LOAN AND SECURITY AGREEMENT

EXHIBIT 10.1

LOAN AND SECURITY AGREEMENT

dated as of February 6, 2009

among

LIFEWAY FOODS, INC.,

FRESH MADE, INC.,

LFI ENTERPRISES, INC.,

HELIOS NUTRITION LIMITED,

PRIDE OF MAIN STREET DAIRY, LLC

and

STARFRUIT, LLC, as the Borrowers

and

THE PRIVATEBANK AND TRUST COMPANY

Table of Contents

SCHEDULES

 

EXHIBITS

LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT dated as of February 6, 2009 (the “ Agreement ”), is executed by and between LIFEWAY FOODS, INC., an Illinois corporation (“ Lifeway ”) which has its chief executive office located at 6431 W. Oakton St., Morton Grove IL, 60053, FRESH MADE, INC., a Pennsylvania corporation (“ FMI ”) which has its chief executive office located at 810 Bleigh St., Philadelphia PA, 19111, LFI ENTERPRISES, INC., an Illinois corporation (“ LFI ”) which has its chief executive office located at 6431 W. Oakton St., Morton Grove IL, 60053, HELIOS NUTRITION LIMITED, a Minnesota corporation (“ Helios ”) which has its chief executive office located at 6431 W. Oakton St., Morton Grove IL, 60053; PRIDE OF MAIN STREET DAIRY, LLC, a Minnesota limited liability company (“ Pride ”) which has its chief executive office located at 6431 W. Oakton St., Morton Grove IL, 60053 and STARFRUIT, LLC, an Illinois limited liability company (“ Starfruit ”) which has its chief executive office located at 6431 W. Oakton St., Morton Grove IL, 60053, and THE PRIVATEBANK AND TRUST COMPANY (the “ Bank ”), whose address is 120 S. LaSalle Street, Chicago, Illinois 60603.  Lifeway, FMI, LFI, Helios, Pride and Starfruit are hereinafter sometimes individually referred to as a “ Borrower ” and collectively as the “ Borrowers .”

R E C I T A L S :

A.   The Borrowers desire to borrow funds and obtain other financial accommodations from the Bank.

B.   Pursuant to the Borrowers’ request, the Bank is willing to extend such financial accommodations to the Borrowers under the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the premises, and the mutual covenants and agreements set forth herein, the Borrowers agree to borrow from the Bank, and the Bank agrees to lend to the Borrowers, subject to and upon the following terms and conditions:

A G R E E M E N T S :

1.1.   Defined Terms .  For the purposes of this Agreement, the following capitalized words and phrases shall have the meanings set forth below.

“ Act ” shall have the meaning set forth in Section 14.22 .

“ Affiliate ” of any Person shall mean (a) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person, (b) any officer or director of such Person, and (c) with respect to the Bank, any entity administered or managed by the Bank, or an Affiliate or investment advisor thereof and which is engaged in making, purchasing, holding or otherwise investing in commercial loans.  A Person shall be deemed to be “controlled by” any other Person if such Person possesses, directly or indirectly,

power to direct or cause the direction of the management and policies of such Person whether by contract, ownership of voting securities, membership interests or otherwise.

“ Amani-Helios Note ” shall mean that certain Non-Negotiable Promissory Note in the original principal amount of $4,200,000 payable by Lifeway to Amani Holdings LLC, the current balance of which is $837,244.

“ Applicable Margin ” shall mean the rate per annum added to the Prime Rate and/or LIBOR to determine the Revolving Interest Rate and/or Term Interest Rate.  The Applicable Margin is 0% for Prime Loans and 2.5% for LIBOR Loans.

“ Asset Disposition ” shall mean the sale, lease, assignment or other transfer for value (each a “ Disposition ”) by any of the Borrowers or any Subsidiary to any Person (other than the Borrowers or any Subsidiary) of any asset or right of any of the Borrowers or any Subsidiary (including, the loss, destruction or damage of any thereof or any actual or threatened (in writing to the Borrowers or such Subsidiary) condemnation, confiscation, requisition, seizure or taking thereof), other than (a) the Disposition of any asset which is to be replaced, and is in fact replaced, within thirty (30) days with another asset performing the same or a similar function other than any assets having a de minimis value which are obsolete or no longer needed for the Borrowers’ business  and (b) the sale or lease of inventory in the ordinary course of business.

“ Bank Product Agreements ” shall mean those certain agreements entered into from time to time by any of the Borrowers or any Subsidiary with the Bank or any Affiliate of the Bank concerning Bank Products.

“ Bank Product Obligations ” shall mean all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by any of the Borrowers or any Subsidiary to the Bank or any Affiliate of the Bank pursuant to or evidenced by the Bank Product Agreements and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising.

“ Bank Products ” shall mean any service or facility extended to any of the Borrowers or any Subsidiary by the Bank or any Affiliate of the Bank, including:  (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH transactions, (f) cash management, including controlled disbursement, accounts or services, or (g) Hedging Agreements and Hedging Obligations.

“ Bankruptcy Code ” shall mean the United States Bankruptcy Code, as now existing or hereafter amended.

“ Borrowing Base Certificate ” shall mean a certificate to be signed by the Borrowers certifying to the accuracy of the Borrowing Base Amount in the form of Exhibit C .

“ Business Day ” shall mean any day other than a Saturday, Sunday or a legal holiday on which banks are authorized or required to be closed for the conduct of commercial banking business in Chicago, Illinois and, in the case of a Business Day which relates to a LIBOR Loan, on which dealings are carried on in the London interbank eurodollar market.

“ Capital Expenditures ” shall mean all expenditures (including Capitalized Lease Obligations) which, in accordance with GAAP, would be required to be capitalized and shown on the consolidated balance sheet of the Borrowers, but excluding expenditures made in connection with the replacement, substitution or restoration of assets to the extent financed (i) from insurance proceeds (or other similar recoveries) paid on account of the loss of or damage to the assets being replaced or restored or (ii) with awards of compensation arising from the taking by eminent domain or condemnation of the assets being replaced.

