Loan and Security Agreement, dated April 17, 2017, between Xplore Technologies Corp., Xplore Technologies Corporation of America and Bank of America, N.A

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) is dated as of April __, 2017, between XPLORE TECHNOLOGIES CORP., a Delaware corporation (“Technologies”), XPLORE TECHNOLOGIES CORPORATION OF AMERICA, a Delaware corporation (“XTCA” and together with Technologies, each a “Borrower” and collectively, the “Borrowers”) and BANK OF AMERICA, N.A., a national banking association (“Lender”).

Borrowers have requested that Lender provide a credit facility to Borrowers to finance their business enterprises.  Lender is willing to provide the credit facility on the terms and conditions set forth in this Agreement.

NOW, THEREFORE, for valuable consideration hereby acknowledged, the parties agree as follows:

Account: as defined in the UCC, including all rights to payment for goods sold or leased, or for services rendered.

Account Debtor: a Person obligated under an Account, Chattel Paper or General Intangible.

Accounts Formula Amount: an amount equal to the sum of (i) up to 85% of Borrowers’ domestic Eligible Accounts, plus (ii) up to 85% of Borrowers’ Eligible Foreign Insured Accounts, provided, that, in no event shall the aggregate amount of Revolver Loans made in respect of Eligible Foreign Insured Accounts exceed 25% of the Accounts Formula Amount.

Affiliate: with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

Applicable Margin: the margin set forth below, as determined by the Fixed Charge Coverage Ratio as of the most recently ended Fiscal Quarter:

Until December 31, 2017, margins shall be determined as if Level II were applicable.  Thereafter, the margins shall be subject to increase or decrease by Lender on the first day of each of the Borrowers’ Fiscal Quarters based upon the Fixed Charge Coverage Ratio as of the most recently ended Fiscal Quarter.  If Lender is unable to calculate the Fixed Charge Coverage Ratio for the most recently ended Fiscal Quarter due to Borrowers’ failure to deliver any Compliance Certificate when required hereunder, then, at the option of Lender, margins shall be determined as if Level III were applicable until the first day of the Fiscal Quarter following its receipt.

Availability: the Borrowing Base minus Revolver Usage.

Average Daily Availability: shall mean, for any period of determination, the average daily Availability during such period of determination.

Bank Product: any of the following products, services or facilities extended to a Borrower or Affiliate of a Borrower by Lender or any of its Affiliates: (a) Cash Management Services; (b) products under Hedging Agreements; and (c) commercial credit card and merchant card services.

Bank Product Debt: debt, obligations and other liabilities of Borrowers with respect to Bank Products.

Bank Product Reserve: the aggregate amount of reserves established by Lender from time to time in its discretion in respect of Bank Product Debt.

Base Rate: for any day, a per annum rate equal to the greater of (a) the Prime Rate for such day; (b) the Federal Funds Rate for such day, plus 0.50%; or (c) LIBOR for a 30 day interest period as determined on such day, plus 1.50%, without giving effect to any minimum floor rate specified in the definition of LIBOR.  In no event shall the Base Rate be less than 0%.

Borrowed Money: with respect to an Obligor, without duplication, its (a) debt that (i) arises from the lending of money by any Person to such Obligor; (ii) is evidenced by notes, drafts, bonds, debentures, credit documents or similar instruments; (iii) accrues interest or is a type upon which interest charges are customarily paid (excluding trade payables owing in the ordinary course of business); or (iv) was issued or assumed as full or partial payment for Property; (b) capital leases; (c) reimbursement obligations with respect to letters of credit; and (d) guaranties of any debt of the foregoing types owing by another Person.

Borrower Agent: as defined in Section 4.3

Borrowing Base: on any date of determination, an amount equal to the lesser of (a) Maximum Revolver Amount; or (b) the sum of (i) Accounts Formula Amount, plus (ii) the Inventory Formula Amount,  minus, (iii) Reserves.

Borrowing Base Report: a report of the Borrowing Base by Borrowers, in form and substance satisfactory to Lender. 

Business Day: any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, New York, and if such day relates to LIBOR, any such day on which dealings in dollar deposits are conducted in the London interbank market.

Cash Collateral: cash, and any interest or other income earned thereon, that is delivered to Lender to Cash Collateralize any Obligations.

Cash Collateral Account: a demand deposit, money market or other account maintained with Lender and subject to Lender's Liens.

Cash Collateralize: the delivery of cash to Lender, as security for the payment of Obligations, in an amount equal to (a) with respect to LC Obligations, 105% of the aggregate LC Obligations, and (b) with respect to any other Obligations (including Obligations arising under Bank Products), Lender's good faith estimate of the amount due or to become due.  “Cash Collateralization” has a correlative meaning.

Cash Management Services: services relating to operating, collections, payroll, trust, or other depository or disbursement accounts, including automated clearinghouse, e-payable, electronic funds transfer, wire transfer, controlled disbursement, overdraft, depository, information reporting, lockbox and stop payment services.

Change of Control: (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934), directly or indirectly, of 35% or more of the aggregate outstanding Equity Interests of the Technologies; (b) Technologies ceases to own and Control, beneficially and of record, directly or indirectly, 100% of all Equity Interests in XTCA and XTIC; (c) a change in the majority of directors of any Borrower during any 24 month period, unless approved by the majority of directors serving at the beginning of such period; or (d) the sale or transfer of all or substantially all assets of any Borrower.

Collateral: all Property described in Section 7.1, and all other Property that now or hereafter secures (or is intended to secure) any Obligations.

Commitment Termination Date: the earliest to occur of (a) the Revolver Termination Date; (b) the date on which Borrowers terminate the Revolver Commitment pursuant to Section 2.1.3; or (c) the date on which the Revolver Commitment is terminated pursuant to Section 11.2.

Commitments: the Revolver Commitment.

Compliance Certificate: a certificate delivered by a knowledgeable officer of Borrowers certifying compliance with Section 10.3.

Control: the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled” have correlative meanings.

Default: an event or condition that, with the lapse of time or giving of notice, would constitute an Event of Default.

Default Rate: for any Obligation (including, to the extent permitted by law, interest not paid when due), 2% plus the interest rate otherwise applicable thereto.

Deposit Account Control Agreement: a control agreement satisfactory to Lender executed by an institution maintaining a Deposit Account for an Obligor, to perfect Lender's Lien on such account.

Dilution Reserve: a reserve established from time to time by Lender, in its discretion, in an amount less than or equal to the amount of Borrowers’ bad debt write-downs, discounts, returns, promotions, credits, credit memos and other cash reductions with respect to Accounts to the extent such amount exceeds 5% of the gross face amount of such Accounts,  as determined from the most recent field examination conducted by Lender and calculated on a trailing twelve month basis.

Dominion Account: a special account established and maintained by Borrowers at Lender or another bank acceptable to Lender to receive payments on Accounts or other Payment Items, over which Lender has exclusive control for withdrawal purposes.

EBITDA: determined on a consolidated basis for Borrowers and its Subsidiaries, net income, calculated before interest expense, provision for income taxes, depreciation and amortization expense, gains or losses arising from the sale of capital assets, gains arising from the write-up of assets, any extraordinary gains and extraordinary losses, gains or losses arising in connection with foreign exchange transactions, and non-cash employee compensation expenses relating to equity-based compensation  (in each case, to the extent included in determining net income).

Eligible Account: an Account owing to a Borrower that arises in the ordinary course of business from the sale of goods or rendition of services, and is deemed by Lender, in its discretion, to be an Eligible Account.  Without limiting the foregoing, no Account shall be an Eligible Account if (a) it is unpaid for more than 60 days after the original due date, or more than 90 days after the original invoice date; (b) 50% or more of the Accounts owing by the Account Debtor (or its Affiliates) are not Eligible Accounts under the foregoing clause; (c) when aggregated with other Accounts owing by the Account Debtor (or its Affiliates), it exceeds 15% (or in the case of (i) Verizon Communications, Inc., its Affiliates, and its designated fulfillment partners (i.e., Software House International) , such percentage shall be 25%, and (ii) AT&T Inc., its Affiliates, and its designated fulfillment partners (i.e., Prosys), such percentage shall be 25%) of the aggregate Eligible Accounts (or such higher percentage as Lender may establish for the Account Debtor from time to time); (d) it does not conform with a covenant or representation herein; (e) it is owing by a creditor or supplier, or is otherwise subject to a potential offset, counterclaim, dispute, deduction, discount, recoupment, reserve, defense, chargeback, credit or allowance (but ineligibility shall be limited to the amount thereof); (f) an insolvency or bankruptcy proceeding has been commenced by or against the Account Debtor; or the Account Debtor has failed, has suspended or ceased doing business, is liquidating, dissolving or winding up its affairs, is not solvent, or is subject to any sanction or on any specially designated nationals list maintained by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); or the Borrower is not able to bring suit or enforce remedies against the Account Debtor through judicial process; (g) the Account Debtor is organized or has its principal offices or assets outside the United States; (h) it is owing by a governmental authority, unless the Account Debtor is the United States or any department, agency or instrumentality thereof and the Account has been assigned to Lender in compliance with the federal Assignment of Claims Act; (i) it is not subject to a duly perfected, first priority Lien in favor of Lender, or is subject to any other Lien; (j) the goods giving rise to it have not been delivered to the Account Debtor, the services giving rise to it have not been accepted by the Account Debtor, or it otherwise does not represent a final sale; (k) it is evidenced by Chattel Paper or an Instrument of any kind, or has been reduced to judgment; (l) its payment has been extended or the Account Debtor has made a partial payment; (m) it arises from a sale to an Affiliate, from a sale on a cash-on-delivery, bill-and-hold, sale or return, sale on approval, consignment, or other repurchase or return basis, or from a sale for personal, family or household purposes; (n) it represents a progress billing or retainage, or relates to services for which a performance, surety or completion bond or similar assurance has been issued; or (o) it includes a billing for interest, fees or late charges, but ineligibility shall be limited to the extent thereof.  In calculating delinquent portions of Accounts under clauses (a) and (b), credit balances more than 90 days old will be excluded.

Eligible Foreign Insured Accounts: Accounts that meet the requirements of Eligible Accounts, except clause (g) of such definition, to the extent that such Account is  supported by a letter of credit (delivered to and directly drawable by Lender) or is credit insured (the insurance carrier, amount and terms of such insurance shall be reasonably acceptable to Lender, shall name Lender as beneficiary or loss payee, as applicable and shall be monitored by FGI Worldwide).

