LOAN AGREEMENT

 

“ Affiliate of” or “ affiliated with ” means in control of, controlled by or under common control with.

 

“ Capital Expenditures ” shall mean the aggregate amount of all purchases or acquisitions of fixed assets, including real estate, motor vehicles, equipment, fixtures, leases and any other items that would be capitalized on the books of Borrower under GAAP.

 

“ Covered by Insurance ” is when defense of a lawsuit has been tendered to the applicable insurance carrier under a valid insurance policy that provides coverage with respect to the claim and has a deductible amount of less than Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), such insurance carrier has accepted such tender of defense, and such insurance carrier proceeds with such defense without denying liability for any part of such claim which could result in liability of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) or more to Borrower or any Guarantor.

 

“ Credit Facilities ” means all extensions of credit from the Bank to Borrower, whether now existing or hereafter arising, including but not limited to the Loans described in Recital A above.

 

“ Default Rate ” has the meaning given it in the Note; provided , however , that if a default rate is not used or defined in the Note, “Default Rate” shall mean a per annum interest rate of five percent (5%) in excess of the rate of interest charged from time to time under the Note.  If more than one Note Rate (as such term is defined below) applies, the “Default Rate” shall mean a per annum interest rate of five percent (5%) in excess of the highest Note Rate.

 

“ EBITDAR ” means, for Borrower for the applicable period, net income, plus interest expense, plus income tax expense, plus depreciation expense, plus amortization expense, plus rent or lease expense, plus One-Time Expenses, minus One-Time Income Items.

 

“ EDGAR System ” means the Electronic Data Gathering Analysis and Retrieval System owned and operated by the United States Securities and Exchange Commission or any replacement system.

 

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

 

“ Events of Default ” means those events of default set forth in Section 5.1 (each, an “ Event of Default ”).

 

“ Facility 1 ” has the meaning set forth in Recital A above.

 

“ Facility 1 Expiration Date ” has the meaning set forth in Section 2.2 below

 

“ Facility 1 Maximum Committed Amount ” has the meaning set forth in Recital A above.

 

“ Facility 1 Note ” has the meaning set forth in Recital B above.

 

“ Facility 2 ” has the meaning set forth in Recital A above.

 

“ Facility 2 Note ” has the meaning set forth in Recital B above.

 

“ Fixed Charge Coverage Ratio ” means, for Borrower, (a) EBITDAR minus cash taxes, cash dividends, and Unfinanced Capital Expenditures, divided by (b) the sum of all required principal payments (on short and long term debt and capital leases), interest and rental or lease expense.

 

“ GAAP ” means generally accepted accounting principles, consistently applied.

 

“ Guarantor ” means, each person or entity guaranteeing all or any portion of Borrower’s obligations under the Loan Documents, or all or any portion of any other party’s obligations under the Loan Documents, pursuant to a Guaranty, including those parties described in Recital C above (collectively, the “Guarantor” or “Guarantors”).  “Guarantor” also means any indemnitor under any indemnity agreement.

 

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“ Guaranty ” means, each guaranty executed or required to be executed in favor of Bank in connection with any of the Credit Facilities, including each continuing guaranty, payment guaranty, payment and performance guaranty, or other guaranty or indemnity agreement (collectively, the “Guaranty” or “Guaranties”).

 

“ Home Page ” means the Borrower’s corporate home page on the World Wide Web accessible through the Internet via the universal resource locator (URL) identified as “www.poorebrothers.com” or such other universal resource locator that the Borrower shall designate in writing to Bank as its corporate home page on the World Wide Web.

 

“ Hazardous Substance ” means and includes any substance, material, or waste, including asbestos, petroleum, and petroleum products (including crude oil), that is or becomes designated, classified, or regulated as “toxic” or “hazardous” or a “pollutant,” or that is or becomes similarly designated, classified, or regulated, under any federal, state, or local law, regulation, or ordinance, but does not include any such substance that is a customary and ordinary household, cleaning, or office product used by Borrower or any tenant or agent of Borrower, provided such use is in accordance with applicable hazardous materials laws and regulations..

 

“ Indemnified Costs ” means all actual or threatened liabilities, claims, actions, causes of action, judgments, orders, damages (including foreseeable and unforeseeable consequential damages), costs, expenses, fines, penalties and losses (including sums paid in settlement of claims and all consultant, expert and legal fees and expenses of Bank’s counsel), including those incurred in connection with any investigation of site conditions or any clean-up, remedial, removal or restoration work (with respect to any property), or any resulting damages, harm, or injuries to the person or property of any third parties or to any natural resources, excepting those arising out of, or resulting, solely from the applicable Indemnified Party’s gross negligence or willful misconduct.