“ Capital Lease ” shall mean, as to any Person, a lease of any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, by such Person, as lessee, that is, or should be, in accordance with Financial Accounting Standards Board Statement No. 13, as amended from time to time, or, if such statement is not then in effect, such statement of GAAP as may be applicable, recorded as a “capital lease” on the financial statements of such Person prepared in accordance with GAAP.

“ Capital Securities ” shall mean, with respect to any Person, all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person’s capital, whether now outstanding or issued or acquired after the date hereof, including common shares, preferred shares, membership interests in a limited liability company, limited or general partnership interests in a partnership or any other equivalent of such ownership interest.

“ Capitalized Lease Obligations ” shall mean, as to any Person, all rental obligations of such Person, as lessee under a Capital Lease which are or will be required to be capitalized on the books of such Person.

“ Cash Equivalent Investment ” shall mean, at any time, (a) any evidence of Debt, maturing not more than one year after such time, issued or guaranteed by the United States government or any agency thereof, (b) commercial paper, maturing not more than one year from the date of issue, or corporate demand notes, in each case (unless issued by the Bank or its holding company) rated at least A-l by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. or P-l by Moody’s Investors Service, Inc., (c) any certificate of deposit, time deposit or banker’s acceptance, maturing not more than one year after such time, or any overnight Federal Funds transaction that is issued or sold by the Bank or its holding company (or by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000), (d) any repurchase agreement entered into with the Bank, or other commercial banking institution of the nature referred to in clause (c) , which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) above, and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of the Bank, or other commercial banking institution, thereunder, (e) money market accounts or mutual funds which invest exclusively in assets satisfying the foregoing requirements, and (f) other short term liquid investments approved in writing by the Bank.

“ Change in Control ” shall mean the occurrence of any of the following events: (a) the Smolyansky Family shall cease to own and control, directly or indirectly, at least 45% of the outstanding Capital Securities of Lifeway; (b) Lifeway shall cease to, directly or indirectly, own and control 100% of each class of the outstanding Capital Securities of the Borrowers (other than Lifeway); (c) the granting by the   Smolyansky Family, directly or indirectly, of a security interest in their ownership interest in Lifeway, which could result in a change in the identity of the individuals or entities in control of Lifeway or (d) the granting by Lifeway or any Borrowers, directly or indirectly, of a security interest in any Borrowers or any Subsidiary, which could result in a change in the identity of the individuals or entities in control of such entities.  For the purpose hereof, the terms “control” or “controlling” shall mean the possession of the power to direct, or cause the direction of, the management and policies of the applicable entity by contract or voting of securities or ownership interests.

 

“ Collateral ” shall have the meaning set forth in Section 6.1 hereof.

“ Collateral Access Agreement ” shall mean an agreement in form and substance reasonably satisfactory to the Bank pursuant to which a mortgagee or lessor of real property on which Collateral is stored or otherwise located, or a warehouseman, processor or other bailee of Inventory or other property owned by any of the Borrowers or any Subsidiary, acknowledges the Liens of the Bank and waives any Liens held by such Person on such property, and, in the case of any such agreement with a mortgagee or lessor, permits the Bank reasonable access to and use of such real property following the occurrence and during the continuance of an Event of Default to assemble, complete and sell any collateral stored or otherwise located thereon.

“ Contingent Liability ” and “ Contingent Liabilities ” shall mean, respectively, each obligation and liability of any of the Borrowers and all such obligations and liabilities of any of the Borrowers incurred pursuant to any agreement, undertaking or arrangement by which such Borrowers:  (a) guarantee, endorse or otherwise become or are contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, dividend, obligation or other liability of any other Person in any manner (other than by endorsement of instruments in the course of collection), including any indebtedness, dividend or other obligation which may be issued or incurred at some future time; (b) guarantee the payment of dividends or other distributions upon the shares or ownership interest of any other Person; (c) undertake or agree (whether contingently or otherwise):  (i) to purchase, repurchase, or otherwise acquire any indebtedness, obligation or liability of any other Person or any property or assets constituting security therefor, (ii) to advance or provide funds for the payment or discharge of any indebtedness, obligation or liability of any other Person (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, working capital or other financial condition of any other Person, or (iii) to make payment to any other Person other than for value received; (d) agree to lease property or to purchase securities, property or services from such other Person with the purpose or intent of assuring the owner of such indebtedness or obligation of the ability of such other Person to make payment of the indebtedness or obligation; (e) induce the issuance of, or in connection with the issuance of, any letter of credit for the benefit of such other Person; or (f) undertake or agree otherwise to assure a creditor against loss.  The amount of any Contingent Liability shall (subject to any limitation set forth herein) be deemed to be the outstanding principal amount (or maximum permitted principal amount, if larger) of the indebtedness, obligation or other liability guaranteed or supported thereby.

“ Debt ” shall mean, as to any Person, without duplication, (a) all indebtedness of such Person; (b) all borrowed money of such Person (including principal, interest, fees and charges), whether or not evidenced by bonds, debentures, notes or similar instruments; (c) all obligations to pay the deferred purchase price of property or services; (d) all obligations, contingent or otherwise, with respect to the maximum face amount of all letters of credit (whether or not drawn), bankers’ acceptances and similar obligations issued for the account of such Person (including the Letters of Credit), and all unpaid drawings in respect of such letters of credit, bankers’ acceptances and similar obligations; (e) all indebtedness secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed by such Person (provided, however, if such Person has not assumed or otherwise become liable in respect of such indebtedness, such indebtedness shall be deemed to be in an amount equal to the fair market value of the property subject to such Lien at the time of determination); (f) the aggregate amount of all Capitalized Lease Obligations of such Person; (g) all Contingent Liabilities of such Person, whether or not reflected on its balance sheet; (h) all Hedging Obligations of such Person; (i) all Debt of any partnership of which such Person is a general partner; and (j) all monetary obligations of such Person under (i) a so-called synthetic, off-balance sheet or tax retention lease, or (ii) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such

Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).  Notwithstanding the foregoing, Debt shall not include trade payables and accrued expenses incurred by such Person in accordance with customary practices and in the ordinary course of business of such Person.