Eligible Inventory: Inventory owned by a Borrower that Lender, in its discretion, deems to be Eligible Inventory.  Without limiting the foregoing, no Inventory shall be Eligible Inventory unless it (a) is finished goods and not raw materials, or work-in-process, packaging or shipping materials, labels, samples, display items, bags, replacement parts or manufacturing supplies; (b) is not held on consignment, nor subject to any deposit or down payment; (c) is in new and saleable condition and is not damaged, defective, shopworn or otherwise unfit for sale; (d) is not slow-moving (i.e. Inventory that has not been sold or shipped

within twelve (12) months after the date of production), perishable, obsolete or unmerchantable, and does not constitute returned or repossessed goods;  except, that, Lender may, in its discretion, deem slow-moving Inventory (i.e. Inventory that has not been sold or shipped within twelve (12) months after the date of production) to be eligible for borrowing purposes, subject to the terms and conditions set forth in the definition of Inventory Formula Amount herein; (e) meets all standards imposed by any governmental authority, has not been acquired from an entity subject to any sanction or on any specially designated nationals list maintained by OFAC, and does not constitute hazardous materials under any environmental law; (f) conforms with the covenants and representations herein; (g) is subject to Lender's duly perfected, first priority Lien, and no other Lien; (h) is within the continental United States, is not in transit except between locations of a Borrower, and is not consigned to any Person, provided, that, upon the request of Borrowers, Lender may, in its sole discretion, deem in-transit Inventory which is held by a shipping company or carrier and “on the water” to be eligible for borrowing purposes so long as Borrowers satisfy Lender’s customary procedures and policies with respect to in-transit Inventory, including, without limitation, delivering customs brokers/freight forwarder waivers, in form and substance satisfactory to Lender, in favor of Lender with respect to such in-transit Inventory and executing an amendment to this Agreement to agree to such customary procedures and policies; (i) is not subject to any warehouse receipt or negotiable Document; (j) is not subject to any License or other arrangement that restricts a Borrower's or Lender's right to dispose of such Inventory, unless Lender has received an appropriate Lien Waiver;  (k) is located (i) on a premises containing Eligible Inventory with an aggregate Value of at least $50,000, (ii) if such Inventory is located on a leased premises or in the possession of a warehouseman, processor, repairman, mechanic, shipper, freight forwarder or other Person, such lessor or such other Person has delivered a Lien Waiver or an appropriate Reserve has been established, or (iii) if such Inventory is located on a premises owned by a Borrower and such premises is subject to a mortgage, the mortgagee of such premises has delivered a mortgagee waiver in form and substance satisfactory to Lender.

Enforcement Action: any action to enforce any Obligations or Loan Documents or to realize upon any Collateral.

Equity Interest: the interest of any (a) shareholder in a corporation; (b) partner in a partnership (whether general, limited, limited liability or joint venture); (c) member in a limited liability company; or (d) other Person having any other form of equity security or ownership interest.

Excluded Accounts: (ii) that certain Money Market Demand Account No. 1001653839, in the name of Technologies, held at Pacific Western Bank, so long as not more than $100,000 is deposited into such account and (ii) deposit accounts maintained with Silicon Valley Bank listed on Schedule 8.5 so long as the amounts deposited in all such accounts do not exceed a balance of $100,000 in the aggregate.

Federal Funds Rate: (a) the weighted average of interest rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on the applicable Business Day (or on the preceding Business Day, if the applicable day is not a Business Day), as published by the Federal Reserve Bank of New York on the next Business Day; or (b) if no such rate is published on the next Business Day, the average rate charged to Lender on the applicable day on such transactions, as determined by Lender in its discretion.  In no event shall the Federal Funds Rate be less than 0%.

Financial Covenant Trigger Period: the period (a) commencing on the day that (i) a Default or Event of Default occurs, or (ii) the sum of Availability, minus the aggregate amount of Borrower’s accounts payables stretched beyond their customary payment practices, is less than the greater of (x) 20% of the Borrowing Base and (y) $2,500,000; and (b) continuing until, during each of the preceding sixty (60) consecutive days, (i) no Default or Event of Default has existed and (ii) the sum of Availability, minus the aggregate amount of Borrower’s accounts payables stretched beyond their customary payment practices, has been more than the greater of (x) 20% of the Borrowing Base and (y) $2,500,000.

Fiscal Quarter: each period of three months, commencing on the first day of a Fiscal Year.

Fiscal Year: the fiscal year of Borrowers and their Subsidiaries for accounting and tax purposes, ending on March 31^st of each year.

Fixed Charge Coverage Ratio: the ratio, determined for Borrowers and their Subsidiaries on a consolidated basis for the most recent 12 month period then ended, of (a) EBITDA minus (i) capital expenditures (except those financed with Borrowed Money other than Revolver Loans) and (ii) cash taxes paid, to (b) Fixed Charges.

Fixed Charges: for any period of determination for Borrowers and their Subsidiaries on a consolidated basis, the sum of (a) interest expense (other than payment-in-kind), plus (b) regularly scheduled principal payments on Borrowed Money, plus (c) Restricted Payments made in cash during such period.

Full Payment: with respect to any Obligations, the full and indefeasible cash payment thereof (other than inchoate contingent obligations for which no claim has been asserted), including any interest, fees and other charges accruing during an insolvency proceeding (whether or not allowed in the proceeding).  The Revolver Loans shall not be deemed to have been paid in full unless the Revolver Commitment has terminated.

Guarantor: XTIC and each Person that guarantees payment or performance of Obligations.

Hedging Agreement: a “swap agreement” as defined in U. S. Bankruptcy Code Section 101(53B)(A).

Increased Appraisal Trigger Period: the period (a) commencing on the day that (i) a Default or Event of Default occurs, (ii) the sum of Availability, minus the aggregate amount of Borrower’s accounts payables stretched beyond their customary payment practices, is less than 40% of the Borrowing Base; or (iii) the Revolver Usage in respect of Inventory exceeds $2,000,000; and (b) continuing until, during each of the preceding sixty (60) consecutive days, (i) no Default or Event of Default has existed and (ii) the sum of Availability, minus the aggregate amount of Borrower’s accounts payables stretched beyond their customary payment practices, has been more than 40% of the Borrowing Base; and (y) the Revolver Usage in respect of Inventory has been less than $2,000,000.

Increased Examination Trigger Period: the period (a) commencing on the day that (i) a Default or Event of Default occurs, or (ii) the sum of Availability, minus the aggregate amount of Borrower’s accounts payables stretched beyond their customary payment practices, for each of the preceding five (5) consecutive days has been less than the greater of (x) 20% of the Borrowing Base and (y) $2,500,000; and (b) continuing until, during each of the preceding sixty (60) consecutive days, (i) no Default or Event of Default has existed and (ii) the sum of Availability, minus the aggregate amount of Borrower’s accounts payables stretched beyond their customary payment practices, has been more than the greater of (x) 20% of the Borrowing Base and (y) $2,500,000.

Increased Reporting Trigger Period: the period (a) commencing on the day that (i) a Default or Event of Default occurs, or (ii) the sum of Availability, minus the aggregate amount of Borrower’s accounts payables stretched beyond their customary payment practices, for each of the preceding five (5) consecutive days has been less than the greater of (x) 20% of the Borrowing Base and (y) $2,500,000; and (b) continuing until, during each of the preceding sixty (60) consecutive days, (i) no Default or Event of Default has existed and (ii) the sum of Availability, minus the aggregate amount of Borrower’s accounts payables stretched beyond their customary payment practices, has been more than the greater of (x) 20% of the Borrowing Base and (y) $2,500,000.

Inventory: as defined in the UCC, including all goods intended for sale, lease, display or demonstration; all work in process; and all raw materials, and other materials and supplies of any kind that are or could be used in connection with the manufacture, printing, packing, shipping, advertising, sale, lease or furnishing of such goods, or otherwise used or consumed in any Borrower's business (but excluding Equipment).

Inventory Formula Amount: an amount equal to the lesser of:

(a)

up to 65% of the Value of total Eligible Inventory consisting of finished goods; and

(b)          up to 85% of the NOLV of Eligible Inventory consisting of finished goods.

provided, that, in no event shall (i) the aggregate amount of Revolver Loans made in respect of Eligible Inventory exceed 35% of the Borrowing Base and (ii) any slow-moving Inventory (i.e. Inventory that has not been sold or shipped within twelve (12) months after the date of production) be deemed to be eligible for borrowing purposes on or after the date which is six (6) months from the Closing Date.

LC Application: an application by Borrower Agent to Lender for issuance of a Letter of Credit, in form and substance satisfactory to Lender.

LC Conditions: upon issuance of the Letter of Credit: (a) each condition in Section 6 is satisfied; (b) after giving effect to any requested Letter of Credit, (i) total LC Obligations do not exceed the Letter of Credit Subline and (ii) Revolver Usage does not exceed the Borrowing Base; and (c) the purpose and form of the Letter of Credit are satisfactory to Lender in its discretion.

LC Documents: all documents, instruments and agreements (including LC Requests and LC Applications) delivered by Borrowers or any other Person to Lender in connection with any Letter of Credit.

LC Obligations: the sum of (a) all amounts owing by Borrowers for drawings under Letters of Credit; and (b) the Stated Amount of all outstanding Letters of Credit.

LC Request: a request for issuance of a Letter of Credit, to be provided by Borrower Agent in form satisfactory to Lender.

Letter of Credit: any standby or documentary letter of credit, foreign guaranty, documentary bankers acceptance or similar instrument issued by Lender for the account or benefit of a Borrower.

Letter of Credit Subline: $1,000,000.

LIBOR: for each month, the per annum rate of interest (rounded up to the nearest 1/8th of 1% and in no event less than zero) determined by Lender at or about 11:00 a.m. (London time) as of the first day of such month for a one-month term, equal to the London Interbank Offered Rate for a 30-day interest period, or comparable or successor rate approved by Lender, as published on the applicable Reuters screen page (or other commercially available source designated by Lender from time to time); provided, that any comparable or successor rate shall be applied by Lender, if administratively feasible, in a manner consistent with market practice.  If such rate is not available at such time, then the rate will be determined by such alternate method as reasonably selected by Lender.  If at any time LIBOR is less than zero, such rate shall be deemed to be zero.

License: any license or agreement under which an Obligor is authorized to use intellectual property in connection with any manufacture, marketing, distribution or disposition of Collateral, any use of Property or any other conduct of its business.

Lien: a Person's interest in Property securing an obligation owed to, or a claim by, such Person, including any lien, security interest, pledge, hypothecation, assignment, trust, reservation, encroachment, easement, right-of-way, covenant, condition, restriction, lease, or other title exception or encumbrance.

Lien Waiver: an agreement, in form and substance satisfactory to Lender, by which (a) a lessor waives or subordinates any Lien it may have on the Collateral, and agrees to permit Lender to enter upon the premises and remove the Collateral or to use the premises to store or dispose of the Collateral; (b) for any Collateral held by a warehouseman, processor, shipper, customs broker or freight forwarder, such Person waives or subordinates any Lien it may have on the Collateral, agrees to hold any Documents in its possession relating to the Collateral as agent for Lender, and agrees to deliver the Collateral to Lender upon request; (c) for any Collateral held by a repairman, mechanic or bailee, such Person acknowledges Lender's Lien, waives or subordinates any Lien it may have on the Collateral, and agrees to deliver the Collateral to Lender upon request; and (d) for any Collateral subject to a licensor's intellectual property rights, the licensor grants to Lender the right, vis-à-vis such licensor, to enforce Lender's Liens with respect to the Collateral, including the right to dispose of it with the benefit of the intellectual property, whether or not a default exists under any applicable license.

Loan: a Revolver Loan.

Loan Documents: this Agreement, Other Agreements and Security Documents.

Loan Year: each 12 month period commencing on the Closing Date (as defined in Section 6.1) and on each anniversary of the Closing Date.

Material Adverse Effect: the effect of any event or circumstance that, taken alone or in conjunction with other events or circumstances, (a) has or could be reasonably expected to have a material adverse effect on the business, operations, Properties, prospects or condition (financial or otherwise) of any Borrower, on the value of any material Collateral, on the enforceability of any Loan Documents, or on the validity or priority of Lender's Liens on any Collateral; (b) impairs the ability of any Borrower to perform its obligations under the Loan Documents, including repayment of any Obligations; or (c) otherwise impairs the ability of Lender to enforce or collect any Obligations or to realize upon any Collateral.

Maximum Revolver Amount: means $15,000,000.

NOLV: the net orderly liquidation value of Inventory, expressed as a percentage, expected to be realized at an orderly, negotiated sale held within a reasonable period of time, net of all liquidation and/or foreclosure expenses, as determined from the most recent appraisal of any Borrower’s Inventory, performed by an appraiser and on terms satisfactory to Lender.

Notice of Borrowing: a request by Borrower Agent for a Borrowing of Revolver Loans, in form satisfactory to Lender.

