AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

(b)                                  Non-Revolving-to-Term Loan. Bank agrees to make a non-revolving-to-term loan (the “Non-Revolving-to-Term Loan”) for Borrower pursuant to which Bank agrees, in its sole discretion, to lend to Borrower, upon Borrower’s request, up to Seven Million, Five Hundred Thousand and No/100 Dollars ($7,500,000.00) (the “Term Loan Amount”), provided there is no continuing uncured Event of Default and subject to the terms and conditions set forth herein, for the purpose of enabling Borrower to retire certain debentures issued by Borrower. The Non-Revolving-to-Term Loan shall be evidenced by that certain Non-Revolving-to-Term Note, dated as of even date herewith (the “Non-Revolving-to-Term Note”), by Borrower in favor of Bank in the face amount of the Term Loan Amount. If not earlier terminated, Bank’s agreement to make any advances under the Non-Revolving-to-Term Loan pursuant to this Agreement shall expire on May 1, 2009 (the “Conversion Date”).

 

(i)                                      On the Conversion Date, any and all indebtedness and other amounts outstanding under the Non-Revolving-to-Term Loan shall be converted into a fully amortizing term loan in accordance with the terms and conditions set forth in the Non-Revolving-to-Term Note.

 

(ii)                                   Beginning on November 1, 2009, and on November 1 of each year thereafter, Borrower agrees to pay to Bank an amount equal to fifty percent (50%) of Borrower’s EBITDA for the immediately preceding fiscal year, net of taxes, capital expenditures up to $1,500,000.00, interest paid and current portion of long-term debt for such fiscal year (the “Excess Cash Flow Recapture Amount”), which payment shall be applied to the outstanding principal balance of the Non-Revolving-to-Term Loan; provided, however, in no event shall Borrower’s obligation to pay the Excess Cash Flow Recapture Amount exceed $500,000.00 in any year. Attached as Exhibit A is a form of Excess Cash Flow Recapture Amount Certificate showing how the Excess Cash Flow Recapture Amount is calculated, which shall be completed and submitted by Borrower together with Borrower’s payment of the Excess Cash Flow Recapture Amount no later than November 1 of each year.

 

The Revolving Note and Non-Revolving-to-Term Note are hereinafter referred to individually as a “Note” and collectively as the “Notes.” This Agreement, the Notes and any and all other documents, amendments or renewals executed and delivered in connection with any of the foregoing are collectively hereinafter referred to as the “Loan Documents.”

 

1.2                                  Revolving Loan Account . An account shall be opened on the books of Bank in which account a record will be kept of all advances and loans made under the Revolving Loan, all payments thereon and other appropriate debits and credits as provided by this Agreement.

 

1.3                                  Interest . Interest respecting indebtedness under the Revolving Loan will be charged to Borrower on the principal amount from time to time outstanding at the interest rate specified in the Revolving Note in accordance with the terms of the Revolving Note or as otherwise set forth in this Agreement with respect to any particular type of Revolving Credit, If not specified in the Revolving Note or otherwise set forth in this Agreement, interest will be charged at the highest rate per annum charged by Bank to Borrower on any other Obligation based on a 360-day year and the actual number of days elapsed.

 

1.4                                  Repayment . All loans and advances made respecting the Revolving Loan and the Non-Revolving-to-Term Loan shall be payable to Bank on or before the maturity date of the Revolving Note and the Non-Revolving-to-Term Note, respectively.

 

1.5                                  Overadvances . Any advances or loans that may be made under the Revolving Loan, at Bank’s sole discretion, in excess of the Revolving Loan Amount shall not limit the obligations of Borrower or any of Bank’s rights or remedies hereunder or under the Loan Documents or otherwise; all such advances, loans or other amounts shall be secured by the Collateral and shall be due and payable to Bank in accordance with the terms of the Revolving Note, and shall bear interest at the rate set forth in the Revolving Note.

 

1.6                                  Notice of Borrowing . If Bank elects to require Borrower to submit any request for an advance hereunder in writing pursuant to Section 1.9, Borrower shall promptly provide Bank with such written request, in the form of request specified by Bank, which shall specify, in addition to any other information required by Bank, (A) the amount of the requested advance and (B) the date on which such advance is to be made (which shall be a Business Day). As used in this Agreement, “Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks in Los Angeles, California, are required or permitted by law to close.

 

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1.7                             Conditions to Lending .

 

(a)                                   Conditions Precedent to Initial Loan. The obligation of Bank to make the Loans and the initial advances thereunder is subject to the satisfaction in full of the following conditions precedent:

 

(i)                                    Corporate Documents. Bank shall have received:

 

(A)                               a copy of the articles or certificate of incorporation, articles of association or formation, certificate of limited partnership or other charter document (each, the “Charter Document”) of Borrower, certified on a recent date by the Secretary of State or other relevant governmental agency of Borrower’s jurisdiction of incorporation or organization;

 

(B)                                 a certificate of the secretary or other appropriate officer of Borrower in the form required by Bank, dated the closing date, certifying (1) that attached thereto is a true and complete copy of the resolutions adopted by the Board of Directors (or equivalent governing body) of Borrower authorizing the execution, delivery and performance of the Loan Documents and any other documents contemplated thereunder and the grant of the security interests in the Collateral and that such resolutions have not been altered, amended, rescinded, supplemented or superseded and remain in full force and effect and (2) as to the incumbency and specimen signature of each officer of Borrower executing any Loan Documents.

 

(ii)                                 Loan Documents. Bank shall have received fully executed originals (or counterpart originals) of all of the Loan Documents.

 

(iii)                              Payment of Fees. All fees and expenses then due and payable by Borrower to Bank in connection with the facility or facilities contemplated by this Agreement shall have been paid.

 

(iv)                             Financial Statements. Bank shall have received the audited financial statements of Borrower for the most recently completed fiscal year and income statements, balance sheets and statements of shareholders’ equity and cash flow for Borrower’s current fiscal year through the most recently completed fiscal quarter.

 

(v)                                USA PATRIOT Act. Bank shall have received from Borrower any information requested by Bank and required under or in connection with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56 (the “USA PATRIOT Act”).

 

(vi)                             Bank shall have received such other closing documentation as Bank may reasonably request.

