CREDIT AGREEMENT

WHEREAS, Lender has agreed to loan certain funds to the Borrower, and the Borrower has agreed to borrow certain funds from Lender, subject to the terms and conditions set forth therein;

NOW THEREFORE, in consideration of the terms and conditions contained herein, and of any loans or extensions of credit heretofore, now or hereafter made to or for the benefit of the Borrower by Lender (all of said loans hereafter referred to as the “Loans”), the parties hereto hereby agree as follows:

 

1.1.          General Terms.  When used herein, the following terms shall have the following meanings:

 

(i)             “Available Principal Balance” shall mean an amount equal to the Maximum Revolving Commitment less the outstanding principal balance of Revolving Credit Loans.

 

(ii)            “Default” shall mean the occurrence or existence of any one or more of the following events.

 

(a) The Borrower fails to pay any of its material “Liabilities” (as hereinafter defined) when due and said failure continues for a period of fifteen (15) days after written notice of same from Lender to the Borrower;

 

(b) A proceeding under any Bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed against Borrower which is not dismissed within sixty (60) days of its filing, or a proceeding under any Bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed by Borrower or the Borrower makes an assignment for the benefit of creditors; or

 

(c) A default by Borrower under any of the other Loan Documents.

 

(iii)           “Liabilities” shall mean all of Borrower’s liabilities, obligations, and indebtedness to Lender arising under or in accordance with the Loan Documents.

 

(iv)           “Loan Documents” means this Agreement, the Warrant Agreement and the Revolving Note.

 

(v)            “Maximum Revolving Commitment” shall mean $500,000.00.

 

(vi)          “Person” shall mean any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party, or government (whether national, federal, state, provincial, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

 

 

 

(vii)          “Revolving Note” shall mean that certain Five Hundred Thousand and No/100 Dollar ($500,000.00) note, of even date herewith executed by Borrower and made payable to the order of Lender.

 

(viii)         “Termination Date” shall mean September 4, 2013.

 

(ix)            “Warrant Agreement” shall mean that Warrant to Purchase Common Stock of the Borrower, of even date herewith, issued to the Lender,

 

 

2.1.          Revolving Loan.  If a Default does not exist, and subject to the provisions of Article 3 below, Lender shall, until but not after the Termination Date, advance to the Borrower, on a revolving credit basis loans (the “Revolving Credit Loans”), in an amount not to exceed at any time the Maximum Revolving Commitment.  The indebtedness of Borrower under all Revolving Credit Loans shall be evidenced by the Revolving Note.

 

2.2.          Maximum Principal Balance of Revolving Loan.  The aggregate outstanding balance of all Revolving Credit Loans shall at no time exceed the Maximum Revolving Commitment.  The aggregate outstanding balance of the Revolving Credit Loans at any time shall be the amounts advanced from time to time to Borrower and not repaid under Section 2.4.  The Borrower agrees that if at any time any such excess shall arise, the Borrower shall upon written request of Lender immediately pay to Lender such amount as may be necessary to eliminate such excess.

 

2.3.          Interest.  The Borrower shall pay interest to Lender on the outstanding and unpaid principal amount of the Revolving Credit Loans made under this Agreement at a rate of ten percent (10%) per annum.  Interest shall be calculated on the basis of a year of 365 days for the actual number of days elapsed.  All accrued and unpaid interest shall be due and payable on the Termination Date.  Accrued but unpaid interest shall not be included the aggregate outstanding balance of the Revolving Credit Loans for purposes of determining whether such balance has exceeded the Maximum Revolving Commitment.  Any amount of the Revolving Credit Loans, including, but not limited to, accrued interest, not paid when due (at maturity, by acceleration or otherwise) shall bear interest thereafter until paid in full, payable on demand, at a rate per annum equal to five (5%) percent over the then applicable interest rate (the “Default Rate”).