Obligations: all (a) principal of and premium, if any, on the Loans, (b) LC Obligations and other obligations of Borrowers with respect to Letters of Credit, (c) interest, expenses, fees, costs, indemnification obligations and other amounts payable by any Borrower under the Loan Documents, (d) Bank Product Debt, and (e) other debts, obligations and liabilities of any kind owing by any Borrower to Lender, whether now existing or hereafter arising, whether evidenced by a note or other writing, whether allowed in any insolvency or bankruptcy proceeding, whether arising from an extension of credit, issuance of a letter of credit, acceptance, loan, guaranty, indemnification or otherwise, and whether direct or indirect, absolute or contingent, due or to become due, primary or secondary, or joint or several.

Obligor: Borrowers, Guarantors, or any other Person that is liable for payment of any Obligations or that has granted a Lien in favor of Lender on its assets to secure any Obligations.

Other Agreement: each LC Document, Lien Waiver, Borrowing Base Report, Compliance Certificate, financial statement or report delivered hereunder; or other document, instrument or agreement (other than this Agreement or a Security Document) now or hereafter delivered by an Obligor or other Person to Lender in connection with any transactions relating hereto.

Patriot Act: the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272 (2001).

Payment Item: each check, draft or other item of payment payable to Borrowers, including those constituting proceeds of any Collateral.

PCAOB: the Public Company Accounting Oversight Board.

Permitted Lien: as defined in Section 10.2.2.

Person: any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization, governmental authority or other entity.

Prime Rate: the rate of interest announced by Bank of America from time to time as its prime rate.  Such rate is set by Bank of America on the basis of various factors, including its costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such rate.  Any change in such rate publicly announced by Bank of America shall take effect at the opening of business on the day specified in the announcement.

Property: any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible.

Real Estate: all right, title and interest (whether as owner, lessor or lessee) in any real Property or any buildings, structures, parking areas or other improvements thereon.

Rent and Charges Reserve: the aggregate of (a) all past due rent and other amounts owing by an Obligor to any landlord, warehouseman, processor, repairman, mechanic, shipper, freight forwarder, broker or other Person who possesses any Collateral or could assert a Lien on any Collateral; (b) a reserve at least equal to three months rent and other charges that could be payable to any such Person, unless it has executed a Lien Waiver; and (c) such other reserves with respect to rent and other amounts  or the Borrowing Base as Lender may establish in its discretion owing by an Obligor to any landlord, warehouseman, processor, repairman, mechanic, shipper, freight forwarder, broker or other Person who possesses any Collateral or could assert a Lien on any Collateral.

Reserves: collectively, (a) the  Bank Product Reserve and (b) the Dilution Reserve, (c) the Warranty Reserve, (d) a reserve for all accrued Royalties, whether or not then due and payable by a Borrower; (e) Rent and Charges Reserve; and (f) such other reserves against the Collateral or the Borrowing Base as Lender may establish in its discretion.

Restricted Payments:  means payments on account of (a) distributions, dividends, or stock repurchases made in respect of the Equity Interest or other ownership interests of a Borrower permitted under Section 10.2.4 and (b) acquisitions and investments permitted under Section 10.2.5(d).

Restricted Payment Conditions:  to the extent this Agreement or a Loan Document requires that a Restricted Payment comply with the Restricted Payment Conditions, such payment shall be subject to the following conditions: prior to and after giving effect to such payment (a) no Default or Event of Default exists or is caused thereby; and (b) upon giving pro forma effect to such payment, (i) Borrowers shall have maintained, for the 60 day period immediately preceding such payment, Average Daily Availability of not less than 50% (or, in the case of Restricted Payments under clause (b) of such definition, 25%) of the

Maximum Revolver Amount, (ii) Borrowers shall have, immediately after giving effect to such payment, Availability of not less than 50% (or, in the case of Restricted Payments under clause (b) of such definition, 25%) of the Maximum Revolver Amount; and (iii) the Fixed Charge Coverage Ratio for the twelve month period preceding the month in which the proposed payment is to be made, is not less than 1.25 : 1.0 (or, in the case of Restricted Payments under clause (b) of such definition, 1.0 : 1.0), which shall be calculated on a pro forma basis as if such payment was made during such twelve month period.

Restrictive Agreement: an agreement (other than a Loan Document) that conditions or restricts the right of any Borrower,  any Subsidiary or other Obligor to incur or repay Borrowed Money, to grant Liens on any assets, to declare or make distributions, to modify, extend or renew any agreement evidencing Borrowed Money, or to repay any intercompany debt.

Revolver Commitment: Lender's obligation to make Revolver Loans and to issue Letters of Credit in an aggregate amount up to the Maximum Revolver Amount.

Revolver Loan: a loan made pursuant to Section 2.1.

Revolver Termination Date: April __, 2020.

Revolver Usage: the aggregate amount of outstanding Revolver Loans, plus the aggregate Stated Amount of outstanding Letters of Credit and other LC Obligation.

Royalties: all royalties, fees, expense reimbursement and other amounts payable by any Borrower under a License.

Secured Party or Secured Parties: Lender and providers of Bank Products.

SEC: the Securities and Exchange Commission, or any governmental authority succeeding to any of its principal functions.

Security Documents: the Guaranties, security agreements, Deposit Account Control Agreements, and all other documents, instruments and agreements now or hereafter securing (or given with the intent to secure) any Obligations.

Stated Amount: the outstanding amount of a Letter of Credit, including any automatic increase or tolerance (whether or not then in effect) provided by the Letter of Credit or related LC Documents.

Subordinated Debt: debt incurred by any Borrower that is expressly subordinate and junior in right of payment to the Full Payment of all Obligations, and is on terms (including maturity, interest, fees, repayment, covenants and subordination) satisfactory to Lender.

Subsidiary or Subsidiaries: any entity at least 50% of whose voting securities or Equity Interests is owned by a Borrower (including indirect ownership through other entities in which such Borrower directly or indirectly owns 50% of the voting securities or Equity Interests).

Tax Distributions:  a distribution by any Borrower to the holders of the Equity Interests of such Borrower solely to the extent necessary to permit such holders to discharge their respective federal, state and local tax liabilities arising directly as holders of the Equity Interests of such Borrower, determined based on the assumption that all such holders are subject to the highest marginal tax rate in effect at the time of such distribution and subject to the maximum limitation on the utilization of deductions, losses, allowances and credits.

UCC: the Uniform Commercial Code as in effect in the State of New York or, when the laws of any other jurisdiction govern the perfection or enforcement of any Lien, the Uniform Commercial Code of such jurisdiction.

Unused Line Fee Rate: a per annum rate equal to (a) 0.25%, if the average daily balance of Revolver Usage was greater than 50% of the Revolver Commitments during the preceding calendar month, or (b) 0.375%, if the average daily balance of Revolver Loans was less than or equal to 50% of the Revolver Commitments during the preceding calendar month.

Value: with respect to Inventory, its value determined on the basis of the lower of cost or market, calculated on a first-in, first-out basis, and excluding any portion of cost attributable to intercompany profit among Borrowers and their Affiliates.

Warranty Reserve: a reserve established from time to time by Lender, in its discretion, in an amount equal to the full amount of the accrued potential liability of Borrowers in respect of warranties extended to their customers in connection with the sale of Inventory.

XTCA: as defined in the introductory to this Agreement, Xplore Technologies Corporation of America, a Delaware corporation.

XTIC: Xplore Technologies International Corp., a Delaware corporation.

1.2.          Accounting Terms.  Under the Loan Documents (except as otherwise specified therein), all accounting terms shall be interpreted, all accounting determinations shall be made, and all financial statements shall be prepared, in accordance with generally accepted accounting principles in the U.S. (“GAAP”) applied on a basis consistent with the most recent audited financial statements of Borrowers delivered to Lender before the Closing Date and using the same inventory valuation method as used in such financial statements, except for any change required or permitted by GAAP if Borrowers’ certified public accountants concur in such change, the change is disclosed to Lender, and all relevant provisions of the Loan Documents are amended in a manner satisfactory to Lender to take into account the effects of the change.

1.3.          Uniform Commercial Code.  As used herein, the following terms are defined in accordance with the UCC in effect in the State of New York from time to time:  “Chattel Paper,” “Commercial Tort Claim,” “Deposit Account,” “Document,” “Equipment,” “General Intangibles,” “Goods,” “Instrument,” “Investment Property,” “Letter-of-Credit Right” and “Supporting Obligation.”

SECTION 2.           CREDIT FACILITIES

2.1.          Revolver Commitment.

2.1.1.          Revolver Loans.  Lender agrees, on the terms set forth herein, to make Revolver Loans to Borrowers in an aggregate amount up to the Maximum Revolver Amount, from time to time through the Commitment Termination Date.  Revolver Loans may be repaid and reborrowed as provided herein.  In no event shall Lender have any obligation to honor a request for a Revolver Loan if Revolver Usage at such time plus the requested Loan would exceed the Borrowing Base.

The Revolver Commitment shall terminate on the Revolver Termination Date, unless sooner terminated in accordance with this Agreement.  Upon at least 30 days prior written notice to Lender at any time, Borrowers may terminate the Revolver Commitment and this credit facility.  Any notice of termination given by Borrowers shall be irrevocable.  On the Commitment Termination Date, Borrowers shall make Full Payment of all Obligations.

2.1.4.          Overadvances.  If Revolver Usage exceeds the Borrowing Base (“Overadvance”) at any time, such excess shall be payable by Borrowers on demand by Lender, but all Revolver Usage (including the excess amount) shall nevertheless constitute Obligations secured by the Collateral and entitled to all benefits of the Loan Documents.  No funding or sufferance of an Overadvance by Lender shall constitute a waiver of the Event of Default (as defined in Section 11) caused thereby.

2.2.          Letter of Credit Facility.

2.2.1.          Issuance of Letters of Credit.  Lender agrees to issue Letters of Credit from time to time until 30 days prior to the Revolver Termination Date (or until the Commitment Termination Date, if earlier), on the terms set forth herein, including the following:

(a)          Each Borrower acknowledges that Lender's willingness to issue any Letter of Credit is conditioned upon its receipt of a LC Application with respect to the requested Letter of Credit, as well as such other instruments and agreements as Lender may customarily require for issuance of a letter of credit of similar type and amount.  Lender shall have no obligation to issue any Letter of Credit unless (i) it receives a LC Request and LC Application at least three Business Days prior to the requested date of issuance; and (ii) each LC Condition is satisfied.

(b)          Letters of Credit may be requested by a Borrower to support obligations incurred in the ordinary course of business, or as otherwise approved by Lender.  Increase, renewal or extension of a Letter of Credit shall be treated as issuance of a new Letter of Credit, except that Lender may require a new LC Application in its discretion.

(c)          Borrowers assumes all risks of the acts, omissions or misuses of any Letter of Credit by the beneficiary.  In connection with issuance of any Letter of Credit, Lender shall not be responsible for the existence, character, quality, quantity, condition, packing, value or delivery of any goods purported to be represented by any Documents; any differences or variation in the character, quality, quantity, condition, packing, value or delivery of any goods from that expressed in any documents; the form, validity, sufficiency, accuracy, genuineness or legal effect of any documents or of any endorsements thereon; the time, place, manner or order in which shipment of goods is made; partial or incomplete shipment of, or failure to ship, any goods referred to in a Letter of Credit or documents; any deviation from instructions, delay, default or fraud by any shipper or other Person in connection with any goods, shipment or delivery; any breach of contract between a shipper or vendor and Borrowers; errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex, telecopy, e-mail, telephone or otherwise; errors in interpretation of technical terms; the misapplication by a beneficiary of any Letter of Credit or the proceeds thereof; or any consequences arising from causes beyond the control of Lender.  Lender shall not be liable to Borrowers or other Person for any action taken or omitted to be taken in connection with any Letter of Credit or LC Documents except as a result of its gross negligence or willful misconduct.  Lender shall be fully subrogated to the rights and remedies of each beneficiary whose claims against Borrowers are discharged with proceeds of any Letter of Credit.