“ Depreciation ” shall mean the total amounts added to depreciation, amortization, obsolescence, valuation and other proper reserves, as reflected on the Borrowers’ financial statements and determined in accordance with GAAP.

“ EBITDA ” shall mean, for any period, (a) the sum for such period of:  (i) Net Income, plus (ii) Interest Charges, plus (iii) federal and state income taxes (including the Illinois replacement tax), plus (iv) Depreciation, plus (v) non-cash management compensation expense, plus (vi) all other non-cash charges.

“ Eligible Account ” and “ Eligible Accounts ” shall mean each Account and all such Accounts (exclusive of sales, excise or other similar taxes) owing to any of the Borrowers or any Subsidiary which meets each of the following requirements:

An Account which is at any time an Eligible Account, but which subsequently fails to meet any of the foregoing requirements, shall forthwith cease to be an Eligible Account.  Further, with respect to any Account, if the Bank at any time hereafter determine in its discretion that the prospect of payment or performance by the Account Debtor with respect thereto is materially impaired for any reason whatsoever, such Account shall cease to be an Eligible Account after notice of such determination is given to the Borrowers.

“ Eligible Inventory ” shall mean all Inventory of any of the Borrowers or any Subsidiary of the Borrowers which meets each of the following requirements:

Inventory which is at any time Eligible Inventory but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be Eligible Inventory.

“ Employee Plan ” includes any pension, stock bonus, employee stock ownership plan, retirement, profit sharing, deferred compensation, stock option, bonus or other incentive plan, whether qualified or nonqualified, or any disability, medical, dental or other health plan, life insurance or other death benefit plan, vacation benefit plan, severance plan or other employee benefit plan or arrangement, including those pension, profit-sharing and retirement plans of any of the Borrowers described from time to time in the financial statements of the Borrowers and any pension plan, welfare plan, Defined Benefit Pension Plans (as defined in ERISA) or any multi-employer plan, maintained or administered by any of the Borrowers or to which any of the Borrowers is a party or may have any liability or by which any of the Borrowers is bound.

“ Environmental Laws ” shall mean all present or future federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative or judicial orders, consent agreements, directed duties, requests, licenses, authorizations and permits of, and agreements with, any governmental authority, in each case relating to any matter arising out of or relating to public health and safety, or pollution or protection of the environment or workplace, including any of the foregoing relating to the presence, use, production, generation, handling, transport, treatment, storage, disposal, distribution, discharge, emission, release, threatened release, control or cleanup of any Hazardous Substance.

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

“ Event of Default ” shall mean any of the events or conditions which are set forth in Section 11 hereof.

“ Funded Debt ” shall mean, as to any Person, all Debt of such Person that matures more than one year from the date of its creation (or is renewable or extendible, at the option of such Person, to a date more than one year from such date).

“ GAAP ” shall mean generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination, provided, however, that interim financial statements or reports shall be deemed in compliance with GAAP despite the absence of footnotes and fiscal year-end adjustments as required by GAAP.

“ Hazardous Substances ” shall mean (a) any petroleum or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation, dielectric fluid containing levels of polychlorinated biphenyls, radon gas and mold; (b) any chemicals, materials, pollutant or substances defined as or included in the definition of “hazardous substances”, “hazardous waste”, “hazardous materials”, “extremely hazardous substances”, “restricted hazardous waste”, “toxic substances”, “toxic pollutants”,

“contaminants”, “pollutants” or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the exposure to, or release of which is prohibited, limited or regulated by any governmental authority or for which any duty or standard of care is imposed pursuant to, any Environmental Law.

“ Hedging Agreement ” shall mean any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices.

“ Hedging Obligation ” shall mean, with respect to any Person, any liability of such Person under any Hedging Agreement.

“ Indemnified Party ” and “ Indemnified Parties ” shall mean, respectively, each of the Bank and any parent corporation, Affiliate or Subsidiary of the Bank, and each of their respective officers, directors, employees, attorneys and agents, and all of such parties and entities.

“ Intellectual Property ” shall mean the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, patents, service marks and trademarks, and all registrations and applications for registration therefor and all licensees thereof, trade names, domain names, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“ Interest Charges ” shall mean, for any period, the sum of:  (a) all interest, charges and related expenses payable with respect to that fiscal period to a lender in connection with borrowed money or the deferred purchase price of assets that are treated as interest in accordance with GAAP, plus (b) the portion of Capitalized Lease Obligations with respect to that fiscal period that should be treated as interest in accordance with GAAP, plus (c) all charges paid or payable (without duplication) during that period with respect to any Hedging Agreements.

“ Interest Period ” shall mean successive one, two, or three month periods, beginning and ending as provided in this Agreement.

“ Investment ” shall mean, with respect to any Person, any investment in another Person, whether by acquisition of any debt or equity security, by making any loan or advance, by becoming obligated with respect to a Contingent Liability in respect of obligations of such other Person (other than travel and similar advances to employees in the ordinary course of business).

“ Letter of Credit ” and “ Letters of Credit ” shall mean, respectively, a letter of credit and all such letters of credit issued by the Bank, in its sole discretion, upon the execution

and delivery by the Borrowers and the acceptance by the Bank of a Master Letter of Credit Agreement and a Letter of Credit Application, as set forth in Section 2.7 of this Agreement.

“ Letter of Credit Application ” shall mean, with respect to any request for the issuance of a Letter of Credit, a letter of credit application in the form being used by the Bank at the time of such request for the type of Letter of Credit requested.

“ Letter of Credit Commitment ” shall mean, at any time, an amount equal to the lesser of (a) the Revolving Loan Commitment minus the aggregate amount of all Revolving Loans outstanding, or (b) the Borrowing Base Amount minus the aggregate amount of all Revolving Loans outstanding.