 

(b)                                  Conditions Precedent to Each Advance. The obligations of Bank to make each loan, advance or other credit under this Agreement are subject to the following conditions precedent:

 

(i)                                    Notice. Bank shall have received a request for the loan, advance or other credit sought, which shall be in the form of request specified by Bank, if any, as required by Section 1.9 hereof.

 

(ii)                                 Representations and Warranties. The representations and warranties set forth in Section 3 hereof and in the other Loan Documents shall be true, correct and complete in all material respects on and as of the date of each Loan.

 

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(iii)                              No Event of Default. On the date of each loan, advance or other credit, no Event of Default shall have occurred and be continuing nor shall any such event occur by reason of the making of such loan, advance or other credit.

 

(iv)                             No Material Adverse Change. No event or events shall have occurred since the date of the financial statements most recently delivered to Bank that would reasonably be expected to have a materially adverse effect on the business, assets, properties, operations, financial condition, liabilities (including contingent liabilities) or material agreements of Borrower, taken as a whole, (b) materially impairs the legal right, power or authority of Borrower, taken as a whole, to perform their obligations under the Loan Documents or (c) materially impairs the validity or enforceability of the Loan Documents or the rights, remedies or benefits available to Bank thereunder.

 

1.8                                  Increased Costs .

 

(a)                                   If any change in any law, rule or regulation or in the interpretation or application thereof by any governmental authority after the date of this Agreement or any compliance by Bank with any request, guideline or directive (whether or not having the force of law) of any governmental authority after the date of this Agreement (collectively, a “Change in Law”) shall:

 

(i)                                    impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, Bank or

 

(ii)                                 impose on Bank or the London Interbank Market any other condition affecting this Agreement or the loans hereunder made by Bank or any letter of credit or participation therein and the result of any of the foregoing shall be to increase the cost to Bank of making or maintaining any loan (or of maintaining its obligation to make any such loan) or to increase the cost to Bank of issuing or maintaining any letter of credit or to reduce the amount of any sum received or receivable by Bank hereunder (whether of principal, interest or otherwise), then Borrower will pay to Bank such additional amount or amounts as will compensate Bank for such additional costs incurred or reduction suffered.

 

(b)                                  If Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on Bank’s capital or on the capital of Bank’s holding company as a consequence of this Agreement or the loans or letters of credit made or issued by Bank to a level below that which Bank or Bank’s holding company could have achieved but for such Change in Law (taking into consideration Bank’s policies and the policies of Bank’s holding company with respect to capital adequacy), then from time to time Borrower will pay to Bank such additional amount or amounts as will compensate Bank or Bank’s holding company for any such reduction suffered.

 

(c)                                   A certificate of Bank setting forth in reasonable detail the amount or amounts necessary to compensate Bank or its holding company, as the case may be, and the changes as a result of which such amounts are due shall be delivered to Borrower and shall be conclusive absent manifest error. Borrower shall pay Bank the amount shown as due on any such certificate within ten (10) Business Days after receipt thereof.

 

(d)                                  Failure or delay on the part of Bank to demand compensation pursuant to this section shall not constitute a waiver of Bank’s right to demand such compensation.

 

1.9                                  Authorized Persons; Advances . Any person duly authorized by a general borrowing resolution of Borrower, or in the absence of such a resolution, the President, Chief Financial Officer or Controller of Borrower, or any person otherwise authorized in this paragraph, may request discretionary advances or loans hereunder, either orally or otherwise, but Bank at its option may require that all requests for loans hereunder shall be in writing. Bank shall incur no liability to Borrower in acting upon any request referred to herein which Bank believes in good faith to have been made by an authorized person or persons. Each loan hereunder may be credited by Bank to any deposit account of Borrower with Bank or with any other Bank with which Borrower maintains a deposit account, or may be paid to Borrower (or as Borrower instructs) or may be applied to any Obligations, as Bank may in each instance elect. The following persons currently are authorized to request advances and authorize payments respecting the Revolving Loan until Bank receives from Borrower, at Bank’s address, written notice of revocation of their authority: James S. Miele, Chief Financial Officer, and Abbas Mohaddes, Chief Executive Officer.

 

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1.10                            Monthly Statement . At the option of Bank, after the end of each month, Bank will render to Borrower a statement of the Revolving Credit account, showing all applicable credits and debits. Each statement shall be considered correct and to have been accepted by Borrower and shall be conclusively binding upon Borrower in respect of all charges, debits and credits of whatsoever nature contained therein respecting the Revolving Loan, and the closing balance shown therein, unless Borrower notifies Bank in writing of any discrepancy within twenty (20) days from the mailing by Bank to Borrower of any such monthly statement.

 

2.                                       GRANT OF SECURITY INTEREST

 

2.1                                  Grant of Security Interest . In consideration of Bank’s extending credit and other financial accommodations to or for the benefit of Borrower, Borrower hereby grants to Bank a security interest in, a lien on and pledge and assignment of the Collateral. The security interest granted by this Agreement is given to and shall be held by Bank as security for the payment and performance of all Obligations, including without limitation all amounts outstanding pursuant to the Loan Documents.

 

2.2                                  Definitions . The following definitions shall apply:

 

(a)                                   “Affiliate” shall mean, with respect to any person, (a) any person which, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person, or (b) any person who is a director or officer of (i) such person, (ii) any subsidiary of such person, or (iii) any person described in clause (a) above. For purposes of this definition, “control” of a person shall mean the power, direct or indirect, (x) to vote 5% or more of the capital stock having ordinary voting power for the election of directors (or comparable equivalent) of such person, or (y) to direct or cause the direction of the management and policies of such person whether by contract or otherwise. Control may be by ownership, contract or otherwise.

 

(b)                                  “Bank Affiliate” shall mean any Affiliate of Bank or any lender acting as a participant under any loan arrangement between Bank and Borrower.