(d)          In connection with its administration of and enforcement of rights or remedies under any Letters of Credit or LC Documents, Lender shall be entitled to act, and shall be fully protected in acting, upon any certification, documentation or communication in whatever form believed by Lender, in good faith, to be genuine and correct and to have been signed, sent or made by a proper Person.

2.2.2.          Reimbursement.  If Lender honors any request for payment under a Letter of Credit, Borrowers shall pay to Lender, on the same day (“Reimbursement Date”), the amount paid under such Letter of Credit, together with interest at the interest rate for Revolver Loans from the Reimbursement Date until payment by Borrowers.  The obligation of Borrowers to reimburse Lender for any payment made under a Letter of Credit shall be absolute, unconditional, irrevocable,  and shall be paid without regard to any lack of validity or enforceability of any Letter of Credit or the existence of any claim, setoff, defense or other right that Borrowers may have at any time against the beneficiary.  Whether or not Borrower Agent submits a Notice of Borrowing, Borrowers shall be deemed to have requested a Borrowing of Revolver Loans in an amount necessary to pay all amounts due on any Reimbursement Date.

2.2.3.          Cash Collateral.  If at any time (a) an Event of Default exists, (b) the Commitment Termination Date has occurred, or (c) the Revolver Termination Date is scheduled to occur within 20 Business Days, then Borrowers shall, at Lender's request, Cash Collateralize all outstanding Letters of Credit.  If Borrowers fails to provide any Cash Collateral as required hereunder, Lender may advance, as Revolver Loans, the amount of Cash Collateral required.

(a)          The Obligations shall bear interest at LIBOR in effect from time to time, plus the Applicable Margin.

(b)          During any Event of Default, Obligations shall bear interest at the Default Rate (whether before or after any judgment).  Borrowers acknowledge that the cost and expense to Lender due to an Event of Default are difficult to ascertain and that the Default Rate is fair and reasonable compensation for this.

(c)          Interest shall accrue from the date a Loan is advanced or Obligation is incurred or payable, until paid in full.  Interest accrued on the Loans shall be due and payable in arrears, (i) on the first day of each month; (ii) on any date of prepayment, with respect to the principal amount of Loans being prepaid; and (iii) on the Commitment Termination Date.  Interest accrued on any other Obligations shall be due and payable as provided in the Loan Documents and, if no payment date is specified, shall be due and payable on demand.  Notwithstanding the foregoing, interest accrued at the Default Rate shall be due and payable on demand.

3.1.2.          Interest Rate Not Ascertainable.  If, due to any circumstance affecting the London interbank market, Lender determines that adequate and fair means do not exist for ascertaining LIBOR on any applicable date then Lender shall immediately notify Borrowers of such determination.  Until Lender notifies Borrowers that such circumstance no longer exists, the obligation of Lender to make Loans based upon LIBOR shall be suspended and no further Loans may be requested, made or continued based upon LIBOR, and all outstanding Loans and any Loans thereafter made by Lender shall bear interest at the Base Rate plus the Applicable Margin less 1.00%.

3.2.          Fees.

3.2.1.          Unused Line Fee.  Borrowers shall pay to Lender a fee equal to the Unused Line Fee Rate times the amount by which the Maximum Revolver Amount exceeds the average daily Revolver Usage during any month.  Such fee shall be payable in arrears, on the first day of each month and on the Commitment Termination Date.

3.2.2.          LC Facility Fees.  Borrowers shall pay to Lender (a) a fee equal to the Applicable Margin in effect for Revolver Loans times the average daily Stated Amount of Letters of Credit, which fee shall be payable monthly in arrears, on the first day of each month; (b) a fronting fee equal to 0.125% per annum on the Stated Amount of each Letter of Credit, which fee shall be payable monthly in arrears, on the first day of each month; and (c) all customary charges associated with the issuance, amending, negotiating, payment, processing, transfer and administration of Letters of Credit, which charges shall be paid as and when incurred.  During an Event of Default, the fee payable under clause (a) shall be increased by 2% per annum.

3.2.3.          Closing Fee.  On the Closing Date, Borrowers shall pay to Lender a closing fee of $112,500.

3.2.4.          Administrative Fee.  On the Closing Date and on each anniversary thereof, Borrowers shall pay to Lender an administrative fee of $7,500.

3.3.          Computation of Interest, Fees, Yield Protection.  All interest, as well as fees and other charges calculated on a per annum basis, shall be computed for the actual days elapsed, based on a year of 360 days.  All fees payable under Section 3.2 are compensation for services and are not, and shall not be deemed to be, interest or any other charge for the use, forbearance or detention of money.  A certificate as to amounts payable by Borrowers under Section 3.4, or 3.7 submitted to Borrower Agent shall be final, conclusive and binding for all purposes, absent manifest error, and Borrowers shall pay such amounts to Lender within 10 days following receipt of the certificate.

(a)          impose modify or deem applicable any reserve, liquidity, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, Lender (except any reserve requirement reflected in calculating LIBOR);

(b)          subject Lender to any taxes with respect to any Loan, Letter of Credit, Commitment or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or

(c)          impose on Lender or any interbank market any other condition, cost or expense affecting any Loan, Letter of Credit, Commitment or Loan Document;

and the result thereof shall be to increase the cost to Lender of making or maintaining any Loan or Commitment, or converting to or continuing any interest option for a Loan, or to increase the cost to Lender of issuing or maintaining any Letter of Credit (or of maintaining its obligation to issue a Letter of Credit), or to reduce the amount of any sum received or receivable by Lender hereunder (whether of principal, interest or any other amount) then, upon request by Lender, Borrowers will pay to Lender such additional amount(s) as will compensate it for the additional costs incurred or reduction suffered.

(b)          Unless payment is otherwise made by Borrowers, the becoming due of any Obligation (whether principal, interest, fees, costs, expenses or other charges, including LC Obligations, Cash Collateral and Bank Product Debt) shall be deemed to be a request for a Revolver Loan on the due date in the amount due and the Loan proceeds shall be disbursed as direct payment of such Obligation.  In addition, Lender may, at its option, charge such amount against any operating, investment or other account of a Borrower maintained with Lender or any of its Affiliates.

(c)          Presentation for payment of any Payment Item in any disbursement account of Borrowers maintained with Lender when there are insufficient funds to cover it shall be deemed to be a request for a Revolver Loan on the presentation date, in the amount of the Payment Item.  Proceeds of the Loan may be disbursed directly to the account.

4.1.2.          Notices. Borrowers, through the Borrower Agent, may request and transfer funds based on telephonic or e-mailed instructions to Lender.  Borrower Agent shall confirm each such request by prompt delivery to Lender of a Notice of Borrowing but if it differs materially from the action taken by Lender, the records of Lender shall govern.  Lender shall not have any liability for any loss suffered by a Borrower as a result of Lender acting upon its understanding of telephonic or e-mailed instructions from a person believed in good faith to be a person authorized to give such instructions on a Borrower's behalf.

4.2.          Effect of Termination.  On the Commitment Termination Date, the Obligations shall be immediately due and payable, and each Secured Party may terminate its Bank Products.  Until Full Payment of the Obligations, all undertakings of Borrowers contained in the Loan Documents shall continue, and Lender shall retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents.  Lender shall not be required to terminate its Liens unless it receives Cash Collateral or a written agreement, in each case satisfactory to it, protecting it from dishonor or return of any Payment Item previously applied to the Obligations.  Sections 3.4,  3.7,  5.5, 12.2, this Section, and each indemnity or waiver given by an Obligor in any Loan Document, shall survive Full Payment of the Obligations

4.3.          Borrower Agent. Each Borrower hereby designates Technologies (“Borrower Agent”) as its representative and agent for all purposes under the Loan Documents, including requests for and receipt of Loans and Letters of Credit, delivery or receipt of communications, delivery of Borrowing Base Reports and other information at any time delivered by the Borrowers to Lender, payment of Obligations, requests for waivers, amendments or other accommodations, actions under the Loan Documents (including in respect of compliance with covenants), and all other dealings with Lender. Borrower Agent hereby accepts such appointment. Lender shall be entitled to rely upon, and shall be fully protected in relying upon, any notice or communication (including any Notice of Borrowing) delivered by Borrower Agent on behalf of any Borrower. Lender may give any notice or communication with a Borrower hereunder to Borrower Agent on behalf of such Borrower. Lender shall have the right, in its discretion, to deal exclusively with Borrower Agent for all purposes under the Loan Documents. Each Borrower agrees that any notice, election, communication, delivery, representation, agreement, action, omission or undertaking by Borrower Agent shall be binding upon and enforceable against such Borrower.

4.4.          One Obligation. The Loans, LC Obligations, and other Obligations constitute one general obligation of Borrowers and are secured by Lender’s Lien on all Collateral; provided, however, that Lender shall be deemed to be a creditor of, and the holder of a separate claim against, each Borrower to the extent of any Obligations jointly or severally owed by such Borrower.

SECTION 5.          PAYMENTS

5.1.          General Payment Provisions.  All payments of Obligations shall be made without offset, counterclaim or defense of any kind, free and clear of (and without deduction for) any taxes or other amounts, and in immediately available funds, not later than 12:00 noon on the due date.  Any payment after such time shall be deemed made on the next Business Day.  Borrowers agree that Lender shall have the continuing, exclusive right to apply and reapply payments and proceeds of Collateral against Obligations, in such manner as Lender deems advisable.

5.2.          Repayment of Revolver Loans.  Revolver Loans shall be due and payable in full on the Revolver Termination Date, unless payment is sooner required hereunder.  Revolver Loans may be prepaid from time to time, without penalty or premium.  If an Overadvance exists at any time, Borrowers shall, on the sooner of Lender's demand or the first Business Day after any Borrower has knowledge thereof, repay Revolver Loans in an amount sufficient to reduce Revolver Usage to the Borrowing Base.

5.3.          Reserved.

5.4.          Payment of Other Obligations.  Obligations other than Loans, including LC Obligations, fees, cost and expenses, shall be paid by Borrowers as provided in the Loan Documents or, if no payment date is specified, on demand.

5.5.          Marshaling; Payments Set Aside.  Lender shall have no obligation to marshal any assets in favor of Borrowers or against any Obligations.  If any payment by or on behalf of Borrowers is made to Lender or if Lender exercises a right of setoff, and any of such payment or setoff is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by Lender in its discretion) to be repaid to a trustee, receiver or any other Person, then the Obligation originally intended to be satisfied, and all Liens, rights and remedies relating thereto, shall be revived and continued in full force and effect as if such payment or setoff had not occurred.

5.6.          Application of Payments; Dominion Account.  The ledger balance in the main Dominion Account as of the end of a Business Day shall be applied to the Obligations at the beginning of the next Business Day.  If a credit balance results from such application, it shall not accrue interest in favor of Borrowers and shall be made available to Borrowers as long as no Event of Default exists.  For the purposes of calculating interest, Lender will be deemed to have applied funds deposited to the Dominion Account or otherwise received by Lender one Business Day following the Business Day of deposit to the Dominion Account or receipt by Lender.

5.7.          Account Stated.  Lender shall maintain, in accordance with its customary practices, loan account(s) evidencing the debt of Borrowers hereunder.  Any failure of Lender to record anything in a loan account, or any error in doing so, shall not limit or otherwise affect the obligation of Borrowers to pay any amount owing hereunder.  Entries made in a loan account shall constitute presumptive evidence of the information contained therein and shall be conclusive and binding on Borrowers absent manifest error.