 

“ Indemnified Parties ,” means Bank, its parent, subsidiary, and any affiliated companies, any assignees of any of Bank’s interest in any of the Credit Facilities or the Loan Documents, any owners of participation or other interests in any of the Credit Facilities or the Loan Documents, and the officers, directors, employees, and agents of each of them (each individually, an “Indemnified Party”).

 

“ Insolvency Payments ” means all monetary obligations incurred or accrued during the pendency of any Insolvency Proceeding regardless of whether allowed or allowable in such proceeding .

 

“ Insolvency Proceeding ” means any bankruptcy, receivership, or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships.

 

“ Loan ” and “ Loans ” have the meanings set forth in Recital A above.

 

“ Notes ” means all promissory notes, instruments, reimbursement agreements, or other contracts or agreements evidencing the terms and conditions of the Obligations, including the Facility 1 Note and the Facility 2 Note.

 

“ One-Time Expense ” means, for the applicable period, any item of expense that Bank determines in its sole and absolute discretion is a non-recurring, one-time expense (collectively, “One-Time Expenses”)

 

“ One-Time Income ” means, for the applicable period, any item of income that Bank determines in its sole and absolute discretion is a non-recurring, one-time income item (collectively, “One-Time Income Items”).

 

“ Request for Credit ” means a written request signed by Borrower requesting a disbursement of funds under this Agreement (or a telephonic or Telefax request as allowed pursuant to the terms of this Agreement), together with such documentation and information as Bank may require and meeting the requirements set forth in this Agreement and the other Loan Documents.

 

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“ Requirements ” means all existing and future laws, regulations, orders, codes, restrictions, and requirements of, and all permits and approvals from, and agreements with and commitments to, all governmental, judicial, or legal authorities having jurisdiction over Borrower’s business.

 

“ Security Agreement ” means any pledge, assignment, or grant of a security interest in favor of Bank of all of any portion of Borrower’s assets, including the assignment and security interest created in favor of Bank pursuant to that certain Security Agreement (Blanket - All Business Assets) being executed by Borrower in favor of Bank dated of even date herewith.  Each Security Agreement shall be in form and substance acceptable to Bank.

 

“ Surrendered Payments ” means, collectively, the amount of any payments made to Bank or any other party on behalf of Borrower (including payments resulting from liquidation of collateral) which are recovered from the Bank by a trustee, receiver, creditor, or other party pursuant to applicable federal or state law .

 

“ Tangible Net Worth ” means (1) the total of all assets properly appearing on the balance sheet of Borrower in accordance with GAAP, less (2) the sum of (i)   the book amount of all such assets which would be treated as intangibles under GAAP, including, without limitation, all such items as goodwill, trademarks, trademark rights, trade names, trade name rights, brands, copyrights, patents, patent rights, licenses, deferred charges and unamortized debt discount and expenses, (ii) any write-up in the book value of any such assets resulting from a revaluation thereof subsequent to the date of the Agreement, (iii) all reserves which have not already been deducted in calculating total assets on Borrower’s balance sheet, including reserves for depreciation, depletion, insurance, and inventory valuation, but not including contingency reserves not allocated for any particular purpose and not deducted from assets, (iv) the amount, if any, at which any shares of stock of Borrower appear on the asset side of such balance sheet, (v) all liabilities of Borrower shown on such balance sheet, (vi) all investments in foreign affiliates and non-consolidated domestic affiliates, and (vii) all accounts or notes due to Borrower from any shareholder, director, officer, employee or affiliate of Borrower or from any relative of such party.

 

“ Unfinanced Capital Expenditures ” means, for the applicable period, the sum calculated as follows:  (a) all Capital Expenditures of Borrower, minus (b) all new financing received or assumed by Borrower to fund such Capital Expenditures.

 

“ Unmatured Event of Default ” means an event that, with notice or the passage of time, or both, could become an Event of Default.

 

“ Unused Commitment Fee ” has the meaning set forth in Section 2.2 .