 

(c)                                   “Change in Control” shall be deemed to have occurred at such time as any of the following events shall occur:

 

(i)                                    any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all of the consolidated assets of Borrower to any Person, provided, however, that a transaction where the holders of all classes of Borrower’s common stock immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of the common stock of the continuing or surviving Person immediately after such transaction shall not be a Change in Control;

 

(ii)                                 consummation of any share exchange, consolidation or merger of Borrower pursuant to which the common stock will be converted into cash, securities or other property or any sale, lease or other transfer (in one transaction or a series of transactions) of all or substantially all of Borrower’s consolidated assets to any Person, provided, however, that a transaction where the holders of all classes of Borrower’s common stock immediately prior to such transaction own, directly or indirectly, more than 50% of all classes of common stock of the continuing or surviving corporation or transferee immediately after such event shall not be a Change in Control; or

 

(iii)                              a “person or “group” (within the meaning of Section 13(d) of the Exchange Act (other than Borrower, or Borrower’s employee benefit plans) files a Schedule 13D or a Schedule TO, disclosing that it has become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of Borrower’s common stock representing more than 50% of the voting power of common stock.

 

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For purposes of defining a Change in Control:

 

(x)                                  whether a person is a “beneficial owner” will be determined in accordance with Rule 13d-3 under the Exchange Act; and

 

(y)                                a “person” includes any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.

 

(d)                                  “Code” shall mean the Commercial Code of California, as amended from time to time.

 

(e)                                   “Collateral” shall mean all of Borrower’s present and future right, title and interest in and to any and all of the personal property of Borrower whether such property is now existing or hereafter created, acquired or arising and wherever located from time to time, including without limitation:

 

(i)                                    accounts;

 

(ii)                                 chattel paper;

 

(iii)                              goods;

 

(iv)                             inventory;

 

(v)                                equipment;

 

(vi)                             fixtures

 

(vii)                          farm products;

 

(viii)                       instruments;

 

(ix)                               investment property;

 

(x)                                  documents;

 

(xi)                               commercial tort claims;

 

(xii)                            deposit accounts;

 

(xiii)                         letter-of-credit rights;

 

(xiv)                        general intangibles;

 

(xv)                           supporting obligations; and

 

(xvi)                        records of, accession to and proceeds and products of the foregoing.

 

(f)                                     “Debtors” shall mean Borrower’s customers who are indebted to Borrower.

 

(g)                                  “Material Adverse Change” means (i) a material adverse change in the business, operations, results of operations, assets, liabilities, or condition of Borrower and its subsidiaries taken as a whole, (ii) the impairment of Borrower’s ability to perform any of the Obligations or of the Bank to enforce the Indebtedness or realize upon the Collateral, or (iii) a material adverse change in the value of the Collateral or the amount which the Bank would be likely to receive in the liquidation of the Collateral.

 

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(h)                                  “Obligations” shall mean, without limitation, all loans, advances, indebtedness, notes, liabilities and amounts (including under Letters of Credit), liquidated or unliquidated, owing by Borrower to Bank or any Bank Affiliate at any time, of each and every kind, nature and description, whether arising under this Agreement or otherwise, and whether secured or unsecured, direct or indirect (that is, whether the same are due directly by Borrower to Bank or any Bank Affiliate; or are due indirectly by Borrower to Bank or any Bank Affiliate as endorser, guarantor or other surety, or as borrower of obligations due third persons which have been endorsed or assigned to Bank or any Bank Affiliate, or otherwise), absolute or contingent, due or to become due, now existing or hereafter arising or contracted, including without limitation payment when due of all amounts outstanding respecting any of the Loan Documents. “Obligations” shall also include all interest and other charges chargeable to Borrower or due from Borrower to Bank or any Bank Affiliate from time to time and all costs and expenses referred to in this Agreement.

 

(i)                                 “Permitted Indebtedness” shall mean (a) Borrower’s indebtedness to Bank under this Agreement or any other Loan Document; (b) indebtedness existing on the date hereof in a principal amount not in excess of $125,000; (c) indebtedness subordinated to the Obligations pursuant to an agreement in form and substance acceptable to Bank in its good faith business judgment; (d) indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business; (e) capitalized leases and purchase money Indebtedness secured by Permitted Liens in an aggregate amount not exceeding $250,000 at any time outstanding; (t) indebtedness arising in connection with the financing of insurance premiums in the ordinary course of business; (g) indebtedness owing to trade creditors arising in the ordinary course of business consistent with past business practices; (h) indebtedness arising in connection with corporate credit cards issued for employees and officers of Borrower in an aggregate amount not to exceed $50,000 at any time; and (i) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness, provided, that the principal amount thereof is not increased and the terms thereof are not modified to impose more burdensome terms upon Borrower.

 

(j)                                 “Permitted Investments” shall mean, so long as no Event of Default shall have occurred and be continuing at the time of such investments or immediately after as a result of such investments, (a) investments in subsidiaries that are secured guarantors in an aggregate amount not to exceed $500,000 in any fiscal year, provided, that no such investment shall be made if an Event of Default is then occurring or would otherwise arise upon the making thereof; (ii) repurchases of stock of Borrower of up to $100,000 per fiscal year from departing employees, officers or directors; (iii) purchases of shares of Borrower’s common stock pursuant to any stock repurchase program approved by the Board of Directors of Borrower to repurchase in the market any of its stock during the original term of the Revolving Loan (not including any extension or renewal periods), which repurchased stock shall have an aggregate purchase price of no more than $1,000,000 in any fiscal year and no more than a total of $2,000,000 during the entire original term of the Revolving Loan; provided, that no proceeds from the Revolving Loan shall be used for any such repurchases and, provided, further, that Bank may elect, in its sole discretion to extend the period of such permitted repurchases for any renewal or extension periods of the Revolving Loan on terms acceptable to Bank; (iv) investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business; (v) investments existing on the date hereof as disclosed on Schedule PI attached hereto; and (vi)(A) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any state thereof maturing within one (1) year from the date of acquisition thereof, (B) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (C) Bank’s certificates of deposit maturing no more than one year from the date of investment therein, and (D) a money market account with Bank, provided that in each of the cases set forth in this clause (vi) Bank is perfected therein.