5.8.1.          Joint and Several Liability.  Each Borrower agrees that it is jointly and severally liable for, and absolutely and unconditionally guarantees to Lender the prompt payment and performance of, all Obligations.  Each Borrower agrees that its guaranty obligations hereunder constitute a continuing guaranty of payment and not of collection, that such obligations shall not be discharged until full payment of the Obligations, and that such obligations are absolute and unconditional, irrespective of (a) the genuineness, validity, regularity, enforceability, subordination or any future modification of, or change in, any Obligations or Loan Document, or any other document, instrument or agreement to which any Obligor is or may become a party or be bound; (b) the absence of any action to enforce this Agreement (including this Section) or any other Loan Document, or any waiver, consent or indulgence of any kind by Lender with respect thereto; (c) the existence, value or condition of, or failure to perfect a Lien or to preserve rights against, any security or guaranty for any Obligations or any action, or the absence of any action, by Lender in respect thereof (including the release of any security or guaranty); (d) the insolvency of any Obligor; (e) any election by Lender in an Insolvency Proceeding for the application of Section 1111(b)(2) of the Bankruptcy Code; (f) any borrowing or grant of a Lien by any other Borrower, as debtor-in-possession under Section 364 of the Bankruptcy Code or otherwise; (g) the disallowance of any claims of Lender against any Obligor for the repayment of any Obligations under Section 502 of the Bankruptcy Code or otherwise; or (h) any other action or circumstances that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, except full payment of the Obligations.

(a)          Each Borrower expressly waives all rights that it may have now or in the future under any statute, at common law, in equity or otherwise, to compel Lender to marshal assets or to proceed against any Obligor, other Person or security for the payment or performance of any Obligations before, or as a condition to, proceeding against such Borrower.  Each Borrower waives all defenses available to a surety, guarantor or accommodation co-obligor other than full payment of Obligations and waives, to the maximum extent permitted by law, any right to revoke any guaranty of Obligations as long as it is a Borrower.  It is agreed among each Borrower and Lender that the provisions of this Section 5.8 are of the essence of the transaction contemplated by the Loan Documents and that, but for such provisions, Lender would decline to make Loans and issue Letters of Credit.  Each Borrower acknowledges that its guaranty pursuant to this Section is necessary to the conduct and promotion of its business, and can be expected to benefit such business.

(b)          Lender may, in their discretion, pursue such rights and remedies as they deem appropriate, including realization upon Collateral or any Real Estate by judicial foreclosure or nonjudicial sale or enforcement, without affecting any rights and remedies under this Section 5.11.  If, in taking any action in connection with the exercise of any rights or remedies, Lender shall forfeit any other rights or remedies, including the right to enter a deficiency judgment against any Borrower or other Person, whether because of any applicable laws pertaining to “election of remedies” or otherwise, each Borrower consents to such action and waives any claim based upon it, even if the action may result in loss of any rights of subrogation that any Borrower might otherwise have had.  Any election of remedies that results in denial or impairment of the right of Lender to seek a deficiency judgment against any Borrower shall not impair any other Borrower’s obligation to pay the full amount of the Obligations.  Each Borrower waives all rights and defenses arising out of an election of remedies, such as nonjudicial foreclosure with respect to any security for Obligations, even though that election of remedies destroys such Borrower's rights of subrogation against any other Person.  Lender may bid Obligations, in whole or part, at any foreclosure, trustee or other sale, including any private sale, and the amount of such bid need not be paid by Lender but shall be credited against the Obligations.  The amount of the successful bid at any such sale, whether Lender or any other Person is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral, and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Section 5.8, notwithstanding that any present or future law or court decision may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for such bidding at any such sale.

(b)          If any Borrower makes a payment under this Section 5.11 of any Obligations (other than amounts for which such Borrower is primarily liable) (a “Guarantor Payment”) that, taking into account all other Guarantor Payments previously or concurrently made by any other Borrower, exceeds the amount that such Borrower would otherwise have paid if each Borrower had paid the aggregate Obligations satisfied by such Guarantor Payments in the same proportion that such Borrower's Allocable Amount bore to the total Allocable Amounts of all Borrowers, then such Borrower shall be entitled to receive contribution and indemnification payments from, and to be reimbursed by, each other Borrower for the amount of such excess, ratably based on their respective Allocable Amounts in effect immediately prior to such Guarantor Payment.  The “Allocable Amount” for any Borrower shall be the maximum amount that could then be recovered from such Borrower under this Section 5.11 without rendering such payment voidable under Section 548 of the Bankruptcy Code or under any applicable state fraudulent transfer or conveyance act, or similar statute or common law.

(c)          Section 5.8.3(a) shall not limit the liability of any Borrower to pay or guarantee Loans made directly or indirectly to it (including Loans advanced hereunder to any other Person and then re-loaned or otherwise transferred to, or for the benefit of, such Borrower), LC Obligations relating to Letters of Credit issued to support its business, Obligations in respect of Bank Products incurred to support its business, and all accrued interest, fees, expenses and other related Obligations with respect thereto, for which such Borrower shall be primarily liable for all purposes hereunder.  Lender shall have the right, at any time in their discretion, to condition Loans and Letters of Credit upon a separate calculation of borrowing availability for each Borrower and to restrict the disbursement and use of Loans and Letters of Credit to a Borrower based on that calculation.

5.8.4.          Joint Enterprise.  Each Borrower has requested that Lender make this credit facility available to Borrowers on a combined basis, in order to finance Borrowers’ business most efficiently and economically.  Borrowers’ business is a mutual and collective enterprise, and the successful operation of each Borrower is dependent upon the successful performance of the integrated group.  Borrowers believe that consolidation of their credit facility will enhance the borrowing power of each Borrower and ease administration of the facility, all to their mutual advantage.  Borrowers acknowledge that Lender’s willingness to extend credit and to administer the Collateral on a combined basis hereunder is done solely as an accommodation to Borrowers and at Borrowers’ request.

5.8.5.          Subordination.  Each Borrower hereby subordinates any claims, including any rights at law or in equity to payment, subrogation, reimbursement, exoneration, contribution, indemnification or set off, that it may have at any time against any other Obligor, howsoever arising, to the indefeasible full payment of its Obligations.

(d)          Lender shall have received certificates, in form and substance satisfactory to it, from a knowledgeable senior officer of each Borrower certifying that, after giving effect to the initial Loans and transactions hereunder, (i) such Borrower is solvent; (ii) no Event of Default exists; (iii) the representations and warranties set forth in Section 9 are true and correct; and (iv) such Borrower has complied with all agreements and conditions to be satisfied by it under the Loan Documents.

(e)          Lender shall have received copies of Borrowers’ organizational documents and all resolutions authorizing the execution and delivery of the Loan Documents and any other resolutions adopted with respect to this Agreement, as well as any necessary third party or governmental consents and/or Lien Waivers.

(f)          Lender shall have received copies of the charter documents of Borrowers, certified by the Secretary of State or other appropriate official of Borrowers’ jurisdiction of organization.  Lender shall have received good standing certificates for Borrowers, issued by the Secretary of State or other appropriate official of Borrowers’ jurisdiction of organization and each jurisdiction where Borrowers’ conduct of business or ownership of Property necessitates qualification.

(g)          Lender shall have received copies of policies or certificates of insurance and insurance endorsements for the insurance policies carried by Borrowers, all in compliance with the Loan Documents.

(h)          Lender shall have completed its business, financial and legal due diligence of Borrowers, including completion of its pre-closing appraisals and a roll-forward of its previous field examination, in each instance, with results satisfactory to Lender.  No material adverse change in the financial condition of Borrower or in the quality, quantity or value of any Collateral shall have occurred since December 31, 2016.

(i)          Borrowers shall have paid all fees and expenses to be paid to Lender on the Closing Date.

(j)          Lender shall have received (i) Borrowers’ financial projections demonstrating Borrowers’ ability to comply with Section 10.3 for the term of this Agreement, (ii) Borrowers’ unaudited interim financial statements (which shall be prepared as of a date not more than 30 days prior to the Closing Date), and (iii) a Borrowing Base Report prepared as of March 31, 2017, in each instance, in form and substance satisfactory to Lender in all respects.

(e)          With respect to a Letter of Credit issuance, all LC Conditions shall be satisfied.

 

Each request (or deemed request) by a Borrower for funding of a Loan, issuance of a Letter of Credit, or grant of an accommodation shall constitute a representation by Borrowers that the foregoing conditions are satisfied on the date of such request and on the date of such funding, issuance or grant.  As an additional condition to any funding, issuance or grant, Lender shall have received such other information, documents, instruments and agreements as it deems appropriate.

SECTION 7.          COLLATERAL

7.1.          Grant of Security Interest.  To secure the prompt payment and performance of its Obligations, each Borrower hereby grants to Lender a continuing security interest in and Lien upon all Property of Borrowers, including all of the following Property, whether now owned or hereafter acquired, and wherever located:

(a)          all Accounts;

(b)          all Chattel Paper, including electronic chattel paper;

(c)          all Commercial Tort Claims;

(d)          all Deposit Accounts;

(e)          all Documents;

(f)          all General Intangibles, including intellectual property;

(g)          all Goods, including Inventory, Equipment and fixtures;

(h)          all Instruments;

7.2.2.          Cash Collateral.  Cash Collateral may be invested, at Lender's discretion (and with the consent of Borrower Agent, as long as no Event of Default exists), but Lender shall have no duty to do so, regardless of any agreement or course of dealing with Borrowers, and Lender shall have no responsibility for any investment or loss.  As security for its Obligations, each Borrower hereby grants to Lender a security interest in and Lien upon all Cash Collateral held from time to time and all proceeds thereof, whether held in a Cash Collateral Account or otherwise.  Lender may apply Cash Collateral to the payment of Obligations as they become due, in such order as Lender may elect.  Each Cash Collateral Account and all Cash Collateral shall be under the sole dominion and control of Lender, and no Borrower or other Person shall have any right to any Cash Collateral, until the Full Payment of the Obligations.

 

7.3. Reserved.

7.4.          Other Collateral.

7.4.1.          Commercial Tort Claims.  Borrowers shall promptly notify Lender in writing if any Borrower has a Commercial Tort Claim, and shall take such actions as Lender deems appropriate to subject such claim to a duly perfected, first priority Lien in favor of Lender.

7.4.2.          Certain After-Acquired Collateral.  Borrowers shall promptly notify Lender in writing if, after the Closing Date, any Borrower obtains any interest in any Collateral consisting of Deposit Accounts, Chattel Paper, Documents, Instruments, registered intellectual property, Investment Property or Letter-of-Credit Rights and, upon Lender’s request, shall promptly take such actions as Lender deems appropriate to effect Lender's duly perfected, first priority Lien upon such Collateral, including obtaining any appropriate possession, control agreement or Lien Waiver.  If any Collateral is in the possession of a third party, at Lender's request, Borrowers shall obtain an acknowledgment that such third party holds the Collateral for the benefit of Lender.

7.5.          Limitations.  The Lien on Collateral granted hereunder is given as security only and shall not subject Lender to, or in any way modify, any obligation or liability of Borrowers relating to any Collateral.

7.6.          Further Assurances; Extent of Liens.  All Liens granted to Lender under the Loan Documents are for the benefit of Secured Parties.  Promptly upon request, Borrowers shall deliver such instruments and agreements, and shall take such actions, as Lender deems appropriate under applicable law to evidence or perfect its Lien on any Collateral, or otherwise to give effect to the intent of this Agreement.  Each Borrower authorizes Lender to file any financing statement that describes the Collateral as “all assets” or “all personal property” of Borrowers, or words to similar effect, and ratifies any action taken by Lender before the Closing Date to effect or perfect its Lien on any Collateral.

