainable, that such policies may not be canceled or amended to diminish the coverage thereunder without at least 30 days prior written notice to the Trustee; and (iii) provide that no act, omission or negligence of the Company, or its agents, servants or employees, or of any tenant under any lease, which might otherwise result in a forfeiture of such insurance or any part thereof, shall in any way affect the validity or enforceability of such insurance insofar as the Trustee is concerned. The Company will not carry separate insurance, concurrent in kind or form or contributing in the event of loss, with any insurance required under this Section 6.02.

     The Company shall retain an Insurance Consultant to review the insurance requirements of the Company at the date of issuance of the Bonds and from time to time thereafter (but not less frequently than every two years) and to cause a certificate to be delivered to the Trustee and to the Bondholders as to whether the insurance being maintained is in compliance with the requirements of this Section. If the Insurance Consultant makes recommendations for the increase of any coverage, the Company shall increase or cause to be increased such coverage in accordance with such recommendations, to the extent that the Governing Body of the Company determines in good faith that such recommendations are in the best interests of the Company. If the Insurance Consultant makes recommendations for the decrease or elimination of any coverage, the Company may decrease or eliminate such coverage in accordance with such recommendations, to the extent that the Governing Body of the Company determines in good faith that such recommendations are in the best interest of the Company.

     Notwithstanding anything in this Section to the contrary, the Company shall have the right, without giving rise to an Event of Default solely on such account, (a) to maintain insurance coverage below that most recently recommended by the Insurance Consultant, if the Company furnishes to the Trustee a report of the Insurance Consultant to the effect that the insurance so provided affords either the greatest amount of coverage available for the risk being insured against at rates which in the judgment of the Insurance Consultant are reasonable in connection with reasonable and appropriate risk management, or the greatest amount of coverage necessary

by reason of state or federal laws now or hereafter in existence; or (b) to adopt alternative risk management programs which the Insurance Consultant determines to be reasonable, including, without limitation, to self-insure in whole or in part individually or in connection with other institutions, to participate in programs of captive insurance companies, to participate with other solid waste disposal and manufacturing companies in mutual or other cooperative insurance or other risk management programs, to participate in state or federal insurance programs, or to establish or participate in other alternative risk management programs; all as may be approved by the Insurance Consultant as reasonable and appropriate risk management by the Company. If the Company shall be self-insured for any coverage, the report of the Insurance Consultant mentioned above shall state whether the anticipated funding of any self-insurance fund is actuarially sound, and if not, the required funding to produce such result and such coverage shall be reviewed by the Insurance Consultant not less frequently than annually. Notwithstanding the other provisions of this Section, the Company shall not self-insure (other than with respect to reasonable deductibles certified as such in an Officer’s Certificate of the Company Representative) or otherwise participate in progra