 

(k)                              “Permitted Liens” shall mean (i) liens and security interests securing indebtedness owed by Borrower to Bank; (ii) liens for taxes, assessments or similar charges either not yet due or being contested in good faith; (iii) liens of materialmen, mechanics, warehousemen or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent or are being contested in good faith by appropriate proceedings; (iv) purchase money liens or purchase money security interest upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under this Agreement; (v) liens and security interests which as of the date of this Agreement, have been disclosed to

 

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and approved by the Bank in writing; (vi) liens which constitute banker’s liens, rights of set-off or similar rights as to deposit accounts or other funds maintained with a bank or other financial institution; (vii) cash deposits or pledges to secure the payment of worker’s compensation, unemployment insurance or other social security benefits or obligations, public or statutory obligations, surety or appeal bonds, bid or performance bonds or other obligations of a like nature incurred in the ordinary course of business; (viii) liens arising from judgments, decrees or attachments that do not result in an Event of Default; (ix) liens in favor of customs and revenue authorities arising the ordinary course of business relating to obligations that are not delinquent; and (x) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Permitted Liens described above, provided that any extension, renewal or replacement lien shall be limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced shall not increase.

 

(I)                                     “Person” or “party” shall mean individuals, partnerships, corporations, limited liability companies, trusts and all other entities.

 

All words and terms used in this Agreement other than those specifically defined herein shall have the meanings accorded to them in the Code.

 

2.3                                  Ordinary Course of Business . Bank hereby authorizes and permits Borrower to hold, process, sell, use or consume in the manufacture or processing of finished goods, or otherwise dispose of inventory for fair consideration, all in the ordinary course of Borrower’s business, excluding, without limitation, sales to creditors or in bulk or sales or other dispositions occurring under circumstances which would or could reasonably be expected to create any lien or interest adverse to Bank’s security interest or other right hereunder in the proceeds resulting therefrom. Bank also hereby authorizes and permits Borrower to receive from the Debtors all amounts due as proceeds of the Collateral at Borrower’s own cost and expense, and also liability, if any, subject to the direction and control of Bank at all times; and Bank may at any time, without cause or notice, and whether or not an Event of Default has occurred or demand has been made, terminate all or any part of the authority and permission herein or elsewhere in this Agreement granted to Borrower with reference to the Collateral, and notify Debtors to make all payments due as proceeds of the Collateral to Bank. Until Bank shall otherwise notify Borrower, all proceeds of and collections of Collateral shall be retained by Borrower and used solely for the ordinary and usual operation of Borrower’s business. From and after notice by Bank to Borrower, all proceeds of and collections of the Collateral shall be held in trust by Borrower for Bank and shall not be commingled with Borrower’s other funds or deposited in any Bank account of Borrower; and Borrower agrees to deliver to Bank on the dates of receipt thereof by Borrower, duly endorsed to Bank or to bearer, or assigned to Bank, as may be appropriate, all proceeds of the Collateral in the identical form received by Borrower.

 

2.4                                  Allowances . Absent an Event of Default, Borrower may grant such allowances or other adjustments to Debtors (exclusive of extending the time for payment of any item which shall not be done without first obtaining Bank’s written consent in each instance) as Borrower may reasonably deem to accord with sound business practice, including, without limiting the generality of the foregoing, accepting the return of all or any part of the inventory (subject to the provisions set forth in this Agreement with reference to returned inventory).

 

2.5                                  Records . Borrower shall hold its books and records relating to the Collateral segregated from all Borrower’s other books and records in a manner satisfactory to Bank; and shall deliver to Bank from time to time promptly at its request all invoices, original documents of title, contracts, chattel paper, instruments and any other writings relating thereto, and other evidence of performance of contracts, or evidence of shipment or delivery of the merchandise or of the rendering of services; and Borrower will deliver to Bank promptly at Bank’s request from time to time additional copies of any or all of such papers or writings, and such other information with respect to any of the Collateral and such schedules of inventory, schedules of accounts and such other writings as Bank may in its sole discretion deem to be necessary or effectual to evidence any loan hereunder or Bank’s security interest in the Collateral.

 

2.6                                  Legends . Borrower shall promptly make, stamp or record such entries or legends on Borrower’s books and records or on any of the Collateral (including without limitation chattel paper) as Bank shall request from time to time, to indicate and disclose that Bank has a security interest in such Collateral.

 

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2.7                                  Inspection . Bank, or its representatives, at any time and from time to time, shall have the right at the sole cost and expense of Borrower, and Borrower will permit Bank and/or its representatives: (a) to examine, check, make copies of or extracts from any of Borrower’s books, records and files (including without limitation orders and original correspondence); (b) to perform field exams or otherwise inspect and examine the Collateral and to check, test or appraise the same as to quality, quantity, value and condition; and (c) to verify the Collateral or any portion or portions thereof or Borrower’s compliance with the provisions of this Agreement. Unless an Event of Default shall have occurred and be continuing, Bank agrees to conduct not more than one inspection as described herein during each fiscal year of Borrower.

 

2.8                                  Purchase Money Security Interests . To the extent Borrower uses proceeds of any loans to purchase Collateral, the repayment of such loans shall be on a “first-in-first-out” basis so that the portion of the loan used to purchase a particular item of Collateral shall be repaid in the order in which Borrower purchased such item of Collateral.

 

2.9                                  Search Reports . Bank shall receive prior to the date of this Agreement UCC search results under all names used by Borrower during the prior five (5) years, from each jurisdiction where any Collateral is located, from the state, if any, where Borrower is organized and registered (as such terms are used in the Code), and the state where Borrower’s chief executive office is located. The search results shall confirm that the security interest in the Collateral granted Bank hereunder is prior to all other security interests in favor of any other person.

 

3.                                       REPRESENTATIONS AND WARRANTIES

 

3.1                                  Organization and Qualification . Borrower is a duly organized and validly existing corporation under the laws of the state of its incorporation with the exact legal name set forth in the first paragraph of this Agreement. Borrower is in good standing under the laws of said state, has the power to own its property and conduct its business as now conducted and as currently proposed to be conducted, and is duly qualified to do business under the laws of each state where the nature of the business done or property owned requires such qualification.

 

3.2                                  Subsidiaries . Borrower has no subsidiaries other than those listed on Schedule 3.2, if any, and Borrower has never consolidated, merged or acquired substantially all of the assets of any other entity or person other than those listed on Schedule 3.2, if any.