SECTION 8.          COLLATERAL ADMINISTRATION

8.1.          Borrowing Base Reports.  By the 15^th day of each month, Borrowers shall deliver to Lender a full Borrowing Base Report as of the close of business of the previous month, and at such other times as Lender may request; provided, that, during an Increased Reporting Trigger Period, Borrowers shall deliver to Lender, by the Tuesday of each week, a Borrowing Base Report prepared as of the close of business of the previous week.  All information (including calculation of Availability or Average Daily Availability) in a Borrowing Base Report shall be certified by Borrowers.  Lender may from time to time adjust such report (a) to reflect Lender's reasonable estimate of declines in value of Collateral, due to collections received in the Dominion Account or otherwise; (b) to adjust the advance rates to reflect changes in dilution, quality, mix and other factors affecting Collateral; and (c) to the extent any information or calculation does not comply with this Agreement.

8.2.1.          Records and Schedules of Accounts.  Borrowers shall provide to Lender, on or before the 20^th day of each month, (a) a detailed aged trial balance of all Accounts as of the end of the preceding month, specifying each Account's Account Debtor name and address, amount, and such other information as Lender may reasonably request, including without limitation, invoice date and due date, showing any discount, allowance, credit, authorized return or dispute; and (b) a monthly roll forward report of all Accounts from the previous month.  If Accounts in an aggregate face amount of $50,000 or more cease to be Eligible Accounts, Borrowers shall notify Lender of such occurrence promptly (and in any event within one (1) Business Day) after Borrower has knowledge thereof.

8.2.2.          Account Verification.  Lender shall have the right at any time, in the name of Lender, any designee of Lender or Borrowers, to verify the validity, amount or any other matter relating to any Accounts of Borrowers by mail, telephone or otherwise; provided, that, unless an Event of Default exists, Lender shall perform any such verification only in conjunction with Borrowers.  Borrowers shall cooperate fully with Lender in an effort to facilitate and promptly conclude any such verification process.

8.2.3.          Maintenance of Dominion Account.  Borrowers shall maintain the Dominion Account pursuant to lockbox or other arrangements acceptable to Lender establishing Lender's control over and Lien in the lockbox and the Dominion Account, and requiring immediate deposit of all remittances received in the lockbox to the Dominion Account.

8.2.4.          Proceeds of Collateral.  Borrowers shall request in writing and otherwise take all necessary steps to ensure that all payments on Accounts or otherwise relating to Collateral are made directly to the Dominion Account (or a lockbox relating to the Dominion Account).  If any Borrower or any Subsidiary receives cash or Payment Items with respect to any Collateral, it shall hold same in trust for Lender and promptly (not later than the next Business Day) deposit same into the Dominion Account.

8.3.          Inventory.

8.3.1.          Records and Reports of Inventory.  Each Borrower shall keep accurate and complete records of its Inventory, including costs and daily withdrawals and additions, and shall submit to Lender inventory and reconciliation reports, in form and substance satisfactory to Lender, on or before the 15^th day of each month, and such inventory and reconciliation reports shall be prepared as of the preceding month, which reports shall include a listing of all discontinued Inventory (it being acknowledged and agreed that Lender may, in its discretion, deem such discontinued Inventory to be ineligible for borrowing purposes).  Each Borrower shall conduct a physical inventory at least once per calendar year (and on a more frequent basis if requested by Lender when an Event of Default exists) and periodic cycle counts consistent with historical practices, and shall provide to Lender a report based on each such inventory and count promptly upon completion thereof, together with such supporting information as Lender may request.  Lender may participate in and observe each physical count.

8.3.2.          Returns of Inventory.  No Borrower shall return any Inventory to a supplier, vendor or other Person, whether for cash, credit or otherwise, unless (a) such return is in the ordinary course of business; (b) no Event of Default or Overadvance exists or would result therefrom; (c) Lender is promptly notified of the aggregate Value of all Inventory returned in each month; and (d) any payment received by Borrowers for a return is promptly remitted to Lender for application to the Obligations.

8.3.3.          Acquisition, Sale and Maintenance.  No Borrower shall acquire or accept any Inventory on consignment or approval, and shall take all steps to assure that all Inventory is produced in accordance with applicable law, including the Fair Labor Standards Act of 1938 (the “FLSA”).  No Borrower shall sell any Inventory on consignment or approval or any other basis under which the customer may return or require Borrowers to repurchase such Inventory.  Borrowers shall use, store and maintain all Inventory with reasonable care and caution, in accordance with applicable standards of any insurance and in conformity with all applicable law, and shall make current rent payments (within applicable grace periods provided for in leases) at all locations where any Collateral is located.

8.4.          Equipment.

8.4.1.          Records and Schedules of Equipment.  Each Borrower shall keep accurate and complete records of its Equipment, and shall submit to Lender a current schedule thereof, at the times and in form satisfactory to Lender.  Promptly upon request, Borrowers shall deliver to Lender evidence of their ownership or interests in any Equipment.

8.4.2.          Dispositions of Equipment.  No Borrower shall sell, lease or otherwise dispose of any Equipment, without the prior written consent of Lender, other than  replacement of Equipment that is worn, damaged or obsolete with Equipment of like function and value, if the replacement Equipment is acquired substantially contemporaneously with such disposition and is free of Liens.

8.4.3.          Condition of Equipment.  The Equipment is and will remain in good operating condition and repair, and all necessary replacements and repairs have been and will be made so that the value and operating efficiency of the Equipment is preserved at all times, reasonable wear and tear excepted.  No Borrower shall permit any Equipment to become affixed to real Property unless any landlord or mortgagee delivers a Lien Waiver.

8.5.          Deposit Accounts.  Schedule 8.5 shows all Deposit Accounts maintained by Borrowers, including the Dominion Accounts.  Borrowers shall take all actions necessary to establish Lender's control of each such Deposit Account (other than the Excluded Accounts and an account exclusively used for  payroll, payroll taxes, or employee benefits).  Each Borrower shall be the sole account holder of each of its respective Deposit Accounts and shall not allow any other Person (other than Lender) to have control over a Deposit Account or any Property deposited therein.  No Borrower shall, without prior notice to Lender, open or close a Deposit Account.

8.6.          General Provisions.

 

8.6.1.          Location of Collateral.  All tangible items of Collateral shall at all times be kept by Borrowers at the business locations disclosed in writing to Lender on Schedule 8.6.1, except that Borrowers may (a) make sales or other dispositions of Collateral in the ordinary course of business for fair market value; and (b) move Collateral to another location upon 30 Business Days prior written notice to Lender.

8.6.2.          Insurance of Collateral; Condemnation Proceeds.

(a)          Borrowers shall maintain insurance with respect to the Collateral, covering casualty, hazard, theft, malicious mischief, flood and other risks, in amounts, with endorsements and with insurers satisfactory to Lender.  All proceeds under each policy shall be payable to Lender.  Upon Lender’s request, Borrowers shall deliver to Lender the originals or certified copies of its insurance policies, updated flood plain searches and other information relating to any Borrower’s insurance and insurance policies.  Each policy shall include endorsements satisfactory to Lender.  If any Borrower fails to provide and pay for any insurance, Lender may, at its option, but shall not be required to, procure the insurance and charge Borrowers therefor.

(b)          Any proceeds of insurance (other than proceeds from workers' compensation or D&O insurance) and any awards arising from condemnation of any Collateral shall be paid to Lender and shall be applied to payment of the Revolver Loans, and then to other Obligations.

(c)          If requested by Borrowers in writing within 15 days after Lender's receipt of any insurance proceeds or condemnation awards relating to any loss or destruction of Equipment or Real Estate, Borrowers may use such proceeds or awards to repair or replace such Equipment or Real Estate (and until so used, the proceeds shall be held by Lender as Cash Collateral) as long as (i) no Event of Default exists; (ii) such repair or replacement is promptly undertaken and concluded, in accordance with plans satisfactory to Lender; (iii) replacement buildings are constructed on the sites of the original casualties and are of comparable size, quality and utility to the destroyed buildings; (iv) the repaired or replaced Property is free of Liens, other than Permitted Liens that are not purchase money Liens; (v) Borrowers comply with disbursement procedures for such repair or replacement as Lender may reasonably require; and (vi) the aggregate amount of such proceeds or awards from any single casualty or condemnation does not exceed $50,000.

8.6.3.          Protection of Collateral.  All expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping any Collateral, all taxes or Royalties payable with respect to any Collateral (including any sale thereof), and all other payments required to be made by Lender to any Person to realize upon any Collateral, shall be borne and paid by Borrowers.

8.6.4.          Defense of Title.  Each Borrower shall defend its title to Collateral and Lender's Liens therein against all Persons, claims and demands, except Permitted Liens.

8.7.          Power of Attorney.  Borrower hereby irrevocably constitutes and appoints Lender (and all Persons designated by Lender) as such Borrower's true and lawful attorney (and agent-in-fact) for the purposes provided in this Section.  Lender, or Lender's designee, may, without notice and in either its or a Borrower’s name, but at the cost and expense of Borrowers:

(a)          Endorse Borrowers’ name on any Payment Item or other proceeds of Collateral (including proceeds of insurance) that come into Lender's possession or control; and

(b)          During an Event of Default, (i) notify any Account Debtors of the assignment of their Accounts, demand and enforce payment of Accounts, by legal proceedings or otherwise, and generally exercise any rights and remedies with respect to Accounts; (ii) settle, adjust, modify, compromise, discharge or release any Accounts or other Collateral, or any legal proceedings brought to collect Accounts or Collateral; (iii) sell or assign any Accounts and other Collateral upon such terms, for such amounts and at such times as Lender deems advisable; (iv) collect, liquidate and receive balances in Deposit Accounts or investment accounts, and take control, in any manner, of proceeds of Collateral; (v) endorse any Chattel Paper, Document, Instrument, bill of lading, or other document or agreement relating to any Accounts, Inventory or other Collateral; and (vi) take all other actions as Lender deems appropriate to fulfill Borrowers’ obligations under the Loan Documents.

9.1.3.          Enforceability.  Each Loan Document is a legal, valid and binding obligation of each Borrower, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally.

9.1.4.          Capital Structure.  Schedule 9.1.4 shows, for each Borrower and each Subsidiary, its name, jurisdiction of organization, and for each Borrower (other than, for so long as it is a publicly traded company, Technologies) holders holding at least 5% of its equity or similar ownership interests.  Except as disclosed in writing to Lender on Schedule 9.1.4, in the five years preceding the Closing Date, no Borrower has acquired any substantial assets from any other Person nor been the surviving entity in a merger or combination.

9.1.5.          Title to Properties; Priority of Liens.  Each Borrower and Subsidiary has good and marketable title to (or valid leasehold interests in) all of its Real Estate, and good title to all of its personal Property in each case free of Liens except for Permitted Liens.  Each Borrower has paid and discharged all lawful claims that, if unpaid, could become a Lien on its Properties, other than Permitted Liens.  All Liens of Lender in the Collateral are duly perfected, first priority Liens, subject only to Permitted Liens that are expressly allowed to have priority over Lender’s Liens.

9.1.6.          Accounts.  Each Borrower warrants, with respect to each Account at the time it is shown on any report delivered hereunder, that:

(a)          it is genuine and in all respects what it purports to be;

9.1.7.          Financial Statements.  The consolidated and consolidating balance sheet, and related statements of income, cash flow and shareholders’ equity, of Borrowers and their Subsidiaries that have been and are hereafter delivered to Lender, are prepared in accordance with GAAP, and fairly present the financial positions and results of operations of Borrowers and such Subsidiaries at the dates and for the periods indicated.  All projections delivered from time to time to Lender have been prepared in good faith, based on reasonable assumptions in light of the circumstances at such time.  Since December 31, 2016, there has been no change in the condition, financial or otherwise, of Borrowers or any Subsidiary that could reasonably be expected to have a Material Adverse Effect.  No financial statement delivered to Lender at any time contains any untrue statement of a material fact, nor fails to disclose any material fact necessary to make such statement not materially misleading.  Each Borrower and Subsidiary is solvent.