 

1.              Conditions Precedent to Closing and Disbursements .

 

1.1           Conditions to Closing .  Before Bank becomes obligated to close the Loans herein contemplated or make any disbursement under this Agreement, the following closing conditions shall have been satisfied at Borrower’s sole cost and expense in a manner acceptable to Bank in its sole and absolute discretion. No waiver of any closing condition is effective unless expressly made in writing by Bank.

 

(a)            Financial Statements of Borrower and Other Financial Information .  Borrower shall have delivered to Bank all financial statements and other financial information currently required under the Loan Documents, certified as being true, correct, and complete in all material respects by an authorized officer, manager, member, or general partner of Borrower or other applicable parties.

 

(b)            Organizational Documents and Certificates .  Borrower shall have delivered to Bank, for each party to each of the Loan Documents:

 

(i)             All organization documents and evidence of due formation and good standing requested by Bank in its sole and absolute discretion.

 

(ii)            All resolutions, certificates of authority, incumbency certificates, or other evidence of authorization requested by Bank in its sole and absolute discretion.

 

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(iii)           Evidence of such party’s Federal Tax Identification Number.

 

(iv)           An Article 9 Certificate in form and substance acceptable to Bank.

 

(c)            Loan Documents and Other Items .  Borrower shall have duly executed or obtained the due execution of, and delivered to Bank, all Loan Documents and other items required by Bank to be executed in connection with the Loans, including but not limited to this Agreement, the Note, the Security Agreement required hereunder, UCC-1 financing statements, and any and all other such documentation otherwise required by Bank to fulfill the purposes of this Agreement.

 

(d)            Security Interests Perfected .  Bank’s security interest in all property pledged as collateral security for the Loans, as described in one or more Security Agreements executed by Borrower, and/or any third party pledgor, in favor of Bank, shall have been duly perfected in a first-priority lien position.

 

(e)            Insurance .  Borrower shall have provided evidence that there is in effect all insurance required by Bank pursuant to this Agreement and the other Loan Documents, written by insurers, and in form and in amount satisfactory to Bank in its sole and absolute discretion.

 

(f)             Accounts Opened .  Borrower shall have opened all accounts required pursuant to the Loan Documents, if any.

 

(g)            No Default .  No event shall have occurred and be continuing which would constitute a default or Event of Default (as defined in the applicable document) or an Unmatured Event of Default under any of the Loan Documents.

 

(h)            Miscellaneous .  Borrower shall have delivered to Bank any other item reasonably deemed necessary by Bank and shall have fulfilled any other condition reasonably required by Bank to fulfill the intention of this Agreement and any Loan commitment issued to Borrower.

 

1.2           Conditions to Each Disbursement .  Before Bank becomes obligated to make any disbursement of funds or to extend any credit or make any financial accommodation under this Agreement, the following conditions shall have been satisfied at Borrower’s sole cost and expense in a manner acceptable to Bank in its sole and absolute discretion.  No waiver of any condition is effective unless expressly made in writing by Bank.

 

(a)            Closing Conditions .  All closing conditions set forth above shall have been satisfied, and shall be and remain satisfied as of the date of any disbursement of funds or extension any credit, or shall have been waived or deferred by Bank in its sole and absolute discretion.

 

(b)            Request for Credit .  For each disbursement or extension of credit under this Agreement, Bank shall have received a complete and accurate Request for Credit from Borrower as described below, and Bank shall have determined that all conditions contained in this Agreement to the disbursement set forth in the Request for Credit have been met.

 

(c)            Representations .  All representations and warranties of Borrower under this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date of any disbursement of funds or extension any credit.

 

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2.              Credit Facilities .

 

2.1           Scope .   The agreement governs Facility 1 and Facility 2, and covers other Credit Facilities, unless otherwise agreed to in writing by Bank and Borrower or prohibited by applicable law.  If Bank and Borrower have entered into, or in the future enter into, a separate agreement regarding any Credit Facility other than Facility 1 and Facility 2, in the event of a conflict between the terms of this Agreement and the terms of the other separate written loan agreement or other agreement as to such Credit Facility, the terms of that separate agreement as to such Credit Facility shall control.

 

2.2           Facility 1 - Revolving Line of Credit Loan .

 

(a)            Revolving Line of Credit .  Facility 1 is a revolving line of credit.  During the availability period, Borrower may repay principal amounts and reborrow them.

 

(b)            Availability Period .  The Facility 1 line of credit is available between the date of this Agreement and June 30, 2007 (the “Facility 1 Expiration Date”) unless Borrower is in default.