 

3.3                                  Corporate Records . Borrower’s charter, articles or certificate of organization or incorporation and all amendments thereto have been duly filed and are in proper order. All outstanding capital stock issued by Borrower was and is properly and validly issued, fully paid and nonassessable and all books and records of Borrower, including but not limited to its minute books, bylaws and books of account, are accurate and up to date and will be so maintained.

 

3.4                                  Title to Properties; Absence of Liens . Borrower has good and clear record, equitable and marketable title to all of its properties and assets, including without limitation to all of the Collateral, free and clear of all mortgages, liens, pledges, charges, encumbrances and setoffs, other than (a) the security interest therein granted to Bank, (b) the mortgages, deeds of trust and security interests as set forth on Schedule 3.4, if any, (c) the leases of personal property as set forth on Schedule 3.4, if any, and (d) any other Permitted Liens.

 

3.5                                  Places of Business . Borrower’s chief executive office is correctly stated in the preamble to this Agreement, and Borrower shall, during the term of this Agreement, keep Bank currently and accurately informed in writing of each of its other places of business, and shall not change the location of such chief executive office or open or close, move or change any existing or new place of business without giving Bank at least thirty (30) days prior written notice thereof.

 

3.6                                  Valid Obligations . The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary corporate action and each represents a legal, valid and binding obligation of Borrower and is fully enforceable according to its terms, except as limited by laws relating to the enforcement of creditors’ rights.

 

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3.7                                  Conflicts . There is no provision in Borrower’s organizational or charter documents, if any, or in any indenture, contract or agreement to which Borrower is a party or by which it or any of its assets or properties are bound which prohibits, limits or restricts the execution, delivery or performance of the Loan Documents.

 

3.8                                  Governmental Approvals . The execution, delivery and performance of the Loan Documents do not require any approval of or filing with any governmental agency or authority.

 

3.9                                  Litigation, etc . There are no actions, claims or proceedings pending or, to the knowledge of Borrower, threatened against Borrower which could reasonably be expected to result in a Material Adverse Change.

 

3.10                            Accounts and Contract Rights . All accounts arise out of legally enforceable and existing contracts, and represent unconditional and undisputed bona fide indebtedness by a Debtor, and are not and will not be subject to any discount (except such cash or trade discount as may be shown on any invoice, contract or other writing delivered to Bank). No contract right, account, general intangible or chattel paper is or will be represented by any note or other instrument, and no contract right, account or general intangible is, or will be represented by any conditional or installment sales obligation or other chattel paper, except such instruments or chattel paper as have been or immediately upon receipt by Borrower will be delivered to Bank (duly endorsed or assigned), such delivery, in the case of chattel paper, to include all executed copies except those in the possession of the installment buyer and any security for or guaranty of any of the Collateral shall be delivered to Bank immediately upon receipt thereof by Borrower, with such assignments and endorsements thereof as Bank may request.

 

3.11                            Title to Collateral . At the date hereof, Borrower is (and, as to Collateral that Borrower may acquire after the date hereof, will be) the lawful owner of the Collateral, and the Collateral and each item thereof is, will and shall continue to be free of all restrictions, liens, encumbrances or other rights, title or interests (other than the security interest therein granted to Bank), credits, defenses, recoupments, set-offs or counterclaims whatsoever. Borrower has and will have full power and authority to grant to Bank a security interest in the Collateral and Borrower has not transferred, assigned, sold, pledged, encumbered, subjected to lien or granted any security interest in, and will not transfer, assign, sell (except sales or other dispositions in the ordinary course of business in respect to inventory as expressly permitted in this Agreement), pledge, encumber, subject to lien or grant any security interest in any of the Collateral (or any of Borrower’s right, title or interest therein), to any person other than Bank or as expressly permitted hereunder, including in connection with any Permitted Liens. The Collateral is and will be valid and genuine in all respects. Borrower will warrant and defend Bank’s right to and interest in the Collateral against all claims and demands of all persons whatsoever, except to the extent such claims or demands arise from any Permitted Liens.

 

3.12                            Location of Collateral . Except for sale, processing, use, consumption or other disposition in the ordinary course of business, Borrower will keep all inventory and equipment only at locations specified in this Agreement or specified to Bank in writing.

 

3.13                            Third Parties . Bank shall not be deemed to have assumed any liability or responsibility to Borrower or any third person for the correctness, validity or genuineness of any instruments or documents that may be released or endorsed to Borrower by Bank (which shall automatically be deemed to be without recourse to Bank in any event) or for the existence, character, quantity, quality, condition, value or delivery of any goods purporting to be represented by any such documents; and Bank, by accepting such security interest in the Collateral, or by releasing any Collateral to Borrower, shall not be deemed to have assumed any obligation or liability to any supplier or Debtor or to any other third party, and Borrower agrees to indemnify and defend Bank and hold it harmless in respect to any claim or proceeding arising out of any matter referred to in this paragraph.

 

3.14                            Status of Debtors . Borrower agrees to notify Bank promptly upon learning of (a) the suspension of business, assignment or trust mortgage for the benefit of creditors, dissolution, petition in receivership or under any chapter of the Bankruptcy Code, as amended from time to time, by or against any Debtor, (b) any Debtor’s insolvency or inability to pay its debts as they mature or (c) any other act of the same or different nature amounting to a Debtor’s business failure.

 

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3.15                            Taxes . Borrower has filed all federal, state and other tax returns required to be filed (except for such returns for which current and valid extensions have been filed), and all taxes, assessments and other governmental charges due from Borrower have been fully paid. Borrower has established on its books reserves adequate for the payment of all federal, state and other tax liabilities, if any.

 

3.16                            Use of Proceeds . No portion of any loan is to be used for (i) the purpose of purchasing or carrying any “margin security” or “margin stock” as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. 221 and 224 or for any other purpose in violation of such Regulations U or X (ii) primarily personal, family or household purposes. The Collateral is not used or acquired primarily for personal, family or household purposes.