9.1.8.          Surety Obligations.  No Borrower or Subsidiary is obligated as surety or indemnitor under any bond or other contract that assures payment or performance of any obligation of any Person, except as permitted hereunder.

9.1.9.          Taxes.  Each Borrower and Subsidiary has filed all federal, state and local tax returns and other reports that it is required by law to file, and has paid, or made provision for the payment of, all taxes upon it, its income and its Properties that are due and payable.

9.1.16.          Litigation.  Except as shown on Schedule 9.1.16, there are no proceedings or investigations or any litigation pending or, to any Borrower's knowledge, threatened against Borrower or a Subsidiary or any of their businesses, operations, Properties, prospects or conditions.  Except as disclosed in writing to Lender, no Borrower or Subsidiary has any Commercial Tort Claim.  No Borrower or Subsidiary is in default with respect to any order, injunction or judgment of any governmental authority.

9.1.18.          ERISA.  Except as disclosed in writing to Lender on Schedule 9.1.18:

(a)          Each ERISA Plan is in compliance in all material respects with the applicable provisions of ERISA, the Internal Revenue Code, and other federal and state laws.  “ERISA” means the Employee Income Retirement Security Act of 1974, as amended from time to time.  Capitalized terms used in this Section 9.1.18 and elsewhere in this Agreement have the meanings given to them in ERISA (except as otherwise defined in this Agreement).

(b)          There are no pending or, to the knowledge of any Borrower, threatened claims, actions or lawsuits, or action by any governmental authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect.  There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted in or could reasonably be expected to have a Material Adverse Effect.

(c)          There has been no Reportable Event that might constitute grounds for termination of any Plan by the Pension Benefit Guaranty Corporation (the “PBGC”) or for the appointment by any United States District Court of any trustee to administer any Plan.

9.1.19.          Trade Relations.  There exists no actual or threatened termination, limitation or modification of any business relationship between any Borrower or Subsidiary and any customer or supplier, or any group of customers or suppliers, who individually or in the aggregate are material to the business of such Borrower or Subsidiary.  There exists no condition or circumstance that could reasonably be expected to impair the ability of any Borrower or Subsidiary to conduct its business at any time hereafter in substantially the same manner as conducted on the Closing Date.

9.1.20.          Labor Relations.  Except as set forth on Schedule 9.1.20, no Borrower or Subsidiary is party to or bound by any collective bargaining agreement, management agreement or consulting agreement.  There are no material grievances, disputes or controversies with any union or other organization of such Borrower's or Subsidiary’s employees, or, to Borrowers' knowledge, any asserted or threatened strikes, work stoppages or demands for collective bargaining.

9.1.21.          Payable Practices.  No Borrower or Subsidiary has made any material change in its historical accounts payable practices from those in effect on the Closing Date.

(a)          Permit Lender, subject (except when a Default or Event of Default exists) to reasonable notice and normal business hours, to visit and inspect any Borrower’s or Subsidiary’s Properties, and inspect, audit and make extracts from any Borrower's records, and discuss with its officers, employees, agents, advisors and independent accountants such Borrower's, Subsidiaries’ and their respective Affiliates’ business, financial condition, assets, prospects and results of operations.   Each Borrower acknowledges that all inspections, appraisals and reports are prepared by Lender for its purposes, and no Borrower shall be entitled to rely upon them.

(b)          Reimburse Lender for all its charges, costs and expenses in connection with (i) examinations of Borrowers’ books and records or any other financial or Collateral matters as it deems appropriate, up to (x) one (1) time per Loan Year if no Increased Examination Trigger Period occurs during such Loan Year and (y) two (2) times per Loan Year if an Increased Examination Trigger Period occurs during such Loan Year; and (ii) appraisals of Inventory, up to one (1) time per Loan Year if an Increased Appraisal Trigger Period occurs during such Loan Year; provided, however, that if an examination or appraisal is initiated during an Event of Default, all charges, costs and expenses relating thereto shall be reimbursed by Borrowers without regard to such limits.  Borrowers shall pay Lender's then standard charges for examination activities, including charges for its internal examination and appraisal groups, as well as the charges of any third party used for such purposes.  No Borrowing Base calculation shall include Collateral acquired outside the ordinary course of business.  There shall be no limit to the number of examinations or appraisals conducted by Lender while there exists a Default or Event of Default nor to the number of appraisals that Lender may conduct at its own cost.

(a)          as soon as available, and in any event within 90 days after the close of each Fiscal Year, balance sheets as of the end of such Fiscal Year and the related statements of income, cash flow and stockholders equity on a consolidated and consolidating basis for Borrowers and their Subsidiaries, which consolidated statements shall be audited on standards reasonably satisfactory to Lender (it being acknowledged and agreed that accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the PCAOB shall be satisfactory) by a firm of independent certified public accountants of recognized standing selected by Borrowers and reasonably acceptable to Lender, and shall set forth comparative corresponding figures for the preceding Fiscal Year;

(d)          concurrently with delivery of financial statements under clauses (a), (b), and (c) above, or more frequently if requested by Lender while an Event of Default exists, a Compliance Certificate executed by the an authorized officer of Borrower Agent;

(e)          concurrently with delivery of financial statements under clause (a) above, copies of all management letters and other material reports submitted to Borrowers by their accountants in connection with such financial statements;

(f)          concurrently with delivery of Borrowers’ Borrowing Base Reports delivered pursuant to Section 8.1 above, a listing of Borrowers’ trade payables, specifying the trade creditor and balance due, and a detailed trade payable aging, all in form reasonably satisfactory to Lender;

(g)          not later than 30 days after the end of each Fiscal Year, projections of Borrowers’ consolidated balance sheets, results of operations, cash flow and Availability for the next Fiscal Year, covering a time period acceptable to Lender month by month, and for the next three Fiscal Years, year by year;

(h)          promptly, copies of all 10-Qs, 10-Ks, 8-Ks, and other filings made with the SEC, provided, that, Borrower shall be in compliance with the foregoing requirement if such reports are filed on EDGAR;

(i)          promptly, and in any event within five Business Days after receipt thereof by any Borrower or any Subsidiary thereof, copies of each notice or other correspondence received from any governmental authority (including, without limitation, the SEC (or comparable agency in any applicable non-U.S. jurisdiction)) concerning any proceeding with, or investigation or possible investigation or other inquiry by such governmental authority regarding financial or other operational results of any Borrower or any Subsidiary thereof or any other matter which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; and

(j)          such other reports and information (financial or otherwise) as Lender may request from time to time in connection with any Collateral or any Borrower's, Subsidiary’s, or other Obligor’s financial condition or business.

10.1.5.          Compliance with Laws.  Comply with all laws applicable to the conduct of Borrowers’ business, including ERISA, all environmental laws, FLSA, laws regarding anti-terrorism, and laws regarding collection and payment of taxes, and maintain all governmental approvals necessary to the ownership of its Properties or conduct of its business.  If any environmental contamination or pollution occurs at or on any Properties of any Borrower or Subsidiary, it shall act promptly and diligently to investigate and report to Lender and all appropriate governmental authorities the extent of, and to make appropriate remedial action to eliminate, such contamination or pollution, whether or not directed to do so by any governmental authority.

10.1.6.          Taxes.  Pay and discharge all taxes prior to the date on which they become delinquent or penalties attach.

10.1.7.          Insurance.  In addition to the insurance required hereunder with respect to Collateral, maintain insurance with insurers satisfactory to Lender, (a) with respect to the Properties and business of Borrowers and Subsidiaries of such type, in such amounts, and with such coverages and deductibles as are customary for companies similarly situated; and (b) business interruption insurance in an amount not less than the amount of insurance maintained by Borrowers as of the Closing Date, with deductibles and subject to endorsements and assignments satisfactory to Lender.

 

10.1.8.           Depository Bank.  Maintain Lender as its sole depository bank, including for the maintenance of all operating, collection, disbursement and other deposit accounts and for all Cash Management Services.

10.1.9.          Future Subsidiaries. Promptly notify Lender upon any Person becoming a Subsidiary and cause it to guaranty the Obligations in a manner satisfactory to Lender, and to execute and deliver such documents, joinders, instruments and agreements and to take such other actions as Lender shall require to evidence and perfect a Lien in favor of Lender on all assets of such Person, including delivery of such legal opinions, in form and substance satisfactory to Lender, as it shall deem appropriate.

10.2.4.          Distributions and Stock Repurchase.  Declare or make payment of any distributions, interest or dividend on the stock, Equity Interest or other ownership interests of any Borrower or any Subsidiary or repurchase any stock or other ownership interests from any holder of such ownership interests, except (i) payments in respect of Tax Distributions so long as, prior to and after giving effect to such Tax Distributions, no Default or Event of Default exists or is caused thereby and (ii) payments for other distributions so long as the Restricted Payment Conditions are satisfied.

10.2.5.          Acquisitions and Investments.  (i) Acquire a business, division or substantially all the assets of any Person, (ii) acquire 50% or more of the equity or other ownership interests of any Person or (iii) have existing or make any investment in or make any capital contribution or other transfer of assets to any Person except;

(a) investments existing on the Closing Date and disclosed in writing to Lender;

(b) investments in certificates of deposit;

10.2.13.            Accounting Changes.  Make any material change in accounting treatment or reporting practices, except as required by GAAP and in accordance with Section 1.2; or change its Fiscal Year.

 

10.2.14.            Restrictive Agreements.  Be or become a party to any agreement that conditions or restricts the right of Borrowers to incur or repay the Obligations or to grant Liens on the assets of Borrowers, except (a) in effect on the Closing Date and disclosed in writing to Lender on Schedule 10.2.14; or (b) constituting customary restrictions on assignment in leases and other contracts.

10.2.15.            Hedging Agreements.  Enter into any Hedging Agreement, except to hedge risks arising in the ordinary course of business and not for speculative purposes.

10.2.16.            Conduct of Business.  Engage in any business, other than its business as conducted on the Closing Date and any activities incidental thereto.

10.2.17.            Affiliate Transactions.  Enter into or be party to any transaction with an Affiliate or a Subsidiary except (a) transactions expressly permitted by the Loan Documents; (b) payment of reasonable compensation, benefits and employment incentives to officers and employees for services actually rendered, and payment of customary directors' fees and indemnities; (c) transactions with Affiliates consummated prior to the Closing Date, as shown on Schedule 10.2.17, subject to clause (e) of this Section 10.2.17; (d) transactions with Affiliates in the ordinary course of business consistent with past practices and undertaken in good faith, upon fair and reasonable terms and no less favorable than would be obtained in a comparable arm’s-length transaction with a non-Affiliate; and (e) payments to SG Phoenix Group LLC pursuant to the Agreement referenced in Schedule 10.2.17 so long as prior to and after giving effect to such payments, (i) no Default or Event of Default exists or is caused thereby; and (ii) upon giving pro forma effect to such payment, (i) Borrowers shall have maintained, for the 60 day period immediately preceding such payment, Average Daily Availability of not less than 20% of the Maximum Revolver Amount, (ii) Borrowers shall have, immediately after giving effect to such payment, Availability of not less than 20% of the Maximum Revolver Amount.

10.2.18.            Plans.  Become party to any ERISA Plan, other than any in existence on the Closing Date and disclosed in writing to Lender. Change of Management or Control.  Make any material change in Borrowers’ executive or management personnel, or permit or suffer any change in its direct or indirect capital ownership in each case as existing on the Closing date and disclosed to Lender in writing.