“ Letter of Credit Maturity Date ” shall mean six months following the Revolving Loan Maturity Date; provided, however, that any outstanding Letter of Credit Obligations remaining after the Revolving Loan Maturity Date are cash collateralized in a manner acceptable to the Bank in its sole discretion.

“ Letter of Credit Obligations ” shall mean, at any time, an amount equal to the aggregate of the original face amounts of all Letters of Credit minus the sum of (i) the amount of any reductions in the original face amount of any Letter of Credit which did not result from a draw thereunder, (ii) the amount of any payments made by the Bank with respect to any draws made under a Letter of Credit for which the Borrowers have reimbursed the Bank, (iii) the amount of any payments made by the Bank with respect to any draws made under a Letter of Credit which have been converted to a Revolving Loan as set forth in Section 2.7 , and (iv) the portion of any issued but expired Letter of Credit which has not been drawn by the beneficiary thereunder.  For purposes of determining the outstanding Letter of Credit Obligations at any time, the Bank’s acceptance of a draft drawn on the Bank pursuant to a Letter of Credit shall constitute a draw on the applicable Letter of Credit at the time of such acceptance.

“ Liabilities ” shall mean at all times all liabilities of the Borrowers that would be shown as such on a balance sheet of the Borrowers prepared in accordance with GAAP.

“ LIBOR ” shall mean a rate of interest equal to (a) the per annum rate of interest at which United States dollar deposits for a period equal to the relevant Interest Period are offered in the London Interbank Eurodollar market at 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period (or three Business Days prior to the commencement of such Interest Period if banks in London, England were not open and dealing in offshore United States dollars on such second preceding Business Day), as displayed in the Bloomberg Financial Markets system (or other authoritative source selected by the Bank in its sole discretion), divided by (b) a number determined by subtracting from 1.00 the then stated maximum reserve percentage for determining reserves to be maintained by member banks of the

Federal Reserve System for Eurocurrency funding or liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D), or as LIBOR is otherwise determined by the Bank in its sole and absolute discretion.  The Bank’s determination of LIBOR shall be conclusive, absent manifest error.

“ LIBOR Loan ” or “ LIBOR Loans ” shall mean that portion, and collectively those portions, of the aggregate outstanding principal balance of the Loans that bear interest with reference  or tied to the LIBOR Rate, of which at any time, the Borrowers may identify no more than an aggregate of six (6) advances of the Revolving Loans and the Term Loan which bear interest at the LIBOR Rate.

“ LIBOR Rate ” shall mean a per annum rate of interest equal to LIBOR for the relevant Interest Period, which LIBOR Rate shall remain fixed during such Interest Period.

“ Lien ” shall mean, with respect to any Person, any interest granted by such Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person (including an interest in respect of a Capital Lease) which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, title retention lien, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise.

“ Loans ” shall mean, collectively, all Revolving Loans, and the Term Loan made by the Bank to the Borrowers and all Letter of Credit Obligations, under and pursuant to this Agreement.

“ Loan Documents ” shall mean each of the agreements, mortgages, documents, instruments and certificates set forth in Section 3.1 hereof, and any and all such other instruments, documents, certificates and agreements from time to time executed and delivered by the Borrowers, or any of their Subsidiaries for the benefit of the Bank pursuant to any of the foregoing, and all amendments, restatements, supplements and other modifications thereto.

“ Master Letter of Credit Agreement ” shall mean, at any time, with respect to the issuance of Letters of Credit, a Master Letter of Credit Agreement in the form being used by the Bank at such time.

“ Material Adverse Effect ” shall mean (a) a material adverse change in, or a material adverse effect upon, the assets, business, properties, prospects, condition (financial or otherwise) or results of operations of the Borrowers and their Subsidiaries taken as a whole, (b) a material impairment of the ability of any of the Borrowers and their Subsidiaries to perform any of the Obligations under any of the Loan Documents, or (c) a material adverse effect on (i) any substantial portion of the Collateral, (ii) the legality, validity, binding effect or enforceability against any of the Borrowers or their Subsidiaries of any material provision of the Loan Documents (as reasonably determined by the Bank), (iii) the perfection or priority of any Lien on any material asset granted to the Bank under any Loan Document, or (iv) the rights or remedies of the Bank under any Loan Document.

“ Morgan Stanley ” shall mean Morgan Stanley.

“ Morgan Stanley Loan ” shall mean the Debt incurred by Lifeway to Morgan Stanley in an amount not to exceed $2,500,000 (or such greater amount as the Bank shall approve it is sole discretion) and secured by a Lien in some or all of the Excluded Collateral (other than real property included in the Excluded Collateral) owned by Lifeway and held at or controlled by Morgan Stanley.

“ Mortgage ” shall mean that certain Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing; executed by Lifeway in favor of the Bank with respect to the Morton Grove Property, the Niles Property and the Skokie Property.

“ Morton Grove Property ” shall mean the property owned that property owned by Lifeway located at 6431 W. Oakton Street, Morton Grove, Illinois 60053.

“ Net Cash Proceeds ” shall mean:

“ Net Income ” shall mean means, with respect to the Borrowers and their Subsidiaries for any period, the consolidated net income (or loss) of the Borrowers and their Subsidiaries for such period as determined in accordance with GAAP, excluding any gains from Asset Dispositions, any extraordinary gains and any gains from discontinued operations.

“ Niles Property ” shall mean that property owned by Lifeway located at 6101 Gross Point Rd., Niles, Illinois 60714.

“ Non-Excluded Taxes ” shall have the meaning set forth in Section 2.7(a) hereof.

“ Note ” and “ Notes ” shall mean, respectively, each of and collectively, the Revolving Note in the Form of Exhibit A and the Term Note in the form of Exhibit B .