 

3.17                            Licenses, Consents . Borrower has obtained and holds in full force and effect all filings, registrations, franchises, licenses, permits, certificates, authorizations, qualifications, accreditations, easements, rights of way and other rights, consents and approvals which are necessary for the operation of its businesses as presently conducted or proposed to be conducted and the failure of which to maintain could reasonably be expected to result in a Material Adverse Change. No consent or approval, authorization or order of, or registration or filing with, or giving of notice to, or obtaining of any license, certificate or permit from, or taking any other action with respect to any third party is required to be obtained or provided in connection with (i) the due execution, delivery and performance of any Loan Document or the consummation of any of the transactions contemplated hereunder, (ii) the legality, validity, binding effect or enforceability of any Loan Document on Borrower and the exercise by Bank of its rights and remedies thereunder, (iii) the grant of any liens or security interests by Borrower to Bank and the validity, perfection and priority of such liens or security interests, or (v) the conduct by Borrower or any of its affiliates of any of their business as proposed to be conducted.

 

3.18                            Financial Statement Certifications . Borrower hereby certifies to Bank that all financial information (“financial information”) submitted to Bank now and at all times during the term of the Loan does and will fairly and accurately represent the financial condition of Borrower and any of its Affiliates. Financial information includes, but is not limited to, all business financial statements (including interim and year-end financial statements that are company prepared and/or CPA prepared), business income tax returns, borrowing base certificates, accounts payable and receivable agings, financial statements and tax returns. Borrower understands that Bank will rely on all financial information, whenever provided, and that such information is a material inducement to Bank to make, to continue to make, or otherwise extend credit accommodations to Borrower. Borrower covenants and agrees to notify Bank in writing of any Material Adverse Change. Borrower further understands and acknowledges that there are criminal penalties for giving false financial information to federally insured financial institutions.

 

3.19                            Environmental . As of the date hereof, neither Borrower nor any of Borrower’s agents, employees or independent contractors (1) have caused or are aware of a release or threat of release of Hazardous Materials on any of the premises or personal property owned or controlled by Borrower (“Controlled Property”) or any property abutting Controlled Property (“Abutting Property”), which could give rise to liability under any Environmental Law or any other federal, state or local law, rule or regulation; (2) have arranged for the transport of or transported any Hazardous Materials in a manner as to violate, or result in potential liabilities under, any Environmental Law; (3) have received any notice, order or demand from the Environmental Protection Agency or any other federal, state or local agency under any Environmental Law; (4) have incurred any liability under any Environmental Law in connection with the mismanagement, improper disposal or release of Hazardous Materials; or (5) are aware of any inspection or investigation of any Controlled Property or Abutting Property by any federal, state or local agency for possible violations of any Environmental Law.

 

To the best of Borrower’s knowledge, neither Borrower, nor any prior owner, tenant or other occupant of any Controlled Property, committed or omitted any act which caused the release of Hazardous Materials on such Controlled Property which could give rise to a lien thereon by any federal, state or local government. No notice or statement of claim or lien affecting any Controlled Property has been recorded or filed in any public records by any federal, state or local government for costs, penalties, fines or other charges as to such property. All notices, permits, licenses or similar authorizations, if any, required to be obtained or filed in connection with the ownership, operation, or use of the Controlled Property, including without limitation the past or present generation, treatment, storage, disposal or release of any Hazardous Materials into the environment, have been duly obtained or filed.

 

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Borrower agrees to indemnify and hold Bank and any Bank Affiliate harmless from all liability, loss, cost, damage and expense, including attorney fees and costs of litigation, arising from any and all of its violations of any Environmental Law (including those arising from any lien by any federal, state or local government arising from the presence of Hazardous Materials) or from the presence of Hazardous Materials located on or emanating from any Controlled Property or Abutting Property whether existing or not existing and whether known or unknown at the time of the execution hereof and regardless of whether or not caused by, or within the control of Borrower. Borrower further agrees to reimburse Bank upon demand for any costs incurred by Bank in connection with the foregoing. Borrower agrees that its obligations hereunder shall be continuous and shall survive the repayment of all debts to Bank and shall continue so long as a valid claim may be lawfully asserted against Bank.

 

The term “Hazardous Materials” includes but is not limited to any and all substances (whether solid, liquid or gas) defined, listed, or otherwise classified as pollutants, hazardous wastes, hazardous substances, hazardous materials, extremely hazardous wastes, or words of similar meaning or regulatory effect under any present or future Environmental Law or that may have a negative impact on human health or the environment, including but not limited to petroleum and petroleum products, asbestos and asbestos-containing materials, polychlorinated biphenyls, lead, radon, radioactive materials, flammables and explosives.

 

The term “Environmental Law” means any present and future federal, state and local laws, statutes, ordinances, rules, regulations and the like, as well as common law, relating to protection of human health or the environment, relating to Hazardous Materials, relating to liability for or costs of remediation or prevention of releases of Hazardous Materials or relating to liability for or costs of other actual or threatened danger to human health or the environment. The term “Environmental Law” includes, but is not limited to, the following statutes, as amended, any successor thereto, and any regulations promulgated pursuant thereto, and any state or local statutes, ordinances, rules, regulations and the like addressing similar issues: the Comprehensive Environmental Response, Compensation and Liability Act; the Emergency Planning and Community Right-to-Know Act; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act (including but not limited to Subtitle I relating to underground storage tanks); the Solid Waste Disposal Act; the Clean Water Act; the Clean Air Act; the Toxic Substances Control Act; the Safe Drinking Water Act; the Occupational Safety and Health Act; the Federal Water Pollution Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Endangered Species Act; the National Environmental Policy Act; and the River and Harbors Appropriation Act.

 

4.                                       AFFIRMATIVE COVENANTS

 

4.1                                  Payments and Performance . Borrower will duly and punctually pay all Obligations becoming due to Bank and will duly and punctually perform all Obligations on its part to be done or performed under this Agreement.

 

4.2                                  Books and Records; Inspection . Borrower will at all times keep proper books of account in which full, true and correct entries will be made of its transactions in accordance with generally accepted accounting principles, consistently applied and which are, in the opinion of a Certified Public Accountant acceptable to Bank, adequate to determine fairly the financial condition and the results of operations of Borrower. Borrower will from time to time furnish Bank with such information and statements as Bank may request in its sole discretion with respect to the Obligations or Bank’s security interest in the Collateral. Borrower shall, during the term of this Agreement, keep Bank currently and accurately informed in writing of each location where Borrower’s records relating to its accounts and contract rights are kept, and shall not remove such records to another location without giving Bank at least thirty (30) days prior written notice thereof.