 

(c)            Maturity Date .  The maturity date of Facility 1 is June 30, 2007 (the “Facility 1 Maturity Date”).  All sums owing under Facility 1 shall be due and payable no later than the Facility 1 Maturity Date.

 

(d)            Facility 1 Interest Rate and Repayment Terms .  All advances under Facility 1 shall bear interest at the interest rate set forth in the Facility 1 Note.  The Borrower shall repay Facility 1 pursuant to the terms of the Facility 1 Note.

 

(e)            Unused Commitment Fee .  Borrower shall pay to Bank an unused commitment fee (the “Unused Commitment Fee”) on the average daily unused portion of Facility 1 at the rate of one-eighth of one percent (0.125%) per annum, such fee calculated quarterly and payable in arrears by Borrower, in immediately available funds, within fifteen (15) days after the end of each calendar quarter for which the fee is owing.

 

2.3           Facility 2 - Term Loan .

 

(a)            Term Loan .  Facility 2 is a term loan.  The Facility 2 Loan Amount shall be disbursed concurrently with the closing of the Loans in a single disbursement (unless otherwise agreed by Bank).  Borrower may not reborrow principal amounts repaid under Facility 2 .

 

(b)            Maturity Date .  The maturity date of Facility 2 is July 1, 2006 (the “Facility 1 Maturity Date”).  All sums owing under Facility 1 shall be due and payable no later than the Facility 1 Maturity Date.

 

(d)            Facility 2 Interest Rate and Repayment Terms .  All advances under Facility 2 shall bear interest at the interest rate set forth in the Facility 2 Note.  The Borrower shall repay Facility 2 pursuant to the terms of the Facility 2 Note.

 

2.4           Disbursements .

 

(a)            Disbursement to Pay Fees and Costs; Debit of Loans at Closing .  Acting in its reasonable discretion, Bank may use loan funds to pay fees owing to Bank, interest on the Credit Facilities, legal fees and expenses of Bank’s attorneys which are payable by Borrower, and such other sums as may be owing from time to time by Borrower to Bank with respect to the Credit Facilities, all without further notice to or authorization by Borrower.  Bank at its option may make any such payment on Borrower’s behalf by (a) debiting loan funds in the amount of the payment and disbursing such amount to itself, or (b) disbursing all or part of the payment amount into the Account (if any), and then either debiting the Account (if any) or invoicing Borrower in the amount of the payment(s).  As of the day the Loans close, Bank is authorized to make payments on Borrower’s behalf by debiting loan funds and disbursing such amounts to itself for all costs and expenses payable by Borrower to Bank pursuant to the terms of this Agreement, if such have not been received by Bank in immediately available funds directly from Borrower’s own funds.

 

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(b)            Interest on Disbursements .  Interest on each disbursement, whether initiated by Borrower or Bank, shall be payable from the time Bank debits loan funds in the amount of such disbursement.

 

(c)            Requests for Credit .   Each request for an extension of credit will be made in writing in a manner acceptable to the Bank, or by another means acceptable to the Bank (each, a “Request for Credit”).  Borrower authorizes either Richard Finkbeiner or David Gramza to sign all Requests for Credit and other documents in connection with the administration of the Credit Facilities.  Borrower represents and warrants to Bank that the following signatures are specimen signatures of the persons named in the preceding sentence:

 

	/s/ Rick Finkbeiner		/s/ David A. Gramza
	Rick Finkbeiner		David Gramza

 

(d)            Disbursements Into Account .  Unless Bank and Borrower have otherwise agreed in writing, Bank shall make disbursements into the Account.

 

(e)            Telephone and Telefax Authorization .

 

(i)             The Bank may honor telephone or telefax instructions for advances or repayments given by any one of the individual signer(s) of this Agreement or a person or persons authorized by any one of the signer(s) of this Agreement.

 

(ii)            Advances will be deposited in and repayments will be withdrawn from the Account, or such other of the Borrower’s accounts with the Bank as designated in writing by the Borrower.

 

(iii)           The Borrower indemnifies, defends, and holds Bank and all Indemnified Parties harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions it reasonably believes are made by any individual authorized by the Borrower to give such instructions. This indemnity shall survive the termination of Agreement and/or the payment in full of any and all Credit Facilities.