“ Obligations ” shall mean the Loans, as evidenced by any Note, all interest accrued thereon (including interest which would be payable as post-petition in connection with any bankruptcy or similar proceeding, whether or not permitted as a claim thereunder), any fees due the Bank hereunder, any expenses incurred by the Bank hereunder, including without limitation, all liabilities and obligations under this Agreement, under any other Loan Document, any reimbursement obligations of any of the Borrowers in respect of Letters of Credit and surety bonds, all Hedging Obligations of any of the Borrowers which are owed to the Bank or any Affiliate of the Bank, and all Bank Product Obligations of any of the Borrowers, and any and all other liabilities and obligations owed by any of the Borrowers to the Bank from time to time, howsoever created, arising or evidenced, whether direct or indirect, joint or several, absolute or contingent, now or hereafter existing, or due or to become due, together with any and all renewals, extensions, restatements or replacements of any of the foregoing.

“ Obligor ” shall mean each of the Borrowers, any Subsidiary of the Borrowers, accommodation endorser, third party pledgor, or any other party liable with respect to the Obligations.

“ OFAC ” shall have the meaning set forth in Section 8.3 .

“ Organizational Documents ” means, with respect to each of the Borrowers, its articles/certificate of incorporation or formation, bylaws, partnership agreement, operating agreement, shareholder agreement and any other documents or instruments governing the formation and operation of such Borrower.

“ Organizational Identification Number ” means, with respect to each of the Borrowers, the organizational identification number assigned to such Borrower by the applicable governmental unit or agency of the jurisdiction of organization of such Borrower.

“ Other Taxes ” shall mean any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from the execution, delivery, enforcement or registration of, or otherwise with respect to, this Agreement or any of the other Loan Documents.

“ Permitted Liens ” shall mean (a)   Liens for Taxes, assessments or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and, in each case, for which it maintains adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (b)

Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics and materialmen and other similar Liens imposed by law, and (ii) Liens in the form of deposits or pledges incurred in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested in good faith by appropriate proceedings and not involving any advances or borrowed money or the deferred purchase price of property or services, which do not in the aggregate materially detract from the value of the property or assets of the Borrowers or materially impair the use thereof in the operation of any of the Borrower’s business and, in each case, for which it maintains adequate reserves in accordance with GAAP and in respect of which no Lien has been filed; (c) Liens described on Schedule 9.2 as of the date hereof; (d) easements, rights of way, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of the Borrowers or any of their Subsidiaries; (e) subject to the limitation set forth in Section 9.1(f) , Liens arising in connection with Capitalized Lease Obligations (and attaching only to the property being leased); (f) subject to the limitation set forth in Section 9.1(g) , Liens that constitute purchase money security interests on any property securing Debt incurred for the purpose of financing all or any part of the cost of acquiring such property, provided that any such Lien attaches to such property within twenty (20) days of the acquisition thereof and attaches solely to the property so acquired; (g)   Liens granted to the Bank hereunder and under the Loan Documents, (h) Liens in and only in the Excluded Collateral granted to the holder of (1) the Seller Note (but as to the Seller Note only Excluded Collateral which is real estate or capital stock of Lifeway) and (2) the Amani-Helios Note (but as to the Amani-Helios Note only Excluded Collateral which is not real estate) and (h) Liens in and only in Excluded Collateral (other than real property included in the Excluded Collateral) owned by Lifeway securing the Morgan Stanley Loan and Wachovia Loan provided such Excluded Collateral is held or controlled by Morgan Stanley and Wachovia, as the case may be.

“ Person ” shall mean any natural person, partnership, limited liability company, corporation, trust, joint venture, joint stock company, association, unincorporated organization, government or agency or political subdivision thereof, or other entity, whether acting in an individual, fiduciary or other capacity.

“ Pride ” shall mean Pride of Main Street Dairy, LLC, a Minnesota limited liability company.

“ Prime Loan ” or “ Prime Loans ” shall mean that portion, and collectively, those portions of the aggregate outstanding principal balance of the Loans that bear interest at the Prime Rate plus the Applicable Margin.

“ Prime Rate ” shall mean the floating per annum rate of interest which at any time, and from time to time, shall be most recently announced by the Bank as its Prime Rate, which is not intended to be the Bank’s lowest or most favorable rate of interest at any one time.  The effective date of any change in the Prime Rate shall for purposes hereof be the date the Prime

“ Regulatory Change ” shall mean the introduction of, or any change in any applicable law, treaty, rule, regulation or guideline or in the interpretation or administration thereof by any governmental authority or any central bank or other fiscal, monetary or other authority having jurisdiction over the Bank or its lending office.

“ Revolving Interest Rate ” shall mean the Borrowers’ from time to time option of (i) a floating per annum rate of interest equal to the Prime Rate plus the Applicable Margin, or (ii) the LIBOR Rate plus the Applicable Margin.

“ Revolving Loan ” and “ Revolving Loans ” shall mean, respectively, each direct advance and the aggregate of all such direct advances made by the Bank to the Borrowers under and pursuant to this Agreement, as set forth in Section 2.1 of this Agreement.

“ Revolving Loan Availability ” shall mean, at any time, an amount equal to the lesser of (a) the Revolving Loan Commitment minus the Letter of Credit Obligations, or (b) the Borrowing Base Amount minus the Letter of Credit Obligations.

“ Revolving Loan Commitment ” shall mean Five Million and 00/100 Dollars ($5,000,000.00).

“ Revolving Loan Maturity Date ” shall mean February 6, 2010, unless extended by the Bank pursuant to any modification, extension or renewal note executed by the Borrowers and accepted by the Bank in its sole and absolute discretion in substitution for the Revolving Note.

“ Revolving Note ” shall mean a revolving note in the amount of the Revolving Loan Commitment and maturing on the Revolving Loan Maturity Date, duly executed by the Borrowers and payable to the order of the Bank, together with any and all renewal, extension, modification or replacement notes executed by the Borrowers and delivered to the Bank and given in substitution therefor.

“ Seller Note ” shall mean that certain note made by FMI in favor of the Former FMI Shareholders.

“ Senior Debt ” shall mean all Debt of the Borrowers and their Subsidiaries to the Bank and/or any Affiliates of the Bank.