 

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4.3                                  Financial Statements . Borrower will furnish to Bank:

 

(a)                                   as soon as available to Borrower, but in any event within 30 days after the close of each fiscal quarter of Borrower, a full and complete signed copy of financial statements, which shall include a balance sheet of Borrower as at the end of such quarter and statement of profit and loss of Borrower reflecting the results of its operations during such quarter and shall be prepared by Borrower and certified by Borrower’s chief financial officer as to correctness in accordance with generally accepted accounting principles, consistently applied, subject to year-end adjustments;

 

(b)                                  as soon as available to Borrower, but in any event within 90 days after the close of each fiscal year, a full and complete signed copy of financial statements, prepared by certified public accountants acceptable to Bank, which shall include a balance sheet of Borrower, as at the end of such year, statement of cash flows and statement of profit and loss of Borrower reflecting the results of its operations during such year, bearing the opinion of such certified public accountants and prepared on an audited basis in accordance with generally accepted accounting principles, consistently applied together with any so-called management letters;

 

(c)                                   within 30 days after the close of each quarter, an accounts receivable aging report in form satisfactory to Bank showing the total amount due from each Debtor, the month in which each account receivable was created, as well as an accounts payable aging report and such other information as Bank shall request;

 

(d)                                  within 30 days after the close of each fiscal quarter of Borrower, an inventory report in form satisfactory to Bank showing a list of Borrower’s inventory, location of such inventory and such other information as Bank shall request;

 

(e)                                   within 30 days after the close of each fiscal quarter of Borrower, a work-in-progress/backlog report in form satisfactory to Bank and including such information as Bank shall request.

 

(f)                                     Borrower’s filed federal and state tax returns, including all schedules thereto, for the prior year within 15 days after the date that Borrower’s tax returns are actually filed each year or by such other date approved by Bank;

 

(g)                                  from time to time, such other financial data and information about Borrower as Bank may reasonably request.

 

4.4                                  Conduct of Business . Borrower will maintain its existence in good standing and comply with all laws and regulations of the United States and of any state or states thereof and of any political subdivision thereof, and of any governmental authority which may be applicable to it or to its business; except to the extent that non-compliance with such laws or regulations (a) pertains to any tax, assessment or charge which is being contested in good faith and with respect to which reserves have been established and are being maintained or (b) does not or could not reasonably be expected to result a Material Adverse Change.

 

4.5                                  Notice to Debtors . Borrower agrees, at the request of Bank, to notify all or any of the Debtors in writing of Bank’s security interest in the Collateral in whatever manner Bank requests and hereby authorizes Bank to notify all or any of the Debtors of Bank’s security interest in Borrower’s accounts at Borrower’s expense.

 

4.6                                  Contact with Accountant . Borrower hereby authorizes Bank to directly contact and obtain information from any accountant employed by Borrower in connection with the review or maintenance of Borrower’s books and records or preparation of any financial reports delivered by or at the request of Borrower to Bank.

 

4.7                                  Operating and Deposit Accounts . Borrower shall maintain its primary operating and deposit accounts with Bank for so long as any indebtedness or other amounts remain due and outstanding by Borrower to Bank hereunder or Banks shall have a commitment to lend under any of the Loans. At the option of Bank, all loan payments and fees will automatically be debited from Borrower’s primary operating account and all advances will automatically be credited to Borrower’s primary operating account.

 

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4.8                                  Taxes . Borrower will promptly pay all real and personal property taxes, assessments and charges and all franchise, income, unemployment, retirement benefits, withholding, sales and other taxes assessed against it or payable by it before delinquent; provided that this covenant shall not apply to any tax assessment or charge which is being contested in good faith and with respect to which reserves have been established and are being maintained. Bank may, at its option, from time to time, discharge any taxes, liens or encumbrances of any of the Collateral provided Bank gives notice to Borrower thereof, and Borrower will pay to Bank on demand or Bank in its sole discretion may charge to Borrower all amounts so paid or incurred by it.

 

4.9                                  Maintenance . Borrower will keep and maintain the Collateral and its other properties, if any, in good repair, working order and condition. Borrower will immediately notify Bank of any loss or damage to or any occurrence which would adversely affect the value of any Collateral. Bank may, at its option, from time to time, take any other action that Bank may deem proper to repair, maintain or preserve any of the Collateral provided Bank gives notice to Borrower thereof, and Borrower will pay to Bank on demand or Bank in its sole discretion may charge to Borrower all amounts so paid or incurred by it.

 

4.10                            Insurance . Borrower will maintain in force property and casualty insurance on all Collateral and any other property of Borrower, if any, against risks customarily insured against by companies engaged in businesses similar to that of Borrower containing such terms and written by such companies as may be satisfactory to Bank, such insurance to be payable to Bank as its interest may appear in the event of loss and to name Bank as insured pursuant to a standard loss payee clause; no loss shall be adjusted thereunder without Bank’s approval; and all such policies shall provide that they may not be canceled without first giving at least ten (10) days written notice of cancellation to Bank. In the event that Borrower fails to provide evidence of such insurance, Bank may, at its option, secure such insurance and charge the cost thereof to Borrower. Upon the occurrence and during the continuation of an Event of Default, at the option of Bank, all insurance proceeds received from any loss or damage to any of the Collateral shall be applied either to the replacement or repair thereof or as a payment on account of the Obligations.

 

4.11                            Notification of Default . Immediately upon becoming aware of the existence of any condition or event which constitutes an Event of Default, or any condition or event which would upon notice or lapse of time, or both, constitute an Event of Default, Borrower shall give Bank written notice thereof specifying the nature and duration thereof and the action being or proposed to be taken with respect thereto.

 

4.12                            Notification of Material Litigation . Borrower will immediately notify Bank in writing of any litigation or of any investigative proceedings of a governmental agency or authority commenced or threatened against it which would or might be materially adverse to the financial condition of Borrower.

 

4.13                            USA PATRIOT Act . Borrower shall furnish or cause to be furnished to Bank, promptly upon request therefor, any information required by Bank under or in connection with the USA PATRIOT Act.