 

2.5           Disbursement Conditions .

 

(a)            Fulfillment of Conditions.   Bank need not make any disbursement under any of the Credit Facilities until Borrower fulfills all conditions of the Loan Documents, at Borrower’s sole cost and expense and in a manner acceptable to Bank in it sole and absolute discretion (unless another standard is specified) including the closing and disbursement conditions set forth in Section 1 above.  If Bank makes a disbursement before fulfillment of one or more required conditions, that disbursement alone shall not be a waiver of such conditions, and Bank reserves the right to require their fulfillment before making any subsequent disbursements.  Bank shall have no obligation to disburse any loan funds or make an financial accommodations to or for Borrower if an Event of Default has occurred or an Unmatured Event of Default has occurred and is continuing.

 

(b)            Deferral of Conditions; Conditions Subsequent.   If Borrower has not fulfilled all closing and disbursement conditions prior to the date set for closing the Loans, Bank, at its option, may close the Loan and may disburse some or all loan funds subject to Borrower’s compliance with any or all such condition(s) as conditions subsequent to the closing.  In such event, Bank shall notify Borrower of the conditions subsequent that must be met and the time period(s) within which Borrower is required to comply.  If no time period for compliance is specified by Bank as to any condition subsequent, then Borrower shall comply with such condition subsequent within thirty (30) days of the date of closing of the Loans.  Failure of Borrower to comply with all conditions subsequent within the applicable time periods shall be an Event of Default hereunder.

 

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2.6           Automatic Deduction .

 

(a)            Payments and Fees .  Borrower agrees that payments and fees due from Borrower to Bank on the Notes and/or pursuant to the terms of this Agreement or other Loan Documents (each a “Payment” and collectively, “Payments”), including any Unused Commitment Fees due hereunder, will be deducted automatically on the due date from the Account.

 

(b)            Date of Debit .  Bank will debit the Account on the dates that Payments become due.  If a due date does not fall on a Banking Day (as such term is defined in the Note), Bank will debit the Account on the first Banking Day following the due date.

 

(c)            Maintenance of Funds .  Borrower will maintain sufficient funds in the Account on the dates Bank enters debits authorized by this Agreement.  If there are insufficient funds in the Account on the date Bank enters any debit authorized by this Agreement, the debit will be reversed.

 

(d)            Security .  Borrower hereby grants to Bank a security interest in the Account, and any other accounts from which Borrower may hereafter authorize Bank to debit payments due on the Credit Facilities, for the purpose of securing the payment of amounts Bank is authorized to deduct from the Account or such other accounts.  The security interest is granted only to the extent of such authorized deductions, and does not create a lien to secure any other obligation owed by Borrower to Bank, whether under this Agreement or otherwise.

 

3.              Covenants of Borrower .   Borrower promises to keep each of the covenants set forth below, unless Bank has waived compliance in writing.

 

3.1           Compliance with Laws; Maintenance of Business .  Borrower shall (a) comply with Requirements and shall maintain its existence and business operations in accordance therewith, (b) pay its debts and obligations when due under normal terms, and pay on or before their due date, all taxes, assessments, fees, and other governmental monetary obligations (except as may be contested in good faith by proper proceedings if properly reflected on Borrower’s books, and (c) comply with the terms of any and all agreements entered into by Borrower with respect to its business operations, including but not limited to all franchise, licensing, or similar contracts or agreements, unless the failure to comply would not a have materially adverse effect on Borrower’s business, Borrower’s financial condition, or Borrower’s ability to repay the Credit Facilities.

 

3.2           Taxes; Additional Costs .  Borrower shall not deduct any taxes from any payments it makes to the Bank.  If any government authority imposes any taxes on any payments made by Borrower, Borrower shall pay the taxes and shall also pay to the Bank, at the time interest is paid, any additional amount which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such taxes had not been imposed.  Upon request by the Bank, the Borrower will confirm that it has paid the taxes by giving the Bank official tax receipts (or notarized copies) within thirty (30) days after the due date.  However, the Borrower will not pay the Bank’s net income taxes.  Additionally, Borrower shall pay the Bank, on demand, for the Bank’s costs or losses arising from any statute or regulation, or any request or requirement of a regulatory agency.  The costs and losses (a) will be allocated to the loan in a manner determined by the Bank, using any reasonable method, and (b) include the following: (i) any reserve or deposit requirements, and (ii) any capital requirements relating to the Bank’s assets and commitments for credit.

 

3.3           Insurance .

 

(a)            Borrower shall provide, maintain, and