“ Skokie Property ” shall mean that property owned by Lifeway located at 7625 N. Austin Ave., Skokie, Illinois 60077.

“ Smolyansky Family ” shall mean any of Ludmila Smolyansky, Julie Smolyansky and Edward Smolyansky.

“ Starfruit ” shall mean Starfruit, LLC, an Illinois limited liability company.

“ Subordinated Debt ” shall mean the Amani-Helios Note and the Seller Note which are subordinated to the Obligations in a manner satisfactory to the Bank, including right and time of payment of principal and interest.

“ Subsidiary ” and “ Subsidiaries ” shall mean, respectively, with respect to any Person, each and all such corporations, partnerships, limited partnerships, limited liability companies, limited liability partnerships, joint ventures or other entities of which or in which such Person owns, directly or indirectly, such number of outstanding Capital Securities as have more than fifty percent (50.00%) of the ordinary voting power for the election of directors or other managers of such corporation, partnership, limited liability company or other entity.  Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of any of the Borrowers.

“ Tangible Assets ” shall mean the total of all assets appearing on a balance sheet of the Borrowers prepared in accordance with GAAP (with Inventory being valued at the lower of cost or market), after deducting all proper reserves (including reserves for Depreciation) minus the sum of (i) goodwill, patents, trademarks, prepaid expenses, deposits, deferred charges and other personal property which is classified as intangible property in accordance with GAAP, and (ii) any amounts due from shareholders, Affiliates, officers or employees of the Borrowers.

“ Tangible Net Worth ” shall mean at any time the total of Tangible Assets minus Liabilities plus Subordinated Debt.

“ Taxes ” shall mean any and all present and future taxes, duties, levies, imposts, deductions, assessments, charges or withholdings, and any and all liabilities (including interest and penalties and other additions to taxes) with respect to the foregoing.

“ Term Interest Rate ” shall mean the Borrowers’ from time to time option of (i) a floating per annum rate of interest equal to the Prime Rate plus the Applicable Margin, or (ii) the LIBOR Rate plus the Applicable Margin.

“ Term Loan ” shall mean the direct advance or advances made by the Bank to the Borrowers in the form of a Term Loan under and pursuant to this Agreement, as set forth in Section 2.2 of this Agreement.

“ Term Loan Commitment ” shall mean Seven Million Six Hundred Thousand and 00/100 Dollars ($7,600,00.00).

“ Term Loan Maturity Date ” shall mean February 6, 2014, unless extended by the Bank pursuant to any modification, extension or renewal note executed by the Borrowers and accepted by the Bank in its sole and absolute discretion in substitution for the Term Note.

“ Term Note ” shall mean a term note in the amount of the Term Loan Commitment and maturing on the Term Loan Maturity Date, duly executed by the Borrowers and payable to the order of the Bank, together with any and all renewal, extension, modification or replacement notes executed by the Borrowers and delivered to the Bank and given in substitution therefor.

“ UCC ” shall mean the Uniform Commercial Code in effect in the state of Illinois from time to time.

“ Unmatured Event of Default ” shall mean any event which, with the giving of notice, the passage of time or both, would constitute an Event of Default.

“ Voidable Transfer ” shall have the meaning set forth in Section 14.21 hereof.

“ Wachovia ” shall mean Wachovia Securities.

“ Wachovia Loan ” shall mean the Debt incurred by Lifeway to Wachovia in an amount not to exceed $750,000 (or such greater amount as the Bank shall approve it is sole discretion) and secured by Lien in marketable securities owned by Lifeway and held at or controlled by Wachovia.

“ Wholly-Owned Subsidiary ” shall mean any Subsidiary in which any of the Borrowers owns, directly or indirectly, one hundred percent (100%) of the Capital Securities of such Subsidiary.

1.2.   Accounting Terms .  Any accounting terms used in this Agreement which are not specifically defined herein shall have the meanings customarily given them in accordance with GAAP.  Calculations and determinations of financial and accounting terms used and not otherwise specifically defined hereunder and the preparation of financial statements to be furnished to the Bank pursuant hereto shall be made and prepared, both as to classification of items and as to amount, in accordance with sound accounting practices and GAAP as used in the preparation of the financial statements of the Borrowers on the date of this Agreement.  If any changes in accounting principles or practices from those used in the preparation of the financial statements are hereafter occasioned by the promulgation of rules, regulations, pronouncements and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or any successor thereto or agencies with similar functions), which results in a material change in the method of accounting in the financial statements required to be furnished to the Bank hereunder or in the calculation of financial covenants, standards or terms contained in this Agreement, the parties hereto agree to enter into good faith negotiations to amend such provisions so as equitably to reflect such changes to the end that the criteria for evaluating the financial condition and performance of the Borrowers will be the same after such changes as they were before such changes; and if the parties fail to agree on the amendment of such provisions, the Borrowers will furnish financial statements in accordance with such changes, but shall provide calculations for all financial covenants, perform all financial covenants and otherwise observe all financial standards and terms in accordance

with applicable accounting principles and practices in effect immediately prior to such changes.  Calculations with respect to financial covenants required to be stated in accordance with applicable accounting principles and practices in effect immediately prior to such changes shall be reviewed and certified by the Borrowers’ accountants.

1.3.   Other Terms Defined in UCC .  All other capitalized words and phrases used herein and not otherwise specifically defined herein shall have the respective meanings assigned to such terms in the UCC, to the extent the same are used or defined therein.

1.5.   Multiple Borrowers .  The term “Borrowers” refers to more than one Borrower.  Each of the Borrowers hereby designates the other Borrowers to act on behalf of all of the Borrowers for all purposes under this Agreement, including, without limitation, the requesting of Loans hereunder, and the reduction of any Revolving Loan Commitment.  Notice when given to any of the Borrowers shall be sufficient notice to all of the Borrowers.  Any document delivered to any of the Borrowers shall be considered delivered to each and all of the Borrowers.