10.3.          Financial Covenants - Fixed Charge Coverage Ratio.  During a Financial Covenant Trigger Period, Borrowers shall maintain a Fixed Charge Coverage Ratio of not less than 1.0 to 1.0, determined as of the last day of the Fiscal Quarter for which financial statements were most recently required to be delivered pursuant to Section 10.1.2(b) and of each Fiscal Quarter thereafter, in each case for the trailing four Fiscal Quarter Period then ended.  Compliance with the foregoing shall be evidenced by delivery of the Compliance Certificate required under Section 10.1.2(d).

SECTION 11.          EVENTS OF DEFAULT; REMEDIES ON DEFAULT

11.1.          Events of Default.  Each of the following shall be an “Event of Default:”

(a)          Any Borrower fails to pay its Obligations when due (whether at stated maturity, on demand, upon acceleration or otherwise);

(b)          Any representation, warranty or other written statement of Borrowers made in connection with any Loan Documents or transactions contemplated thereby is incorrect or misleading in any material respect when given;

(c)          A Borrower breaches or fails to perform any covenant contained in this Agreement or any Loan Documents;

(d)          Any breach or default of Borrowers occurs under (i) any Hedging Agreement; or (ii) any License, instrument or agreement to which it is a party or by which it or any of its Properties is bound;

(e)          Any judgment or order for the payment of money is entered against Borrowers in an amount that exceeds, individually or cumulatively with all unsatisfied judgments or orders against all Borrowers, $50,000 (net of insurance coverage therefor that has not been denied by the insurer), unless a stay of enforcement of such judgment or order is in effect;

(f)          A loss, theft, damage or destruction occurs with respect to any Collateral if the amount not covered by insurance exceeds $150,000;

(g)          Any Borrower is enjoined, restrained or in any way prevented by any governmental authority from conducting any material part of its business; any Borrower suffers the loss, revocation or termination of any material license, permit, lease or agreement necessary to its business; there is a cessation of any material part of such Borrower’s business for a material period of time; any material Collateral or Property of any Borrower is taken or impaired through condemnation; any Borrower agrees to or commences any liquidation, dissolution or winding up of its affairs; or Borrowers are not solvent;

(h)          An insolvency or bankruptcy proceeding is commenced by any Borrower; any Borrower makes an offer of settlement, extension or composition to its unsecured creditors generally; a trustee is appointed to take possession of any substantial Property of or to operate any of the business of any Borrower; or an insolvency or bankruptcy proceeding is commenced against any Borrower and:  any Borrower consents to institution of the proceeding, the petition commencing the proceeding is not timely contested by such Borrower, or an order for relief is entered in the proceeding;

(i)          A violation of ERISA occurs that has resulted or could reasonably be expected to result in liability of Borrowers to a Plan or PBGC, or that constitutes grounds for appointment of a trustee for or termination by the PBGC of any Plan; or Borrowers fail to pay when due any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan, as defined in ERISA;

(j)          Any Borrower or any of its senior officers is criminally indicted or convicted for (i) a felony committed in the conduct of such Borrower’s business, or (ii) violating any state or federal law (including the Controlled Substances Act, Money Laundering Control Act of 1986 and Illegal Exportation of War Materials Act) that could lead to forfeiture of any material Property or any Collateral;

(k)          A Change of Control occurs; or

(l)          Any event occurs or condition exists that has a Material Adverse Effect.

(c)          require Borrowers to Cash Collateralize all LC Obligations, Bank Product Debt and other Obligations that are contingent or not yet due and payable, and if Borrowers fail to deposit such Cash Collateral, Lender may advance the required Cash Collateral as Revolver Loans; and

 

(d)          exercise any other rights or remedies afforded under any agreement, by law, at equity or otherwise, including the rights and remedies of a secured party under the UCC.  Such rights and remedies include the rights to (i) take possession of any Collateral; (ii) require Borrowers to assemble Collateral, at Borrowers’ expense, and make it available to Lender at a place designated by Lender; (iii) enter any premises where Collateral is located and store Collateral on such premises until sold (and if the premises are owned or leased by Borrowers, Borrowers agree not to charge for such storage); and (iv) sell or otherwise dispose of any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale, with such notice as may be required by applicable law, in lots or in bulk, at such locations, all as Lender, in its discretion, deems advisable.  Borrowers agree that 10 days’ notice of any proposed sale or other disposition of Collateral by Lender shall be reasonable, and that any sale conducted on the internet or to a licensor of intellectual property shall be commercially reasonable.  Lender may conduct sales on Borrowers’ premises, without charge, and any sales may be adjourned from time to time in accordance with applicable law.  Lender shall have the right to sell, lease or otherwise dispose of any Collateral for cash, credit or any combination thereof, and Lender may purchase any Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of the purchase price, may set off the amount of such price against the Obligations.

11.3.          License.  Lender is hereby granted an irrevocable, non-exclusive license or other right to use, license or sub-license (without payment of royalty or other compensation to any Person) any or all intellectual property of Borrowers, computer hardware and software, trade secrets, brochures, customer lists, promotional and advertising materials, labels, packaging materials and other Property, in advertising for sale, marketing, selling, collecting, completing manufacture of, or otherwise exercising any rights or remedies with respect to, any Collateral.  Each Borrower’s rights and interests under intellectual property shall inure to Lender's benefit.

11.4.          Setoff.  At any time during an Event of Default, Lender and its Affiliates are authorized, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations at any time owing by Lender or such Affiliate to or for the credit or the account of Borrowers against its Obligations, whether or not Lender or such Affiliate shall have made any demand under this Agreement or any other Loan Document and although such Obligations may be contingent or unmatured or are owed to a branch or office of Lender or such Affiliate different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of Lender and each such Affiliate under this Section are in addition to other rights and remedies (including other rights of setoff) that such Person may have.

12.1.          Amendments and Waivers.

12.1.1.          Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of Borrowers, Lender, and their respective successors and assigns, except that Borrowers shall not have the right to assign its rights or delegate its obligations under any Loan Documents.

12.1.2.          Amendments and Other Modifications.  No modification of any Loan Document, including any extension or amendment of a Loan Document or any waiver of an Event of Default, shall be effective without the prior written agreement of Lender and Borrowers; provided, however, that only the consent of the parties to a Bank Product agreement shall be required for any modification of such agreement.  Any waiver or consent granted by Lender shall be effective only if in writing, and only for the matter specified.

12.2.          Indemnity.  EACH BORROWER SHALL INDEMNIFY AND HOLD HARMLESS LENDER, EACH OTHER SECURED PARTY AND THEIR OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES, AGENTS AND ATTORNEYS (THE “INDEMNITEES”) AGAINST ANY CLAIMS THAT MAY BE INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE, INCLUDING CLAIMS ASSERTED BY BORROWERS OR ANY OTHER PERSON OR ARISING FROM THE NEGLIGENCE OF AN INDEMNITEE.  In no event shall any party to a Loan Document have any obligation thereunder to indemnify or hold harmless an Indemnitee with respect to a Claim that is determined in a final, non-appealable judgment by a court of competent jurisdiction to result from the gross negligence or willful misconduct of such Indemnitee.

12.3.          Notices and Communications.

12.3.1.          Notice Address.  All notices and other communications by or to a party hereto shall be in writing and shall be given to Borrowers at Borrower Agent’s address shown on the signature pages hereof, and to any other Person at its address shown on the signature pages hereof, or at such other address as a party may hereafter specify by notice in accordance with this Section 12.3.  Each communication shall be effective only (a) if given by facsimile transmission, when transmitted to the applicable facsimile number, if confirmation of receipt is received; (b) if given by mail, three Business Days after deposit in the U.S. mail, with first-class postage pre-paid, addressed to the applicable address; (c) if given by personal delivery, when duly delivered to the notice address with receipt acknowledged.  Notwithstanding the foregoing, no notice to Lender shall be effective until actually received by the individual to whose attention at Lender such notice is required to be sent; or (d) if given by overnight commercial service, upon receipt as evidenced by written confirmation of receipt from the overnight service.  Any written communication that is not sent in conformity with the foregoing provisions shall nevertheless be effective on the date actually received by the noticed party.  Any notice received by Borrower Agent shall be deemed received by all Borrowers.

12.3.2.          Communications.  Electronic communications (including e-mail, messaging  and websites) may be used only in a manner acceptable to Lender and only for routine communications, such as delivery of financial statements, Borrowing Base Reports and other information required by Section 10.1.2, and administrative matters.  Lender make no assurances as to the privacy and security of electronic communications.  E-mail and voice mail shall not be effective notices under the Loan Documents.

12.3.3.          Platform.  Borrowing Base information, reports, financial statements, materials and other information shall be delivered by Borrowers pursuant to procedures approved by Lender, including electronic delivery (if possible) upon request by Lender to an electronic system maintained by it (“Platform”).  Borrowers shall notify Lender of each posting of information on the Platform, and information shall be deemed received by Lender only upon its receipt of such notice.  The Platform is provided “as is” and “as available.”  Lender does not warrant the adequacy or functioning of the Platform, and expressly disclaims liability for any issues involving the Platform.  NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS, OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY LENDER WITH RESPECT TO THE PLATFORM.  No Indemnitee shall have any liability to Borrowers or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) relating to use by any Person of the Platform, including any unintended recipient, nor for delivery of any information via the Platform, internet, e-mail, or any other electronic platform or messaging system.

12.3.4.          Non-Conforming Communications.  Lender may rely upon any communications purportedly given by or on behalf of any Borrower even if they were not made in a manner specified herein, were incomplete or were not confirmed, or if the terms thereof, as understood by the recipient, varied from a later confirmation.  Each Borrower shall indemnify and hold harmless each Indemnitee from any liabilities, losses, costs and expenses arising from any electronic or telephonic communication purportedly given by or on behalf of a Borrower.

12.4.          Performance of Borrowers’ Obligations.  Lender may, in its discretion at any time and from time to time, at Borrowers’ expense, pay any amount or do any act required of Borrowers under any Loan Documents or otherwise lawfully requested by Lender to (a) enforce any Loan Documents or collect any Obligations; (b) protect, insure, maintain or realize upon any Collateral; or (c) defend or maintain the validity or priority of Lender's Liens in any Collateral, including any payment of a Royalty, judgment, insurance premium, warehouse charge, finishing or processing charge, or landlord claim, or any discharge of a Lien.  All payments, costs, fees and expenses of Lender under this Section shall be reimbursed by Borrowers, on demand, with interest from the date incurred until paid in full, at the Default Rate.  Any payment made or action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default or to exercise any other rights or remedies under the Loan Documents.

12.10.          No Control; No Fiduciary Responsibility.  Nothing in any Loan Document and no action of Lender pursuant to any Loan Document shall be deemed to constitute control of Borrowers by Lender, and Lender has no fiduciary, agency or similar duty of any kind to Borrowers.  In connection with all aspects of each transaction contemplated by any Loan Document, Borrowers acknowledge and agree that (i) this credit facility and all related services by Lender or its Affiliates are arm's-length commercial transactions between Borrowers and such Person; and (ii) Borrowers are capable of evaluating, and understand and accept, the terms, risks and conditions of the transactions contemplated by the Loan Documents.

12.11.          Waiver of Confidentiality.  Borrowers authorize Lender to discuss Borrowers’ financial affairs and business operations with any accountants, auditors, business consultants, or other professional advisors employed by Borrowers, and Borrowers authorize such parties to disclose to Lender such financial and business information or reports (including management letters) concerning Borrowers as Lender may request.

12.16.          NO ORAL AGREEMENT.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.

IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date set forth above.