 

2.4.          Method of Payment.  The Borrower hereby authorizes Lender, if and to the extent payment is not made when due under this Agreement or under the Revolving Note, to offset from any funds of the Borrower in any capacity with Lender any amount so due.  The Borrower may prepay any Loan to Lender in whole or in part with accrued interest to the date of such prepayment on the amount prepaid.

3.            CONDITIONS OF ADVANCES.  Notwithstanding any other provisions contained in this Agreement, the making of any advance in connection with any Revolving Loan shall be conditioned upon the following:

 

3.1.          No Default.  No Default shall have occurred and be continuing under this Agreement or any of the Loan Documents or would result from such advance.

 

 

4.             NEGATIVE COVENANTS.  The Borrower covenants and agrees that so long as any Liabilities remain outstanding, and (even if there shall be no Liabilities outstanding) so long as this Agreement remains in effect (unless Lender shall give its prior written consent thereto):

 

4.1.   Amendment of Certificate of Incorporation or By-Laws.  Borrower shall not amend its Articles of Incorporation or By-Laws, charter or other organizational documents without Lender’s prior written consent, not to be unreasonably withheld or delayed.

 

4.2.          Mergers, Etc.  The Borrower shall not wind up, liquidate or dissolve itself, reorganize, merge or consolidate with or into, or convey, sell, assign, transfer, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person without Lender’s prior written consent.

 

 

5.1.          Liabilities.  If a Default shall exist or occur and be continuing, and upon the expiration of any applicable cure period, Lender may without notice declare all of the Liabilities immediately due and payable, in immediately available funds.

 

5.2.          Termination of Agreements.  Upon the occurrence of any Default, Lender may also, with or without proceeding with sale or foreclosure or demanding payment of the Liabilities, without notice, terminate Lender’s further performance under this Agreement or any other agreement or agreements between Lender and the Borrower and in addition may suspend Lender’s obligation to make any further advances hereunder during any cure period without further liability or obligation by Lender, and may also, upon the occurrence of any Default, appropriate and apply on any Liabilities any and all balances, credits, deposits, accounts, reserves, indebtedness, or other monies due or owing to Borrower or held by Lender hereunder or under any such financing agreement or otherwise, whether accrued or not.

 

5.3.           Waiver of Demand.  Demand, presentment, protest and notice of nonpayment are hereby waived by the Borrower.  The Borrower also waives the benefit of all valuation, appraisal and exemption laws.

 

6.             WARRANT.  As additional consideration for entering this Agreement, the Borrower agrees, as of the date hereof, to issue to Lender a warrant with a 10-year term to purchase an aggregate of 500,000 shares of common stock of the Company at $1.80 per share pursuant to the Warrant Agreement.

 

 

7.1.           Waiver.  Any suspension or waiver by Lender of a Default under this Agreement shall not suspend, waive or affect any other Default under this Agreement, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character.  None of the undertakings, agreements, warranties, covenants and representations of the Borrower contained in this Agreement and no Default under this Agreement shall be deemed to have been suspended or waived by Lender unless such suspension or waiver is in writing signed by an officer of Lender, and directed to the Borrower specifying such suspension or waiver.  The failure or delay of Lender to exercise or enforce any rights, liens, powers or remedies hereunder or under the Loan Documents or the other aforesaid agreements or other documents or against any security or collateral shall not operate as a waiver of such liens, rights, powers and remedies, but all such liens, rights powers and remedies shall continue in full force and effect until all Liabilities shall have been fully satisfied, and all liens, rights, powers and remedies herein provided for are cumulative and none are exclusive.

 

 

 

7.2.          Reliance by Lender.  All covenants, agreements, representations and warranties made herein by the Borrower, shall, notwithstanding any investigation by Lender, be deemed to be material to, and to have been relied upon by, Lender.

 

7.3.          Applicable Law; Severability.  This Agreement shall be construed in all respects in accordance with, and governed by, the internal laws (as opposed to conflicts of law provisions) of the State of New York.  Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.