2.2.   Term Loan .

2.3.   Additional LIBOR Loan Provisions .

2.4.   Interest and Fee Computation; Collection of Funds .  Except as otherwise set forth herein, all interest and fees shall be calculated on the basis of a year consisting of 360 days and shall be paid for the actual number of days elapsed.  Principal payments submitted in funds not immediately available shall continue to bear interest until collected.  If any payment to be made by the Borrowers hereunder or under any Note shall become due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing any interest in respect of such payment.  Notwithstanding anything to the contrary contained herein, the final payment due under any of the Loans must be made by wire transfer or other immediately available funds.  All payments made by the Borrowers hereunder or under any of the Loan Documents shall be made without setoff, counterclaim, or other defense.  To the extent permitted by applicable law, all payments hereunder or under any of the Loan Documents (including any payment of principal, interest, or fees) to, or for the benefit, of any Person shall be made by the Borrowers free and clear of, and without deduction or withholding for, or account of, any taxes now or hereinafter imposed by any taxing authority.

2.5.   Late Charge .  If any payment of interest or principal due hereunder is not made within ten (10) days after such payment is due in accordance with the terms hereof, then, in addition to the payment of the amount so due, the Borrowers shall pay to the Bank a “late charge” of five cents for each whole dollar so overdue to defray part of the cost of collection and

 

handling such late payment, provided, however, that the late charge provisions shall not apply to the payment of any outstanding principal balance under the Notes due upon maturity of the Notes, if Borrowers are in the process of obtaining refinancing at such time and Borrowers are diligently pursuing such refinancing.  The Borrowers agree that the damages to be sustained by the Bank for the detriment caused by any late payment are extremely difficult and impractical to ascertain, and that the amount of five cents for each one dollar due is a reasonable estimate of such damages, does not constitute interest, and is not a penalty.

2.6.   Letters of Credit .   Subject to the terms and conditions of this Agreement and upon (i) the execution by the Borrowers and the Bank of a Master Letter of Credit Agreement in form and substance acceptable to the Bank and (ii) the execution and delivery by the Borrowers, and the acceptance by the Bank, in its sole and absolute discretion, of a Letter of Credit Application, the Bank agrees to issue for the account of the Borrowers such Letters of Credit in the standard form of the Bank and otherwise in form and substance acceptable to the Bank, from time to time during the term of this Agreement, provided that the Letter of Credit Obligations may not at any time exceed the Letter of Credit Commitment and provided further, that no Letter of Credit shall have an expiration date later than the Letter of Credit Maturity Date; provided, however, that any outstanding Letter of Credit Obligations remaining after the Revolving Loan Maturity Date are cash collateralized in a manner acceptable to the Bank in its sole discretion.  The amount of any payments made by the Bank with respect to draws made by a beneficiary under a Letter of Credit for which the Borrowers have failed to reimburse the Bank upon the earlier of (i) the Bank’s demand for repayment, or (ii) five (5) days from the date of such payment to such beneficiary by the Bank, shall be deemed to have been converted to a Revolving Loan as of the date such payment was made by the Bank to such beneficiary.  Upon the occurrence of an Event of a Default and at the option of the Bank, all Letter of Credit Obligations shall be converted to Revolving Loans consisting of Prime Loans, all without demand, presentment, protest or notice of any kind, all of which are hereby waived by the Borrowers. To the extent the provisions of the Master Letter of Credit Agreement differ from, or are inconsistent with, the terms of this Agreement, the provisions of this Agreement shall govern.

2.8.   All Loans to Constitute Single Obligation .  The Loans shall constitute one general obligation of the Borrowers, and shall be secured by Bank’s priority security interest in and Lien upon all of the Collateral and by all other security interests, Liens, claims and encumbrances heretofore, now or at any time or times hereafter granted by the Borrowers   and any Subsidiary of the Borrowers to Bank.  Without limiting the generality of the foregoing, each of the Loans is cross-defaulted and cross- collateralized with each other Loan.

Notwithstanding any other provision of this Agreement, the Bank shall not be required to disburse, make or continue all or any portion of the Loans, if any of the following conditions shall have occurred on or before the date hereof (unless a later date is otherwise expressly provided for herein or the parties otherwise agree to a later date in writing).

3.1.   Loan Documents .  The Borrowers shall have failed to execute and deliver to the Bank any of the following Loan Documents, all of which must be satisfactory to the Bank and the Bank’s counsel in form, substance and execution:

3.2.   Event of Default .  Any Event of Default, or Unmatured Event of Default shall have occurred and be continuing.

3.3.   Material Adverse Effect .  The occurrence of any event having a Material Adverse Effect upon any of the Borrowers.

3.4.   Litigation .  Any litigation or governmental proceeding shall have been instituted against any of the Borrowers or any of their officers or shareholders having a Material Adverse Effect upon any of the Borrowers.

3.5.   Representations and Warranties .  Any representation or warranty of the Borrowers contained herein or in any Loan Document shall be untrue or incorrect as of the date of any Loan

 

as though made on such date, except to the extent such representation or warranty expressly relates to an earlier date.

4.1.   Revolving Note .  The Revolving Loans and the Letter of Credit Obligations shall be evidenced by the Revolving Note.  At the time of the initial disbursement of a Revolving Loan and at each time any additional Revolving Loan shall be requested hereunder or a repayment made in whole or in part thereon, a notation thereof shall be made on the books and records of the Bank.  All amounts recorded shall be, absent manifest error, conclusive and binding evidence of (i) the principal amount of the Revolving Loans advanced hereunder and the amount of all Letter of Credit Obligations, (ii) any accrued and unpaid interest owing on the Revolving Loans, and (iii) all amounts repaid on the Revolving Loans or the Letter of Credit Obligations.  The failure to record any such amount or any error in recording such amounts shall not, however, limit or otherwise affect the obligations of the Borrowers under the Revolving Note to repay the principal amount of the Revolving Loans, together with all interest accruing thereon.