 

4.14                            Pension Plans . With respect to any pension or benefit plan maintained by Borrower, or to which Borrower contributes (“Plan”), the benefits under which are guarantied, in whole or in part, by the Pension Benefit Guaranty Corporation created by the Employee Retirement Income Security Act of 1974, P.L. 93-406, as amended (“ERISA”) or any governmental authority succeeding to any or all of the functions of the Pension Benefit Guaranty Corporation (“Pension Benefit Guaranty Corporation”), Borrower will (a) fund each Plan as required by the provisions of Section 412 of the Internal Revenue Code of 1986, as amended; (b) cause each Plan to pay all benefits when due; (c) furnish Bank (i) promptly with a copy of any notice of each Plan’s termination sent to the Pension Benefit Guaranty Corporation (ii) no later than the date of submission to the Department of Labor or to the Internal Revenue Service, as the case may be, a copy of any request for waiver from the funding standards or extension of the amortization periods required by Section 412 of the Internal Revenue Code of 1986, as amended and (iii) notice of any Reportable Event as such term is defined in ERISA; and (d) subscribe to any contingent liability insurance provided by the Pension Benefit Guaranty Corporation to protect against employer liability upon termination of a guarantied pension plan, if available to Borrower.

 

4.15                            Mid-Term Review . Borrower covenants and agrees that, on or around October 1, 2009, Bank may, in its sole discretion, review the terms and conditions relating to the interest rates and other pricing terms for the Loans and the financial and other covenants hereunder.

 

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5.                                       NEGATIVE COVENANTS

 

5.1                                  Financial Covenants . Borrower will not at any time or during any fiscal period (as applicable) fail to be in compliance with any of the financial covenants in this section.

 

(a)                                   Definitions. The following definitions shall apply to this Section:

 

(i)                                      “Current Assets” shall mean current assets as defined under GAAP.

 

(ii)                                   “Current Liabilities” shall mean current liabilities as defined under GAAP.

 

(iii)                                “Earnings” shall mean earnings as defined under GAAP.

 

(iv)                               “EBITDA” shall mean, for any period, Earnings from continuing operations before payment of federal, state and local income taxes, plus interest expense, depreciation and amortization, in each case for such period, calculated in accordance with GAAP.

 

(v)                                  “Funded Indebtedness” shall mean, as of the date of determination thereof, all short term and long term debt, including debentures, plus capital leases.

 

(vi)                               “GAAP” shall mean generally accepted accounting principles in effect from time to time in the United States.

 

(b)                                  Current Ratio. Borrower shall maintain a ratio of Current Assets to Current Liabilities, measured as of the end of each fiscal quarter, of not less than of 1.25 to 1.00 until June 30, 2009 and, thereafter, of not less than 1.50 to 1.00.

 

(c)                                   Maximum Funded Debt to EBITDA. Borrower shall not permit the ratio of its Funded Indebtedness to EBITDA to be greater than 2.500 to 1.00, measured as of the end of each fiscal quarter on a rolling four-quarter basis.

 

(d)                                  Debt Service Coverage Ratio. Borrower shall maintain a Debt Service Coverage Ratio, measured as of the end of each fiscal quarter on a rolling four-quarter basis, of not less than 1.40 to 1.00 until March 30, 2010 and, thereafter, of not less than 1.50 to 1.00. “Debt Service Coverage Ratio” shall mean, for any period, (i) the sum of EBITDA and other non-cash expenses of Borrower for such period, less taxes paid, taxes accrued and payable and unfinanced capital expenses for such period, divided by (ii) the sum of current portion of long-term debt, current portion of long-term leases and interest paid, in each case for such period.

 

(e)                                   Profitability. Borrower shall not have two consecutive quarters of net losses, measured as of the end of each fiscal quarter.

 

5.2                                  Limitations on Indebtedness . Borrower shall not issue any evidence of indebtedness or create, assume, guarantee, become contingently liable for or suffer to exist indebtedness in addition to indebtedness to Bank, except Permitted Indebtedness or indebtedness or liabilities of Borrower, other than for money borrowed, incurred or arising in the ordinary course of business.

 

5.3                                  Sale of Interest . There shall not be any sale or transfer of ownership of any interest in Borrower without Bank’s prior written consent, unless such sale or transfer shall not result in a Change in Control.

 

5.4                                  Loans or Advances . Borrower shall not make any loans or advances to any Person, including without limitation its officers and employees; provided, however, that Borrower may make advances to its employees, including its officers, with respect to expenses incurred or to be incurred by such employees in the ordinary course of business which expenses are reimbursable by Borrower; and provided, further, that Borrower may extend credit in the ordinary course of business in accordance with customary trade practices.

 

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5.5                                  Dividends and Distributions . Borrower shall not, without prior written consent of Bank, pay any dividends on or make any distribution on account of any class of such Borrower’s capital stock in cash or in property (other than additional shares of such stock), or redeem, purchase or otherwise acquire, directly or indirectly, any of such stock, except to the extent such redemption, purchase or other acquisition constitutes a Permitted Investment or, with the prior written consent of Bank in each instance and so long as such Borrower is not in default hereunder, distributions to the stockholders of such Borrower in such amounts as are necessary to pay the tax liability of such stockholders due as a result of such stockholders’ interest in such Borrower or as otherwise approved by Bank in its sole discretion.

 

5.6                                  Investments . Borrower shall not make investments in, or advances to, any Person, except for Permitted Investments. Borrower will not purchase or otherwise invest in or hold securities, non-operating real estate or other non-operating assets or purchase all or substantially all the assets of any entity, except for Permitted Investments.

 

5.7                                  Merger . Borrower will not merge or consolidate or be merged or consolidated with or into any other entity, unless Borrower is the surviving entity and such merger or consolidation does not result in a Change in Control.

 

5.8                                  Capital Expenditures . Borrower shall not, directly or indirectly, make or commit to make capital expenditures by lease, purchase or otherwise, except (a) in the ordinary and usual course of business up to an aggregate limit of $1,000,000.00 or (b) with Bank’s prior written consent.

 

5.9                                  Sale of Assets . Borrower shall not sell, lease or otherwise dispose of any of its assets, except in the ordinary and usual course of business and except for the purpose of replacing machinery, equipment or other personal property which, as a consequence of wear, duplication or obsolescence, is no longer used or necessary in Borrower’s business, provided , that