4.2.   Term Note .  The Term Loan shall be evidenced by the Term Note.  At the time of the disbursement of the Term Loan or a repayment made in whole or in part thereon, a notation thereof shall be made on the books and records of the Bank.  All amounts recorded shall be, absent demonstrable error, conclusive and binding evidence of (i) the principal amount of the Term Loan advanced hereunder, (ii) any accrued and unpaid interest owing on the Term Loan and (iii) all amounts repaid on the Term Loan.  The failure to record any such amount or any error in recording such amounts shall not, however, limit or otherwise affect the obligations of the Borrowers under the Term Note to repay the principal amount of the Term Loan, together with all interest accruing thereon.

5.1.   Borrowing Procedures .  Each Revolving Loan and Term Loan may be advanced either as a Prime Loan or a LIBOR Loan, provided, however, that at any time, the Borrowers may identify no more than six (6) Loans which may be LIBOR Loans.  Each Loan shall be made available to the Borrowers upon any written, verbal, electronic, telephonic or telecopy loan request which the Bank in good faith believes to emanate from a properly authorized representative of the Borrowers, whether or not that is in fact the case.  Each such request shall be effective upon receipt by the Bank, shall be irrevocable, and shall specify the date, amount and type of borrowing and, in the case of a LIBOR Loan, the initial Interest Period therefor.  The Borrowers shall select Interest Periods so as not to require a payment or prepayment of any LIBOR Loan during an Interest Period for such LIBOR Loan.  The final Interest Period for any LIBOR Loan must be such that its expiration occurs on or before the Maturity Date of such Loan.  A request for a Prime Loan must be received by the Bank no later than 11:00 a.m. Chicago, Illinois   time, on the day it is to be funded.  A request for a LIBOR Loan must be (i) received by the Bank no later than 11:00 a.m. Chicago, Illinois time, three days before the day it is to be funded, and (ii) in an amount equal to Five Hundred Thousand and 00/100 Dollars ($500,000.00) or a higher integral multiple of One Hundred Thousand and 00/100 Dollars ($100,000.00).  The

 

proceeds of each Loan shall be made available at the office of the Bank by credit to the account of the Borrowers or by other means requested by the Borrowers and acceptable to the Bank.  The Borrowers do hereby irrevocably confirm, ratify and approve all such advances by the Bank and does hereby indemnify the Bank against losses and expenses (including court costs, attorneys’ and paralegals’ fees) and shall hold the Bank harmless with respect thereto.

5.2.   LIBOR Conversion and Continuation Procedures .  Each LIBOR Loan shall automatically renew for the Interest Period specified in the initial request received by the Bank pursuant to Section 5.1 , at the then current LIBOR Rate unless the Borrowers, pursuant to a subsequent written notice received by the Bank, shall elect a different Interest Period or the conversion of all or a portion of such LIBOR Loan to a Prime Loan.   Each Interest Period occurring after the initial Interest Period with respect to any LIBOR Loan shall commence on the same day of each applicable month as the first day of the initial Interest Period.  Whenever the last day of any Interest Period with respect to any LIBOR Loan would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day.  Whenever an Interest Period with respect to any LIBOR Loan would otherwise end on a day of a month for which there is no numerically corresponding day in the calendar month, such Interest Period shall end on the last day of such calendar month, unless such day is not a Business Day, in which event such Interest Period shall be extended to end on the next Business Day.   Upon receipt by the Bank of such subsequent notice, the Borrowers may, subject to the terms and conditions of this Agreement, elect, as of the last day of the applicable Interest Period, to continue any LIBOR Loan having an Interest Period expiring on such day for a different Interest Period, or to convert any such LIBOR Loan to a Prime Loan.  Such notice shall, in the case of a conversion to a Prime Loan, be given before 11:00 a.m., Chicago time, on the proposed date of such conversion, and in the case of conversion to a LIBOR Loan having a different Interest Period, be given before 11:00 a.m., Chicago time, at least three Business Days prior to the proposed date of such conversion, specifying: (i) the proposed date of conversion; (ii) the aggregate amount of Loans to be converted; (iii) the type of Loans resulting from the proposed conversion; and (iv) the duration of the requested Interest Period.  The Borrowers may not elect a LIBOR Rate, and an Interest Period for a LIBOR Loan shall not automatically renew, with respect to any principal amount which is scheduled to be repaid before the last day of the applicable Interest Period, and any such amounts shall bear interest at the Prime Rate plus the Applicable Margin for Prime Loans.

5.3.   Letters of Credit .  All Letters of Credit shall bear such application, issuance, renewal, negotiation and other fees and charges, and bear such interest as charged by the Bank or otherwise payable pursuant to the Master Letter of Credit Agreement.  In addition to the foregoing, each standby Letters of Credit issued under and pursuant to this Agreement shall bear an annual issuance fee equal to two percent (2.0%)   of the face amount of such standby Letter of Credit, payable by the Borrowers prior to the issuance by the Bank of such Letter of Credit and annually thereafter, until (i) such Letter of Credit has expired or has been returned to the Bank, or (ii) the Bank has paid the beneficiary thereunder the full face amount of such Letter of Credit.

5.4.   Automatic Debit .  In order to effectuate the timely payment of any of the Obligations when due, the Borrowers hereby authorizes and directs the Bank, at the Bank’s option, to (a) debit the amount of the Obligations to any ordinary deposit account of the Borrowers, or (b) make a Revolving Loan hereunder to pay the amount of the Obligations.

5.5.   Discretionary Disbursements .  The Bank, in its sole and absolute discretion, may immediately upon notice to the Borrowers, disburse any or all proceeds of the Loans made or available to the Borrowers pursuant to this Agreement to pay any fees, costs, expenses or other amounts required to be paid by the Borrowers hereunder and not so paid.  All monies so disbursed shall be a part of the Obligations, payable by the Borrowers on demand from the Bank.

6.1.   Security for Obligations .  As security for the payment and performance of the Obligations, the Borrowers does hereby pledge, assign, transfer, deliver and grant to the Bank, for its own benefit and as agent for its Affiliates, a continuing and unconditional first priority security interest in and to any and a